Lower interest rates are unlikely to provide an immediate boost to a softening housing market, CoreLogic economists say, as new data shows national property values falling for the sixth consecutive month in August.
The data provider’s latest Home Value Index revealed a 0.5% decline in national house values last month, bringing the total fall since February to 3.7% or about $31,100.
The median value across all housing stock now sits at $811,583 — about 17% above pre-pandemic levels, but also 17% lower than at the last peak in January 2022.
Last month, the Reserve Bank dropped the official cash rate for the first time in years with a 25 basis point cut, boosting optimism that inflation was being tamed.
CoreLogic chief property economist Kelvin Davidson said the change would have had a positive effect on sentiment, as well as a direct boost to borrowers’ finances.
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“No doubt many households will be feeling happier now that the official cash rate is falling and mortgage rates are headed lower too,” the economist said.
“Yet the latest, actual fall in values is a timely reminder that the market still faces considerable challenges.”
Values declined in all main centres except Christchurch in August, with Auckland dropping 1% to a median of $1,070,494. Hamilton fell 0.8%, while Tauranga, Dunedin and Wellington saw more modest decreases of less than 0.5%.
Davidson explained several factors were behind the sluggish market.
“For a start, housing affordability is still stretched, while at the same time the labour market downturn is fully underway,” he said.
“Even if people haven’t lost their jobs, the increased feelings of insecurity will still tend to flow through to less enthusiasm to trade property or pay top-dollar.
“It’s also clear that the bargaining power lies with buyers in a market where the stock of available listings is sitting at multi-year highs. But that’s still only for the more limited pool of buyers who can actually secure the finance.
“This all adds up to likely further restraint on property values in the coming months, although the potential impact of lower mortgage rates can’t be ignored.”
Debt-to-income ratio caps, unemployment factors in
Davidson suggested people looking at the market shouldn’t get “unduly pessimistic” about how rising unemployment will affect housing.
“Nobody is expecting employment to absolutely crash. Although a rise in the jobless numbers is never pleasant and will also tend to dampen house sales and prices, further significant falls may not necessarily eventuate,” he said.
“That said, a fresh property boom is not our central expectation either.”
He noted formal debt-to-income (DTI) ratio limits could start to meaningfully affect the market once loan rates fall to around 5.5% or lower, potentially by mid-2025 or sooner.
“One major change from previous cycles is that we now have formal limits on DTIs, and although they’re not binding yet, there will be a meaningful effect down the track, even once you account for the 20% speed limit and the exemption for new-build properties.
“Our ballpark estimate is that mortgage rates of around 5.5% or less will be low enough for the impact of the DTI rules to become more noticeable in terms of keeping loan sizes lower than people might have been expecting.”
