1. Mortgage rates have likely peaked, but not set to fall much either
The latest aggregated mortgage rate figures from the Reserve Bank showed a stabilisation for the “special” (high equity) one year fixed rate in May, at around 6.7% (remember the days of 2.2% in June 2021?!) With the official cash rate now likely to be flat at 5.5% for several months to come, it’s almost certain now that mortgage rates have peaked. But an extended plateau for the OCR implies similar for mortgage rates, so household budgets will still be under pressure.
2. Most borrowers still fixing for 1-2 years
The RBNZ has recently released a fresh dataset, which shows the terms for new mortgage lending, i.e. whether loans each month are floating or fixed, and if fixed, how long the term is. Previously we only knew whether existing loans were floating or fixed, and how long the fixed loans had to their next repricing. There’s still some work I’ll be doing to get the full potential out of this new data, but for now, one initial insight is that recently a rising share of new lending has been going out on fixed terms of up to two years – through late 2021 and early 2022, that proportion was in the range of 50-60%, but over March and April this year it has hit 75%.
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Now, as noted above, I’m not convinced that mortgage rates are about to drop significantly anytime soon. But even so, given that the peak has at least now arrived (give or take), many people are probably still (sensibly) choosing to fix for shorter periods just in case we do see some modest rate falls over a 2-3 year horizon. Similarly, those shorter fixes still remain pretty competitive in terms of the mortgage rates associated with them too.
3. ‘More of the same’ for buyer market shares in May
The latest buyer figures for May are really just ‘more of the same’. First home buyers were still a solid presence last month (at around the 24-25% mark), with cash multiple property owners also holding on well, but mortgaged multiple property owners were battling. Challenges such as low rental yields, high mortgage rates, LVR restrictions, and the removal of interest deductibility are certainly making it tricky to get the sums to stack up on an extra/first mortgaged investment property at present.
CoreLogic chief economist Kelvin Davidson: "Shorter fixes still remain pretty competitive in terms of the mortgage rates associated with them." Photo / Peter Meecham
4. Landlords will still be watching migration flows
On Tuesday this week Stats NZ will publish April’s net migration data, with rent price figures for May due on Wednesday. Recently, rental growth has remained relatively subdued (after a previous burst of strong increases), even as net migration has rocketed higher. But you do have to wonder how long it will be until rental growth potentially starts to accelerate again, given that a fair proportion of new migrant arrivals to NZ will probably go into rental accommodation at least for a start.
5. Were we in recession in early 2023?
The highest-profile economic data release this week will be the Q1 GDP figures on Thursday morning, which may show that we were in a recession at the start of the year. But of course, it’s “old news” and even if doesn’t show a technical recession (which is defined as two quarters of falling GDP), it’s obviously still pretty tough out there for many people at present – that is, it probably still feels recessionary. The good news is that most forecasters think GDP will now gradually expand over the next year or two, and in any case, the labour market has stayed strong regardless – flowing through to some degree of insulation for the property market.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
