1. The vibe has changed
While the hard data hasn’t shown any change in the direction of the housing market just yet, anecdotal evidence – gleaned from chats with property investors, smaller-scale developers/sub-dividers, construction industry consultants, and valuers – all points to an improvement in the past four to six weeks. Of course, a change in the housing market’s general vibe shouldn’t be too surprising, given that mortgage rates have been falling. On this basis, I’m expecting to see further growth in property sales in the next few months, with values finding a floor and maybe edging higher too.
2. Mortgage lending activity is on the up
Mortgage lending totalled $6.5 billion in September, up $1.4bn on the same month last year and the 12th increase in the past 14 months. The upturn has been driven both by owner-occupiers and investors, although not so much by any preference for interest-only finance (it has actually stayed pretty flat as a % share of the total). The data, which covers house purchases, loan top-ups, and bank switches but not fixed loans rolling over, also showed that bank switching is still quite popular, perhaps with people chasing those cash-back offers, while higher LVR lending activity also continues to rise. It’s been interesting to see a recent spike in the share of lending to investors at <35% deposit (or LVR >65%), off the back of deposit requirements easing on July 1. Meanwhile, the share of high LVR lending to owner-occupiers has slowly risen to about 12%.
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3. But the economy remains subdued
Having said the above, don’t expect a sudden and sharp upturn in the housing market. One reason to keep expectations in check is continued weakness in the economy. The NZ Activity Index for September showed a modest 0.3% annual rise, but if you take the NZAC for July-September combined, the figures suggest GDP might have fallen by around 0.2-0.3% in Q3, which would signal another technical recession, after the 0.2% drop in Q2. To be fair, it’s not a complete economic collapse, but growth is still hard to come by at present and that could spell further job losses, which in turn will retrain housing market growth.
CoreLogic chief economist Kelvin Davidson: "One reason to keep expectations in check is continued weakness in the economy." Photo / Peter Meecham
4. Are there green shoots in the construction industry?
On Friday this week Stats NZ will publish the figures on new dwellings consented in September, and although they probably won’t signal the start of a new upturn, they might just add to a slowly growing body of evidence that at least the downturn might be coming to an end. Certainly, with mortgage rates falling, conditions do look set to be a bit more favourable in 2025.
5. Scope for a lending policy surprise?
It’s also worth noting that on Thursday this week the Reserve Bank will be doing an early release of a section from the upcoming Financial Stability Report (due next week on November 5) which will be covering the housing market. It adds a wee bit of intrigue as to why they might be taking that approach, given that on occasions in the past the FSR has been used to tweak the loan to value ratio rules, for example. To be fair, I don’t anticipate any changes this Thursday. But the article will no doubt still make for interesting reading, with plenty of data and charts to digest.
