1. Unemployment rises, but not due to job losses
Stats NZ’s official labour market figures for Q4, released last week, showed that the unemployment rate edged up from 3.9% in Q3 to 4% – the highest since Q2 2021. However, with the number of jobs (employment) still rising, the small increase in unemployment was driven simply by a larger labour force. In addition, a 4% unemployment rate is still low by past standards, and wage growth remains ‘decent’ at about 4% too. On the whole, then, the latest figures weren’t perhaps as soft as the Reserve Bank might have been expecting, which reinforces the view that any cuts in the Official Cash Rate are off the table in the near term at least. For a household facing up to a mortgage repricing in the next little while, however, it’s good news that job security is high.
2. A bit less ‘pain’ for resellers
In turn, that resilience in the labour market has been one of the key reasons why we haven’t seen waves of non-performing loans and mortgagee sales over the past couple of years, even despite the sharp increase in mortgage rates. On the same note, the latest CoreLogic Pain & Gain Report certainly showed that the share of property resellers accepting a price less than they originally paid – or a gross loss – remained relatively low in late 2023, at 6.7% (down from 7.6% in Q3 last year).
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In other words, 93.3% of resellers made a gross profit, with that strong position reflecting the fact that most people have kept their jobs. Of course, it’s also important to note that hold period plays a key role; if you’ve owned for the typical 7-8 years, it’s almost inevitable that general market growth over that period will deliver a capital gain. Also keep in mind that this isn’t really a cash windfall for owner-occupiers, with that new equity generally just recycled into the next purchase.
(For those who want to know the biggest resale gain for the quarter was $3.4 million for a home in Auckland’s Remuera. The property sold for $5.5m in November, more than 20 years after selling for $2.1m.)
3. Fixing short is still the popular choice
The Reserve Bank’s latest figures showed that 74% of new loans in December were fixed for up to two years – since late 2020, that figure has only been exceeded twice, in March and April 2023. In other words, as mortgage rates peak and expectations grow that they’ll start to drop over the medium term, more borrowers are (sensibly) fixing shorter.
CoreLogic chief economist Kelvin Davidson: "If you’ve owned for the typical 7-8 years, it’s almost inevitable that general market growth over that period will deliver a capital gain." Photo / Peter Meecham
4. Migration still likely to be pushing up rents
On Wednesday this week, Stats NZ will publish January’s rent price data, with December’s net migration figures following closely behind on Thursday. Over the past 12-18 months, our population has been boosted very quickly by large net migration inflows, which seem likely to continue on the latest figures, and in turn there’s been quite a bit of pressure on the rental property stock. That reflects high demand, but arguably also a lack of fresh property becoming available for rent, given that landlords’ purchasing activity has been low in the past couple of years. January’s figures will probably show more rental growth, great for landlords, but obviously a headache for tenants.
5. Debt to income ratios back in the spotlight
On Friday at 3pm the Reserve Bank will publish the October-December data covering debt to income ratios on new mortgage lending. Given the recent, clearer guidance that DTIs will be imposed from the middle of 2024, the latest update on what’s actually happening now will certainly be worth checking out. That said, given elevated mortgage rates are currently capping how much debt people can get/service anyway, the latest figures on high DTI lending could actually be ‘more of the same’, running at low levels. Indeed, the DTI caps might not do anything straightaway, but will start to take effect (limiting borrowing capacity) as mortgage rates drop over the medium term. They won’t stop lending to investors altogether, but it will likely be a slower process to grow a portfolio.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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