Mortgage advisers say after the huge uptick in business at the end of last year when banks were offering a 1.5% cashback on new mortgages and a record $14 billion was lent, the sink in inquiry level from first home buyers and existing homeowners has been clear.
Even the RBNZ holding the OCR at 2.25% this week while choosing to “see through” short term inflation shocks is not going to make much difference, David Green, adviceHQ director and mortgage adviser says.
“Real estate agents say the market has stalled and there are not as many people at open homes and in the auction rooms.”
Property market reverses
Economist Tony Alexander’s real estate agents survey released last week shows for the third time since early 2023 an upturn in the residential market has paused and then gone into reverse.
Agents indicated a big decline in open home attendance over the past month as people have grown concerned about the impact of soaring oil prices.
The net proportion of agents seeing more people at open homes has fallen to -35% from +23% late in February and a high and healthy +55% late in January.
In the auction rooms properties were selling well until recently and the net proportion of agents saying they are seeing more people showing up at auctions has fallen to –27% from a small 11% positive last month.
The -27% result is the weakest since June 2024’s survey when the economy was in the middle of shrinking 2%.
“People are backing away from making some major decisions as they are worried about employment and interest rates,” Alexander says.
Test rates rise
Green says as loan affordability is near its peak, right on cue banks have increased their bank servicing test rates, meaning for the same income, expenses and deposit the amount people can borrow has dropped.
The two-year wholesale rate, which is the key increase driver for longer-term interest rates, rose from 2.62% on 3 March to 2.91% yesterday and that is flowing through. “People notice that in the retail rates banks are offering and it is creating uncertainty to the extent clients are wondering whether we are in another Covid situation,” he says.
“I don’t think we are, particularly as the number of properties for sale are at an 11-year high, but people are pausing their plans to see what happens.
However, he says the smart people can see through this shock and see it as an opportunity. If there are fewer people looking to buy property, they can create opportunities for themselves."
“The upside is interest rates and bank test rates are still below long-term averages, so there is a window for homeowners to review their mortgage position and consider restructuring or refinancing while options remain available.
“During previous rate peaks, many borrowers became “mortgage prisoners” unable to refinance or restructure because they no longer met bank servicing criteria, even on their existing lending.
“With the average New Zealand mortgage now approaching $600,000, borrowers may be eligible for cash contributions of about $5,000,” Green says.
Hurting confidence
The mortgage business for Kris Pedersen hasn’t fallen off the cliff but it has definitely slowed down since the US and Israel launched the war against Iran.
He says the school holidays have an effect and it is also the end of the summer selling season.
“The oil price shock is hurting confidence and we have had a lot more customers who are definitely concerned about interest rate trends, all that type of stuff.
“While the actual war might not be the first topic of conversation, fuel prices are very real to people as is the potential effect of monetary policy on interest rates, even though the RBNZ is keeping the OCR as its existing level.”
Pedersen says there are numerous businesses which have only just got through the recession who don't have much in the way of spare cash and they're probably not equipped to basically go through another recession.” The flow into confidence overall can be quite hard.”
Property prices have also started dipping again and there is probably an expectation they will start rising once the war has ended, but it will take a while for fuel, supply chains and logistics to be running smoothly again and then we come up against this country’s general election. The property market often dies for a few months prior to an election.”
Pedersen’s business deals mainly with investors and he says buying sentiment in Auckland and Wellington is negative.
“The South Island is like being in a different country – it is buoyant with an economy doing way better than Auckland, which in previous property cycles tended to go first and the rest of the country followed.
This time around it has been reversed with investors heading for the regions – for example, Rotorua and Invercargill – where cashflow is far better particularly on multi-unit properties ranging from $350,000 up to $1 million.
He says there is a return to “old school investing” where investors are buying rundown properties, sprucing them up, adding extra rooms if space is available and getting a good rental return. New builds have been put on the back burner. “We are not seeing many people doing a first home new build.”
Obtaining finance is still reasonably easy, although Pedersen says his business still puts through the occasional application to a non-bank lender because the major banks can’t fund a development under their regulations.
Pre-approved buyers
Whangarei based Key Mortgages director Jeremy Andrews says clients who are pre-approved are still motivated buy a house quickly.
“It might be a little bit of that same kind of Covid feeling when people were thinking ‘well it's hard to travel, if we're not going to do that let's put our spare savings into buying a house or paying down our mortgage’.”
He says while people can travel during this oil shock, it is the cost of fuel that it is putting them off. “A lot of people are maybe thinking they might as well renovate their house or buy an electric vehicle at low interest rates and inquiry for loans to do that have picked up significantly.”
For bigger decisions Andrews says most people are taking a wait and see approach on how the Iran war impacts oil prices and the economy long-term.
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