1. First home buyers still a decent presence
The latest six-monthly CoreLogic First Home Buyer Report, released last week, showed that first home buyers have managed to increase their percentage share of property purchases in the past few months, albeit the number of deals remains low. Consistent with the wider downturn in property values, the median price being paid by first home buyers is also falling, and standalone houses are starting to come back into reach again. To be fair, with rents flattening and mortgage rates still rising, the financial attractiveness of remaining a tenant is increasing. But most first home buyers are buying for non-financial reasons too (e.g. security of tenure), so their percentage share should remain solid.
2. Rents have stalled since April 2022
After an artificial result in September (negative annual change), the NZ rental price index produced a more “in-line” result of a 1.5% annual increase in rents for October. The main upshot from the result, however, is the clear illustration of the slowdown also occurring in the rental market, with demand falling, off the back of negative net migration. The latest reading is a sharp reduction from the consistent 5-6% annual growth witnessed through the end of 2021 and start of 2022, with rents effectively stalling since peaking in April this year. Great news for tenants; a challenge for landlords.
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3. Migration running at ‘two speeds’?
This week Stats NZ will publish the September migration data, and as always, it should be interesting reading. Although our overall net migration balance on a 12-month rolling basis will still be firmly in the red, there have been signs in the most recent few months that new migrants to New Zealand (i.e. non-citizens) are starting to return more strongly – helping to offset the continued outflows of New Zealand citizens. This divergent/two speed pattern means that the return of overall net migration back into positive territory won’t happen overnight, but as more overseas residents target New Zealand again, it looks likely that the “brain drain” will fade into the background in 2023. This will bolster property demand.
CoreLogic chief economist Kelvin Davidson: “To be fair, with rents flattening and mortgage rates still rising, the financial attractiveness of remaining a tenant is increasing.” Photo / Peter Meecham
4. High debt to income ratio lending down again?
This week we’ll also get the latest quarterly batch of mortgage lending data from the Reserve Bank broken down by debt to income ratio, for both owner-occupiers and investors. In Q2, the share of lending going out at a high DTI fell again, and it wouldn’t be a surprise to see that continue in the latest data. After all, borrowers are wary, banks are cautious too, and by identity higher mortgage rates also cap the amount of debt that can be serviced from a given income.
On that note, last week we got what was basically a “progress update” on the Reserve Bank of New Zealand’s plan to introduce caps on debt to income ratios for mortgage lending. There wasn’t too much new – they’re still proposing a uniform cap regardless of borrower type, some sort of speed limit arrangement (a la the LVRs), and exemptions for new-builds. They’ll consult next year on the actual figures – e.g. up to X% of non-exempt lending above a DTI of X – with a view to imposing the rules early 2024. At that stage, it’s entirely possible that the LVRs would simultaneously be loosened (if not before).
5. NZ Activity Index should be encouraging
Stats NZ will publish the latest reading from the NZAC this week, providing a timely update on how the economy fared over October. The recent results have been pretty solid, and I’d expect this to have continued last month – albeit the annual comparison is looking back to a soft patch this time last year (lockdowns), so “base effects” are probably flattering the latest readings.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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