The slow return of Mum and Dad investors?

1. Who's buying and who isn't

The latest CoreLogic Buyer Classification data shows the biggest retreat from the housing market in recent years has been by smaller investors – the cliched "Mum and Dad" group. For some, that’ll be a conscious choice, perhaps choosing instead to put their money in a "safe" term deposit account. For others, the choice will have been forced on them, through tightening up of credit criteria or serviceability tests at the banks. But either way, given they’ve pulled back the most, the smaller investors could now be poised to return more significantly too, with the reinstatement of mortgage interest deductibility on the cards. Of course, none of that will change the fact we have low rental yields and high mortgage rates, so the return of investors may be a more of trickle than a flood.

2. Migration continues to soar

Despite the high top-ups from other income sources that would be required on most typical investment property purchases right now, one thing that has shifted decisively in favour of landlords is rental growth – now running at a near-record level of 7.2% nationally, and an even stronger 9.4% in Auckland. Last week’s sub-national population growth figures from Stats NZ helped illustrate why that rental growth is occurring, with the recent migration boom showing through in many of our main centres. In Auckland, for example, after a small decline in the year to June 2022, population levels roared back in the year to June 2023, growing 2.8% (compared to the national figure of 2.1%). New migrants tend to rent, so the linkages here are obvious.

3. Mortgage lending flows remain patchy

Last week’s mortgage lending data from the Reserve Bank showed loan flows of $5.2 billion in September, up a touch from $5.1b in the same month last year, but not as big an increase as August’s $0.4b rise. The breakdown by loan to value ratio shows that borrowers with a low deposit were softer last month, in turn bringing down the overall total. I guess when interest rates are high, people seek to avoid bigger loans! Either way, September’s underwhelming lending figure highlights that the housing market recovery is a bit patchy and won’t proceed in a nice straight line.

CoreLogic chief economist Kelvin Davidson: "DTIs would mark a pretty big landscape shift for mortgages in New Zealand." Photo / Peter Meecham

4. Clarity around debt to income ratios

On Wednesday at 9am, the Reserve Bank will publish its latest six-monthly Financial Stability Report (FSR), and there’s a good chance it will include information about the much touted debt to income ratios (DTIs) – possibly a final announcement about the structure of the system (e.g. where the limit will be set) or likely timing. DTIs would mark a pretty big landscape shift for mortgages in New Zealand, and I’m not sure it’s got the awareness levels amongst the general public that it needs.

5. Is unemployment set for another rise?

This week we’ll also get the benchmark Q3 labour market data from Stats NZ. The unemployment rate has already started to creep higher, and that may well have continued in the three months to September. If so, the Reserve Bank would take even more comfort that it has done enough with the official cash rate. That said, higher unemployment has reflected a larger labour force, not job losses, so there’s still no need to panic about the ability of existing mortgage-holders to adjust their finances as their loans reprice from older, lower rates and onto the current higher levels.

- Kelvin Davidson is chief economist at property insights firm CoreLogic