1. ‘Solid but not stellar’ result a concern
Last week, Stats NZ reported a 3% quarterly rise in production-based GDP in the final three months of 2021, which was a decent figure (reversing most of the drop in Q3), but still a bit short of what many commentators had been expecting. The upshot is that the economy perhaps didn’t bounce back as quickly at the end of 2021 as had been hoped, which has to be concerning.
2. The economy is starting to struggle
Indeed, we already knew that both business and consumer confidence plummeted in February, and last week the NZ Activity Index (NZAC) figures from Stats NZ added to the sense that the economy is starting to struggle a bit. The NZAC showed a slowdown from a year-on-year growth figure of 2.6% in January to 1.9% in February. Clearly, a slowing economy would be another challenge for the property market, not least because it would highlight some upside risks to unemployment.
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3. Migration still low, but it could roar back into the spotlight soon
In the year to January 2022, New Zealand had a net migration loss of around 7500 people, a far cry from the pre-Covid gain of 91,700 in the 12 months to March 2020. Of course, the fact that property values have still risen even as net migration has slumped illustrates the importance of interest rates and mortgage availability as key drivers of short-term cycles in prices. I suspect that net migration will quickly become a key focus again for economic commentators as the borders progressively reopen, but even a sharp increase (which itself might be unlikely) looks set to be trumped, in terms of the housing impact, by the higher cost and reduced availability of mortgage finance.
CoreLogic chief economist Kelvin Davidson: “The scene is set for further falls in property sales volumes this year.” Photo / Peter Meecham
4. It was another testing month for real estate agents in February
Property sales volumes were down again last month, and in fact the level of activity in February was the lowest for that month of the year since 2011. To be fair, some of this decline may be artificial, to the extent that Omicron has just delayed some activity until after the outbreak has passed. However, with affordability stretched, mortgage rates higher, finance harder to get, and buyers (or at least those that have managed to jump the finance hurdles) now able to take more time about their decisions, the scene is set for further falls in property sales volumes this year.
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5. Low deposit finance was probably even harder to get in February
We’re due to get the latest mortgage lending stats from the Reserve Bank late on Thursday, and it’s the breakdown by loan to value ratio (LVR) that I’ll be looking at closest. In particular, whether or not it got even harder for owner occupiers (especially first home buyers) to secure a mortgage with a low deposit. Certainly, we already know from the CoreLogic Buyer Classification series that first home buyers’ market share of purchases dropped further in February (within an overall slowing market too). For context, even though the low deposit (or high LVR) allowance for banks is 10%, they actually only advanced 5% of loans to owner occupiers with less than a 20% deposit in January, and my hunch is that this figure could have been even lower in February.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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