Rate cuts needed to lift mood

The enthusiasm that followed the change in government, mainly from property investors, has waned as homeowners and buyers hang out for interest rate cuts, says Kiwibank.

Wednesday, April 17th 2024

While the government’s housing tax policy changes are a positive, interest rates will play a big role in where the market goes in the next few months.

Kiwibank chief economist Jarrod Kerr says interest rates may rise a little more. And then they may fall, later in the year.

Anecdotes from Kiwibank’s mortgage managers and client base were positive towards the end of last year, he says. 

“Now we’re all waiting. It’s hard to get too excited when the rampant rise in interest rates is still feeding through.”

Kerr expects the market to regain momentum. But it may take a rate cut. And Kiwibank is not expecting one until November.

“Rate cuts are needed to encourage investors to invest, developers to develop, buyers to buy and of course sellers to sell.”

Meanwhile Westpac expects the softness in the housing market to gradually give way to a period of stronger activity, underpinned by a multi-decade high in population growth and a lift in investor sentiment.

However, until the bank sees mortgage rates drop back, the market is likely to remain moribund.

REINZ chief executive Jen Baird says agents are seeing activity among a range of buyer groups, with first home buyers and owner-occupiers moving into bigger homes or downsizing being the most active.

She says this summer the market has returned to a more normal level after being relatively slow and subdued last year.

“Reasons for this will vary; for example some vendors may prefer not to wait any longer and are willing to ‘meet the market’ with their price expectations. Some buyers may want to act now ahead of potential further lifts in sale prices or potential increased competition for properties as upcoming changes bring the bright line test back to two years and the reintroduction of interest deductibility on investment properties are expected to draw some investors back to the market in the next few months.”

Baird says the economic environment with higher interest rates and some uncertainty in the jobs market will mean some buyers remain cautious with prices still off their peaks from a couple of years ago. However most agents are cautiously optimistic market activity will continue to pick up during the cooler months.


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