1. Financial Stability Report comes and goes
Last week’s Financial Stability Report from the Reserve Bank of New Zealand (RBNZ) didn’t generate the buzz that it might otherwise have created, and it was surprising how little space the RBNZ dedicated in the document to any discussion of loan to value ratio rules (due to change on June 1) or debt to income ratio caps (due to be imposed March/April next year).
On the whole, the RBNZ acknowledged the risks to the housing market – e.g. existing borrowers repricing onto higher mortgage rates this year (potentially in some cases above their original test rate) – but also reiterated that household/bank balance sheets are still looking secure.
2. Unemployment still at rock bottom levels
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Part of that resilience for households’ finances is clearly coming from the strength of our labour market, with the unemployment rate holding steady at 3.4% in the first quarter of the year and job creation matching the rise in available workers. Wages are also continuing to grow strongly. Even if the labour market doesn’t remain quite as robust in the coming quarters, nobody is really expecting a huge jobs shake-out, which adds to the sense that this housing downturn is approaching the end. That said, last week’s figures probably do lock in another official cash rate increase of 0.25 percentage points on May 24.
3. Property values still falling, but at a slower rate
The CoreLogic House Price Index for April was released last week and it showed a further 0.6% decline in average property values. However, that fall was smaller than the figures of around 1% in each of February and March, and also less than the average monthly decline of 0.9% through the downturn so far. In other words, the falls aren’t finished yet, but that end-point may not be far away (for better or worse), given factors such as a likely peak for mortgage rates, rising net migration, and an easing in credit rules (CCCFA and LVRs).
In April, Hamilton and Tauranga remained pretty soft, but Auckland recorded a relatively mild fall in values, and areas such as Dunedin, Christchurch, and Wellington were broadly flat. In fact, Wellington City itself showed its first monthly rise for about a year – something to keep an eye on (given that it has already fallen significantly and hence might reach a floor first too).
CoreLogic chief economist Kelvin Davidson: "Part of that resilience for households’ finances is clearly coming from the strength of our labour market." Photo / Peter Meecham
4. First home buyers still a decent presence?
CoreLogic’s Buyer Classification figures for April, out this week, shows first home buyers holding on to a solid 24-25% of property purchases across the first few months of 2023, and it wouldn’t be a surprise if that has continued.
Conversely, relocating owner-occupiers (i.e. ‘movers’) have been quieter – they’re not listing, so clearly they’re not going to be buying anything either. Similarly, mortgaged investors aren’t expanding their portfolios (or starting new ones) at any great speed either, given 40% deposits (until June 1), the cash top-ups that will generally be required, and the removal of mortgage interest deductibility.
5. Investors will be watching rents and migration
Some would-be property investors could get some more encouraging news later this week, with Stats NZ releasing the rent data for April on Thursday and net migration figures for March on Friday. Rental growth has been below its long term average lately, and may have stayed fairly subdued in April. But with net migration now rising strongly (and it probably did so again in April), yet the available stock of rental listings still quite tight, there seems a reasonable chance that rental growth could re-accelerate in the coming months.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
