1. The last OCR announcement of the year
All eyes will be on the Reserve Bank of New Zealand (RBNZ) at 2pm this Wednesday, with their next Monetary Policy Statement. The Official Cash Rate is sure to be increased, and probably by 0.75 percentage points, but possibly 0.5 percentage points. Either way, it’s still another hefty rise, and is unlikely to be the last either, with bank economists anticipating the OCR to eventually hit at least 5% (from 3.5% currently), which could signal a one-year high-equity fixed mortgage rate of 7%, or potentially more.
I’ll also be looking closely at the RBNZ’s updated economic projections, which will be released at the same time – namely their thoughts on where the OCR is headed, and future paths for GDP, inflation, employment, and house prices. Given the recent history of credit conditions determining a lot in the housing market, the projected timing for the OCR peak – and hence the possible top for mortgage rates – could tell us quite a bit about when the trough for property values may start to show up.
2. Even without formal caps, high debt to income lending is dropping
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The RBNZ recently indicated that formal caps on high DTI lending won’t be imposed until early 2024 (if required), but last week’s figures showed that attitudes towards this risky type of lending are already changing, with higher mortgages rates themselves also a factor – as they rise, you simply can’t service as much debt for a given income. For investors in particular, the share of lending at a DTI >7 has dropped from almost 40% in late 2021 to only 13% now.
3. RMA changes a long-term slow burner
Last week we got a large announcement from the Government around the changes to the Resource Management Act. It’s quite technical and set to take place over several years, so I can’t see any immediate impact on the property market. But it does seem sensible – basically allocating planning policy to fewer regulatory bodies (i.e. regional rather than local councils) and designating blocks of land in advance for various uses, including housing. That should remove a lot of bureaucracy and the need to assess individual applications on a case by case basis. The bias is shifted in favour of development rather than against it, and this can only help improve long-term housing affordability.
CoreLogic chief economist Kelvin Davidson: “A lot of would-be investors are currently being put off by the large gap between rental income and mortgage rates.” Photo / Peter Meecham
4. Mortgaged investors holding back
The latest CoreLogic Buyer Classification figures released last week largely showed a continuation of recent trends. Against the backdrop of further weakness in the number of deals, first home buyers at least remained a decent presence in terms of market share in October, as were cash multiple property owners (including investors). But mortgaged multiple property owners remain quiet, and I suspect a lot of would-be investors are currently being put off – whether that’s their own choice or it’s been taken out of their hands – by the large gap between rental income (yields) and mortgage rates, meaning that many new purchases would need to be “topped up” out of other income.
5. Net migration improving again and economy is ticking over
Just quickly on two other data releases last week – with new arrivals (in net terms) now outweighing net NZ citizen departures, our overall migration balance is back in black. That should bolster property demand over the coming period. And then the NZ Activity Index for October was 3.1% higher than a year earlier, suggesting that the economy has continued to tick over pretty well lately.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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