1. First-home buyers are getting more for less
I recently looked at the state of the first-home buyer market in New Zealand, analysing market share, the prices being paid and the properties being purchased. The conclusion is this: first-home buyers are getting more bang for their buck at present. Yes, it’s never easy to get that first property, and the median price paid by first-home buyers in Q1 2024 of $695,000 is still a stretch for many people. But it’s down from the $715,000-$720,000 mark 12-18 months ago. Stand-alone houses also now represent almost 75% of first-home buyer purchases, up from 70% in 2023. Greater access to larger dwellings and at lower prices is just another aspect of the wider success story that has been the first-home buyer segment of late.
2. Borrowers are paying more now to (potentially) save later
The Reserve Bank’s figures for March showed that 57% of new loans (house purchases, bank switches and top-ups) were fixed for up to one year, slightly surpassing the previous record mark of 56% set just a month ago. These short fixes come at a cost, given that the interest rates remain higher than longer mortgage terms of 2-3 years, but the possible benefit is making savings later if and when market rates decline. Nobody has a crystal ball about when and how fast mortgage rates will drop, but I’d just make a simple point about the maths: if a one-year fix is currently 7% and a prevailing two-year rate is 6.5% (for simplicity), you need the one-year rate 12 months down the track to be less than 6% to save money over a full two-year horizon. Food for thought.
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3. Rental growth and migration both past their peak?
Today we’ll get Stats NZ’s rent price measure for April followed by March’s net migration figures on Tuesday. These two sets of figures are tightly linked at present, with rents having been rising strongly in recent months, not least due to the big influx of new people into the country (and a tight-ish supply of available rentals too). That said, there were signs in the previous releases that both indicators are close to a turning point, if not past it already, and I’ll be watching closely for any further evidence this week. For people looking for a rental, however, it’s probably cold comfort, given that rents are already at a record high in relation to household income.
CoreLogic chief economist Kelvin Davidson: "Greater access to larger dwellings and at lower prices is just another aspect of the wider success story that has been the first-home buyer segment of late." Photo / Peter Meecham
4. High debt-to-income lending likely to be restrained
It’s a busy week for data releases, and on Wednesday the Reserve Bank will publish figures for January to March on the amount of lending being done at high debt-to-income (DTI) ratios – now considered to be seven for investors and six for owner-occupiers. Given that mortgage rates remain high, which is naturally capping high DTI lending anyway, the latest published figures themselves won’t be of too much interest. But DTIs more generally remain firmly in the spotlight, given that formal restrictions are set to be imposed very soon. I think these rules will mark a significant shift in our lending landscape, tending to tie house prices more closely to incomes over the long term, and slowing down the rate that investors can grow a portfolio.
5. Some quick notes from my travels
Just finally, I spent a lot of time last week out and about visiting clients and presenting to various audiences, including property investors and banking professionals. The strong vibe is that the “real” economy is hurting, but people also seem to accept that interest rates won’t decline until inflation is firmly back in the box. Meanwhile, the appetite to buy and invest in property seems to be as strong as ever, but it’s going to be tricky to turn that sentiment into actual purchases until mortgage rates drop more significantly. Maybe a story for 2025, not necessarily 2024.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
