ANALYSIS: Each month I run five surveys of various groups amongst my 31,000 subscribers in order to gain coalface insights into what is happening in the economy and the housing market in particular. This week I am running my survey of mortgage brokers with the folk at mortgages.co.nz and with most of the results in, things look like this.
A net 62% of brokers say that they are seeing more first home buyers in the market. This is the strongest result since the record net 79% seeing more young buyers back in June 2020. What this tells us is that as yet, and despite mortgage rates going higher, young buyers remain the driving force behind the upturn in the housing market.
Are investors joining in? Only slightly. A net 23% of brokers say that they are seeing more investors coming forward looking for advice. This is unchanged from last month and about where things were at the very start of 2021. But what is interesting is that in the many sentences my broker respondents have written to describe what they are seeing, a number note that the determination of investors to actually make a purchase is not that strong.
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They are waiting until the election is out of the way and any potential changes in tax rules are introduced, with many currently finding that after running the numbers things don’t stack up for them to run a business providing rental accommodation. That is a rapidly growing problem in Australia where investors appear to be selling because of high financing costs, but demand for rental accommodation is soaring because of record net migration inflows.
Here, our own record net immigration is making it increasingly easy for landlords to find good tenants. I suspect awareness of the tightening up of the rental market is one of the many factors encouraging young people to make the jump into home ownership potentially earlier than they may have been thinking.
I also ask the mortgage brokers what terms people are showing the greatest preference for when fixing their interest rate. Only 10% have reported one year. 38% say 18 months, 45% two years, and that leaves virtually none seeing borrowers wanting to fix for three years or longer.
Independent economist Tony Alexander: "Young buyers remain the driving force behind the upturn in the housing market." Photo / Fiona Goodall
That makes sense. We are somewhere at or near the top of the rates cycle (though we don’t know how long we will be here) and at this point in the cycle borrowers are incentivised to position themselves to eventually take advantage of rates when they do start falling.
I also each month survey real estate agents with NZHL and the results I released last week showed a net 63% seeing more first home buyers and 14% more investors. The agents also noted increasing attendance at open homes and auctions and a net 38% say that prices are rising in their area of operations.
As previously noted here, New Zealand is now on the upward leg of the house price cycle and my surveys told us the balance of demand growth versus supply growth started shifting back in February – led by the first home buyers.
Next week we will hopefully have a new government formed and can then form a more realistic view about what the policy environment will look like for home owners and those looking to make a purchase. I don’t expect any alteration in the still uncertain interest rates outlook. But if rules are changed to reinstate interest expense deductibility for investors, I’d expect feelings of FOMO on the part of young buyers to ramp up a notch or two. They’ll feel a need to get in before the investors enter in greater numbers.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
