LJ Hooker says the Reserve Bank of New Zealand’s decision to lift the Official Cash Rate by 25 basis points to 2.75% will reinforce the caution already evident in the housing market, but is unlikely to bring activity to a halt.
LJ Hooker Head of Research Mathew Tiller said the increase had been widely expected, with mortgage rates already moving higher in recent weeks.
“Some of today’s increase may already be reflected in borrowing costs. However, many households will still need to reassess their repayments and borrowing capacity as their fixed mortgage terms expire,” Tiller said.
“The housing market was already subdued before today’s decision. Cotality recorded 6,935 property sales across New Zealand in July, down 6.4% from a year earlier. This was the seventh consecutive annual fall in sales, showing buyers and sellers are still taking their time.”
Property values fell 1.0% over the three months to July and were 0.7% lower than a year ago. Auckland and Wellington remained softer, while Christchurch and some of the more affordable regional markets continued to show greater resilience.
Tiller said enquiry across the LJ Hooker network remained healthy, with encouraging attendance at open homes.
“Buyers are active, but they are also selective. They are comparing more properties, carrying out more due diligence and focusing heavily on value before making an offer,” he said.
“Today’s increase is likely to reinforce that behaviour rather than stop the market. Some buyers may reduce their budget, while others will take more time to understand what higher rates mean for their repayments. Finance and building conditions are likely to remain common and negotiations may take longer.”
The volume of property available would continue to shape market conditions. More than 27,000 homes were listed for sale in early August, which remained high for that time of year. With the spring selling season starting, buyers would retain much of the negotiating power if listings rose faster than sales.
First home buyers remained a key part of the market, accounting for a record 29.0% of purchases in July. Tiller said they were benefiting from lower values and greater choice, although higher borrowing costs made careful budgeting even more important.
LJ Hooker Head of Network New Zealand Allaine Burkett said the likelihood of further OCR increases would keep affordability front of mind, but buyers were also entering a market offering greater choice and better value than in recent years.
“Further OCR increases remain possible as the Reserve Bank works to bring inflation under control. While higher borrowing costs will require careful planning, prices have adjusted significantly from their peak and buyers now have more time and choice,” Burkett said.
“For people with secure finance and a long-term view, the current market can present genuine opportunities. Upsize buyers may be particularly well placed, as the price gap between their existing home and their next property may be more favourable than it was at the height of the market.”
Burkett said first home buyers continued to be a major force in the low-to-mid price range, while lifestyle and holiday-home buyers could also find opportunities in areas such as the Coromandel Peninsula.
“First home buyers are taking advantage of increased choice and the ability to negotiate, provided they stay disciplined about what they can comfortably afford,” she said.
“The same applies to buyers considering a holiday home. On the Coromandel Peninsula, for example, greater choice and less competition may make this a good time to explore the market and secure the right property for the longer term.”
For vendors, Tiller said realistic pricing, strong presentation and responsiveness to market feedback would remain critical.
“Well-presented homes in good locations will continue to attract buyers. Properties that are overpriced or need substantial work are likely to take longer to sell,” he said.
“Housing demand has not disappeared, but buyers will remain cautious while mortgage rates and the economic outlook remain uncertain. The market should continue to move, although price growth is likely to remain modest and conditions will vary considerably between regions, suburbs and price points
“The higher OCR adds another affordability challenge, but it does not bring the property market to a halt. Buyers will still act when the right home is offered at the right price.”