There's tentative confidence the current downturn in the property market is winding up, according to the latest CoreLogic House Price Index.
The report, released today, found while property values across the country continued to fall 0.7% in May, the annual rate of change has eased.
Nationally, average values are 10.2% lower than the same month last year and $121,000 below their peak. However, the figure is still $194,000 higher than pre-Covid levels in March 2020, with the annual rate of change easing slightly from -10.3% in April.
CoreLogic NZ's head of research Nick Goodall said there are positive signs for homeowners on the horizon.
"Amid a stabilisation in the cash rate, slightly loosened loan-to-value ratio limits, reduced supply with fewer people listing their property for sale, strong net migration and a positive turn in Australia's housing market, there's confidence that the bottom is approaching," Goodall said.
"Affordability, hindered by high prices and contractionary monetary policy will likely keep a lid on demand for the foreseeable future. More than 50% of the average income is required to service an 80% LVR mortgage in Aotearoa compared to 43% in Australia and if property values and interest rates now start to plateau, this is unlikely to improve."
He said while the OCR is "at a relatively high level of 5.5% following a total increase of 525 basis points over the last 20 months", the "expected ceiling for interest rates reinforces our view that a possible floor in prices is approaching".
"This has been an exceptionally fast and impactful monetary policy tightening cycle and the RBNZ has effectively said now is the time to pause, and wait and see how this plays out, as mortgage holders continue to adjust to increased mortgage payments, reducing spending elsewhere in the economy."
Goodall suggests a peak in the cash rate, at least in the short term, will help provide a bit more comfort and certainty to the borrowers of almost 50% of existing loans by value, who are part of the wave due to roll off current interest terms within the next year.
"Mortgage holders and aspiring homeowners should now be able to quantify the worst-case scenario for their mortgage repayments which will give both them and their bank confidence in assessing serviceability test rates," he said.
High inflation rates are hitting household budgets hard. (Source: 1News)
In addition, almost 45% of mortgage holders were ahead of their repayments at the end of last year, the New Zealand Bankers Association reported. That's despite New Zealand credit bureau Centrix observing a lift in mortgage arrears to 1.31% in March — up from the recent low of 0.94% at the end of 2021.
This is consistent with estimates from mortgage advisors that through the period of falling interest rates, roughly half of all borrowers opted to keep their repayments at the same level as their old schedule when refixing at lower rates.
"It seems the majority of borrowers are well placed to adjust to the higher repayments likely due to growth in wages and reduced spending elsewhere," Goodall said.
"More vulnerable sectors are likely to include first home buyers who purchased around the peak of the cycle who haven't had the benefit of time to accrue equity in their home or a savings buffer, along with lower income households where balance sheets are likely to be more thinly stretched."
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