Are Kiwi renters in line for an Aussie-style nightmare?

1. Another migration-driven rise in rents?

On Tuesday, Stats NZ will publish October’s rental data, with September migration figures due on Wednesday. Rents have accelerated sharply in recent months – obviously great for landlords but unwelcome for tenants – on the back of tight supply and a sharp, migration-driven rise in demand. More of the same seems pretty likely in the next sets of data, and although migration will start to ease back again sometime soon (probably), it’ll take a fair while to return towards normality, meaning that rental pressure could also be a feature for some time yet.

If you want to get sense of where all of this is heading, look at Australia. CoreLogic data shows a recent fall in the rental vacancy rate to a record low of 1% in October, compared to the 10-year average of 3%. The tightness of the market saw rental growth peak at around 10%, although it has more recently dropped a little to 8% – still strong growth, and leaves the nationwide median rent at A$590 per week

2. ‘Risky’ lending still under control?

Also on Tuesday, the Reserve Bank will publish mortgage lending data for July to September, broken down by debt to income ratio (DTI). Recently, the so-called ‘risky’ lending that takes place at a high DTI has fallen away pretty sharply, mainly because of high mortgage rates – which mean borrowers simply can’t service as much debt anymore. This trend will almost certainly be repeated in the next set of data, but the figures will remain of key interest in the next year or so, given the ongoing process behind the scenes for the RBNZ to potentially impose formal caps on DTIs. On current guidance, that might occur from the middle of next year, and would tend to hamper investors a little more than owner-occupiers.

3. First home buyers still a key presence

CoreLogic's latest First Home Buyer Report last week showed further strength for this key segment of the market, with first home buyers actually running at record high shares of property purchases in recent months – 27% in the third quarter, for example (although it must also be noted that the number of purchases is relatively low). The high market shares are being seen across each of the main centres, but also other hotspots such as Whangarei, Rotorua, South Waikato, Clutha, and Invercargill.

There are many reasons for the broad-based strength of first home buyers, including access to KiwiSaver for the deposit (or at least part of it), making use of the low deposit lending speed limits at the banks, and of course reduced competition from other buyer groups, such as mortgaged investors. But with the change of government and shift to the centre-right, and the associated easing of property tax rules for investors, first home buyers may slowly start to find a bit more competition coming their way.

CoreLogic chief economist Kelvin Davidson: "First home buyers may slowly start to find a bit more competition coming their way." Photo / Peter Meecham

4. Adjustment to higher mortgage rates still smooth, for now

Westpac’s results last week contained some interesting tid bits about the repricing process, with 88% of their customers now successfully off sub-5% mortgage rates and into a range of 5-7%, while 67% of borrowers are at least three months ahead on repayments, with a median cash buffer of nearly $13,000. This supports a range of other evidence that most households are managing to adjust to the new environment pretty well. But it’s an area that needs to continue to be watched closely, as the process isn’t finished yet, and in the meantime the labour market has begun to soften.

5. Fixing shorter again

While we’re on mortgages, last week’s Reserve Bank data showed that 72% of loans (new, bank switches, and top-ups) in September were for fixed rates of two years or less, up from 62% in June, and the highest figure since April. No great surprises here, given that longer term fixed rates have increased a little more sharply in the past few months, so shorter fixes have become more competitive on pricing again – while they also offer a decent amount of certainty, but less risk of ‘overpaying’ if/when mortgage rates fall.

- Kelvin Davidson is chief economist at property insights firm CoreLogic