What can I expect in 2024?
As we start another year, there are several conflicts still occurring around the world which is unfortunate for anyone with ties to those countries involved. This will continue to have an impact on a number of economies – not just their own.
Inflation is still running at levels that many countries don’t like to see so they will strive to bring this under control, no more so than here in New Zealand.
It was good to see some of the banks easing back on their medium term (2-3 year) rates before Christmas, but this was nothing more than a wee bit of Christmas cheer to gain some free media coverage given very few mortgage holders have been fixing for more than 12-18 months.
These are my top five predictions for 2024:
- Price growth is set to continue – and it’s no surprise! After a subdued market over the last 18 months we expect house prices to continue to rebound in the next year somewhere between 5-10%. The combination of ongoing population growth and a shortage of new dwellings has helped mitigate the impact of rising interest rates. As interest rates approach their peak, it is anticipated that price growth will persist, with major cities experiencing strong gains.
- Interest rates are peaking – what goes up will come down. Inflation remains relatively high, as mentioned above, but is starting to trend down. I believe we are unlikely to see any more interest rate increases this year. If the inflation rates in New Zealand come back with the cost of living dropping then we will see the Reserve Bank start easing the Official Cash Rate (OCR) and interest rates will start reducing. This, in our view, might come a little earlier than predicted by some of the economists. (Possibly by the second or third quarter of this year as opposed to the beginning of 2025 as most have predicted)
- Rent prices are expected to keep rising. It’s not hard to see this trend coming, especially with a change of government and the return of tax deductibility.
- The return of investors to the market – As mentioned above, with the unwinding of the tax rules introduced by the last government will see investors return to the market. As interest rates reduce and rents continue to rise, it will make the investment market more attractive again to Mum and Dad investors who provide a significant number of houses to renters in the New Zealand market.
- Debt-to-income ratios (DTIs) are likely to be introduced this year. By late 2024, I’m predicting that Reserve Bank Governor, Adrian Orr, will bring in debt-to-income (DTI) ratios. That will make getting a mortgage for an existing rental property harder. New builds won’t have to follow this new rule. Once again, the Reserve Bank is pushing property investors towards new builds as it wants to grow the housing supply. The reason it will be later this year is because currently the high interest rates restrict what someone can borrow anyway, but as rates drop it will free up your borrowing ability and the reserve bank won’t want to see property prices increase by 45% like they did during COVID.
And, finally just a word of warning about fixed rate break costs. Lots of people have enjoyed rates between 2-5% over the last three years, and some have been lucky enough to make lump sum repayments on their mortgage without incurring any break fees. This is not because break fees have gone away, it’s because interest rates have been increasing meaning there is no cost to break your loan.
If you fix now, at say 7%, and interest rates drop to 6%, you will incur a break cost penalty if you repay your loan prior to the agreed fixed rate maturity. So, think carefully before you lock your interest rate next time.
As always, feel free to give us a call if you wish to discuss anything.