ANZ Property Focus Report Highlights Economic Headwinds
House prices are broadly flat across the country while drifting lower in Auckland and Wellington, according to the latest ANZ Property Focus report. ANZ economists state that housing values are facing significant headwinds from rising interest rates, election uncertainty, and the potential for new housing taxes if there is a change in government. A gradually improving economy provides some offsetting support, but rising interest rates remain the most important headwind for buyers.
Shorter-term wholesale interest rates, such as the one-year swap rate, have edged upwards throughout the year as OCR hikes approach. ANZ expects the OCR to be lifted to 3 percent over the next two reviews. Furthermore, longer-term interest rates face pressure from overseas markets as global interest rates drift upward. At current levels, interest rates provide little support for house prices.
Did you know? Net rental yields remain relatively low by historical standards compared with current mortgage rates, suggesting that the cost of financing and owning a home is still high relative to the rental income it generates for investors or the housing services it provides for owner-occupiers, according to ANZ economists.
Weighing Fixed Mortgage Rates and Term Choices
All fixed mortgage rates except the four- and five-year terms rose over the month, reducing the appeal of shorter-term fixes according to the bank’s analysis. Borrowers facing new mortgages or rollovers must carefully evaluate their options. The math has become more important as shorter-term rates tick upward, though there is not a lot separating two-year rates and longer terms.
Borrowers prioritizing certainty can access it without paying a substantial premium over two-year rates, which most banks roughly charge at 5.5 percent. However, ANZ economists note that longer-term fixes will only pay off if the OCR averages 3.5 percent or higher over the relevant period. While the bank pencils in a 3 percent peak in the OCR with risks skewed higher, they view 3.5 percent as a relatively high bar to clear amid ongoing oil market volatility and global uncertainty.
Pro Tip: When comparing fixed terms, evaluate cheaper alternatives like the one-year rate. The six-month rate sits only about two basis points below the one-year average, meaning a small four basis point increase would make rolling two six-month fixes more expensive than a single one-year term, given projected OCR hikes.
Frequently Asked Questions
What are ANZ economists predicting for house prices?
ANZ expects house prices to end the year 1 percent below where they started and to rise 2 percent next year, weighed down by rising interest rates, election uncertainty, and potential housing tax changes.
Why are shorter-term fixed mortgage rates becoming less appealing?
According to ANZ, all fixed mortgage rates except the four- and five-year terms rose over the past month. With shorter-term rates edging higher ahead of anticipated OCR hikes, borrowers must weigh the cost of certainty against back-to-back short-term fixes.
When do longer-term fixed mortgage rates pay off?
Longer-term fixes typically sit around 2 percentage points above long-term market expectations for the OCR, meaning they generally only pay off if the OCR averages 3.5 percent or higher over the relevant period.
What is your strategy for navigating current mortgage rates and property market headwinds? Share your thoughts in the comments below or subscribe to our newsletter for regular housing market updates.
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