1. 2024 set to see an underwhelming upturn?
Our annual Best of the Best Report was published last week, covering suburb-level data across a range of different measures, such as rent and value changes, yields, and days on the market - and not just the top performers, but the weakest too. Indeed, the data illustrates just how sluggish the overall market actually was in 2023, with the strongest growing suburb, Sunshine Bay in Queenstown, ‘only’ recording an increase in median values over the past year of around 7%. Hargest in Invercargill has recently seen properties sell in about 11 days, whereas Ohakune in the central North Island has been above 100.
The report is also where we provide a written summary of the year that’s just been (2023: the year of two halves) and set out some key expectations for the year ahead. With affordability still stretched, mortgage rates unlikely to fall much until 2025, and caps on debt-to-income ratios firmly on the cards next year too, I think the scene is set for 2024 to be the ‘year of the underwhelming upturn’. Sales might rise 10% or so, but that’s from a low base. And a potential rise in property values of around 5% would certainly be slower than we’ve seen in some previous market rebounds.
That housing market caution is reinforced by the prospect of a fairly subdued economic outlook for 2024, with the risk of some job losses. Certainly, it was hardly encouraging to see last week’s figures showing a 0.3% drop in GDP in Q3 (worse than the general expectation for a modest rise), with Q2’s growth figure also substantially revised downwards. That said, the GDP figures imply more spare capacity in the economy than previously thought, and downwards pressure on inflation – hence reduced chances of another OCR increase in this cycle.
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2. Reserve Bank is back in the news, again
It seems that hardly a day goes by without the Reserve Bank being in the news for something or other, and last week it was two things. First, they published a discussion document which looked at the LVR system over the past decade since these lending restrictions were first introduced back in 2013. In the end, the report didn’t tell us too much new; just that LVRs have played a role in stabilising our mortgage/housing market and financial system, but that other factors matter too (such as interest rates themselves). The report also noted that caps on debt-to-income ratios, probably set to be introduced in 2024, would add further resilience to the system.
CoreLogic chief economist Kelvin Davidson: "The scene is set for 2024 to be the year of the underwhelming upturn”. Photo / Peter Meecham
Second, the new government has wasted no time at all in changing the RBNZ’s monetary policy mandate – already they’ve been pushed back to a single target; to keep inflation within a 1-3% band over the medium term. They no longer officially have to factor in employment or the housing market, although of course those factors will still play a role in decision-making, via their wider effect on inflation. To my mind, nothing much changes anyway, as it’s pretty clear that (high) inflation has already been basically their sole focus in recent years.
3. Migration is straining the rental sector
Another month and another new record for net migration into NZ – a total of around 129,000 in the year to October. This extra demand for property hasn’t necessarily boosted sales or values just yet, but it’s pretty clearly influencing rents, with the availability of property for tenants at low levels. Indeed, Stats NZ’s latest data last week showed that the ‘flow’ measure of rents (covering new tenancies) was up by 5.5% in the year to November – a little slower than recent months, e.g. 6-7% over August to October, but still well above the long-term average of 3% or so.
4 . Sales activity is still rising, but it’s from a low base
Our data shows that agreed sales volumes were 19% higher in November than the same month last year, the seventh rise in a row. But of course, the level of activity is starting from its lowest point in about 40 years, so those decent percentage increases aren’t yet translating to an overwhelming rise in the number of deals. It may be a long, slow grind back towards normality.
5. Still tight out there for borrowers with low deposits?
Finally for this week and the year, there’s only really one key, property dataset that I’ll be watching in the coming days, and that’s the Reserve Bank’s mortgage lending figures for November on Thursday afternoon. Recently there have been signs that a slow upturn has begun for lending activity, across house purchases, loan top-ups, and bank switches, and there’ll probably be more of the same in this week’s set of figures. However, the data has also been showing continued challenges for both investors and owner-occupiers when it comes to securing a low deposit mortgage. So that breakdown will again be one to watch.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
