1. Rents still rising
The latest Stats NZ figures duly showed that rental growth remained strong in October. National rents (on the new tenancy/flow measure) have risen by 6.1% in the past year, still roughly double the long-term average growth rate of 3.2%. Auckland (8.5%) and Canterbury (6.3%) were faster than the national figure, although Wellington was more subdued (-0.2%). Rental vacancy remains tight, with available supply of properties low and demand high, on the back of strong net migration. Hence, more rental increases look likely in the coming months.
2. Migration still rising
Speaking of migration, Stats NZ reported last week that around 118,000 people left NZ in the past year (a record), but also that around 237,000 people arrived (also a record) – and the net result is an overall migration balance of roughly 119,000, a record too. So basically there are people moving all over the place, both in and out, but the big picture is that our overall population is still growing quickly (despite losing a lot of NZ citizens to Australia). That is sure to be boosting the housing market, particularly rents in many of the main centres.
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3. Sales volumes also up again
Our latest figures, covering activity via both estate agents and private deals, show that property sales volumes rose by 13% in the year to October, the sixth increase in a row. However, although the turnaround for national sales volumes has now well and truly arrived, the trend is still a little inconsistent and patchy across regions. Moreover, it needs to be noted that sales volumes remain very low. Indeed, the nationwide total over the past 12 months stands at only 63,919, still only roughly in line with the low-point of the GFC. It’s going to take a few years of pretty solid growth to get back to a more normal annual sales total of 95,000.
CoreLogic chief economist Kelvin Davidson: "More rental increases look likely in the coming months." Photo / Peter Meecham
4. High mortgage rates are currently capping debt to income ratios
The latest Reserve Bank figures show that only about 1% of first home buyers and 8% of investors secured a mortgage at a high debt to income ratio (DTI) over July to September this year – in this case, ‘high’ is measured at a DTI of seven or above. That’s a far cry from the peaks back in 2021, especially for investors, with 35-40% of them taking high DTI mortgages that year.
Many things have changed since then, including risk attitudes from both borrowers and banks, not to mention that lower house prices simply mean that less debt is required anyway. Higher incomes also help. But the key factor in limiting high DTI lending has simply been the rise in mortgage rates, which naturally reduces how much debt can be approved/serviced from a given income.
It wouldn’t be a surprise to see high DTI lending remain subdued for a while yet, but the Reserve Bank may well still choose to impose formal caps on DTIs in the second half of next year, to get ahead of the curve for when mortgage rates do eventually start to fall again. Formal caps on DTIs will tend to limit how many properties an individual can own over the medium term (let’s say periods of 5-7 years) and dampen long-term house price growth over the cycle too.
5. Slow turnaround for mortgage lending?
Staying with mortgages, the Reserve Bank will publish October’s aggregate lending figures this Friday, which may well show the continuation of a slow upturn for loan activity across new mortgages, top-ups, and bank switches. As ever, the breakdown by loan to value ratio will also be interesting, especially since September’s low deposit lending flows softened a bit.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
