Homeowners taking a punt on a one-year fixed loan term
Expectation is that rates will fall next year
Most homeowners are expecting interest rates to fall soon. That’s according to analysts CoreLogic, who say a record number of homeowners fixed on oneyear terms in February, suggesting they are betting on possible interest rate falls in the near future.
The homeowners’ positive outlook adds to new data showing inflation has eased to its lowest levels since June 2021, and national house prices were recovering slightly after rising 2 per cent in March.
CoreLogic chief property economist Kelvin Davidson said 56 per cent of new home loans taken out in February were on one-year terms, compared with 36 per cent in December.
The last time one-year terms were so popular was during the Covid pandemic when interest rates were falling to record lows and homeowners fixed short in the hope they could then sign up for even lower rates a year later.
Since late 2021, however, many homeowners instead chose to fix longer due to the fear that fast-rising rates could leave them paying ever higher fees each year.
The recent reversal back to short terms at a time when one-year rates cost more than longer terms, shows homeowners are willing to pay more in the short term in the hope they pay less next year.
“The trend to fix in the short-term reduces the risk of overpaying later, if and when mortgage rates drop,” Davidson said.
Despite homeowners’ vote of confidence that interest rates might have hit their peak, Davidson said the outlook for a fall remains “very uncertain”.
The Reserve Bank chose to keep the official cash rate steady last week at 5.5 per cent.
“Inflation remains a concern and the Reserve Bank doesn’t seem inclined to lower the official cash rate anytime soon,” Davidson said.
“Lower mortgage rates look more likely to occur in 2025 than 2024 at this stage.”
Inflation remains a sticky problem globally but there were positive signs yesterday that its rate of growth has continued to fall.
The latest consumer price index increased 4 per cent in the 12 months to the March 2024 quarter, according to figures released by Stats NZ.
The 4 per cent increase follows a 4.7 per cent increase in the 12 months to the December 2023 quarter.
“Price increases this quarter are the smallest since June 2021. However, they remain above the Reserve Bank of New Zealand’s target range of 1 to 3 per cent,” Stats NZ’s consumer prices senior manager Nicola Growden said.
The Reserve Bank had forecast 3.8 per cent in February but partial data since then had most local economists picking a higher rate.
Westpac economists had expected New Zealand consumer prices to rise 0.8 per cent in the March quarter, with the annual inflation rate dropping to 4.2 per cent.
KiwiBank had also pencilled in 4.2 per cent. ASB had 4.1 per cent and ANZ 4 per cent.
House prices have also inched up with the national median sale price in March up 2.7 per cent from $779,000 to $800,000, year-on-year, according to the Real Estate Institute.
More homes are also being sold, with March’s total property sales up 7.4 per cent compared to February.
CoreLogic’s Davidson said the market was not consistent, however, with some suburbs and regions rising in value and others remaining flat.
Property values in areas such as Wellington and Dunedin have slightly outperformed over the first three months of 2024, but Hamilton and Tauranga have been weaker increasing 0.1 per cent and 0.5 per cent respectively, he said.
“Stretched affordability and high mortgage rates are key challenges for the market. Increased stock levels are also giving buyers more choice and placing downwards pressure on prices, with an increase in new listings each week outweighing still-muted sales activity,” Davidson said.
“The country’s property recovery is best described as underwhelming and I would expect these muted conditions to continue throughout the year,” he said.