Corelogic senior property economist Kelvin Davidson

PHOTO: CoreLogic chief economist Kelvin Davidson. Photo credit: CoreLogic

Leading economists have dashed hopes for mortgage relief this year, leaving many New Zealand homeowners disheartened. The familiar narrative of anxious homeowners monitoring major banks’ interest rates, hoping for a drop before their mortgage renewals, continues. With mortgage expenses skyrocketing in recent years, the transition from historic lows below 3 percent to rates reaching 6, 7, and 8 percent has been financially taxing for Kiwis.

The substantial increase in mortgage costs, amounting to thousands of dollars annually for some, is exacerbating financial strain. Consequently, more properties are hitting the market while potential buyers dwindle. Despite expectations for post-pandemic relief, the slow decline in inflation and unexpected decreases in unemployment suggest a prolonged period of economic challenge.

According to experts, any relief in the form of decreased interest rates is unlikely to be swift or substantial in 2024. With inflation hovering at 4.7 percent and slowly trending downwards, a modest reduction in rates might occur by August, but a status quo for the remainder of the year is entirely plausible.

While optimism persists for interest rate decreases, economists caution against expecting a return to pre-pandemic lows. The Reserve Bank’s cautious approach reflects the delicate balance required to manage inflation without stifling economic growth. Despite recent fluctuations, interest rates are projected to stabilize around 5.5 percent, albeit at a slower pace than witnessed during the pandemic.

Recent adjustments in mortgage rates by some banks primarily stem from competitive pressures rather than anticipation of imminent rate cuts. As market competition intensifies and new borrowing stagnates, banks aim to retain existing customers and attract new ones. However, these maneuvers are unlikely to result in significant interest rate reductions.

Looking ahead to 2025, economists anticipate a gradual decline in interest rates, aligning with inflation forecasts. However, homeowners are advised to brace for continued discomfort as relief, if any, will be modest and protracted. The journey towards manageable mortgage rates is expected to be slow and incremental, requiring patience and resilience from households.