ANALYSIS: The speed of change since January in many of the measures I gain from my monthly surveys has been truly astounding. These changes, all for the economic negative, help explain the change in monetary policy tone recently, the recent falls in bank wholesale borrowing costs, and fixed mortgage rates now settling comfortably below 7%, with further falls widely expected and warranted.
In the monthly survey of residential property investors which I run with Crockers Property Management, some of the changes are still continuing at pace. Consider for instance the average rental increase which landlords say they will try to achieve in the coming year.
At the end of last year, the average desired rise was 5.8%. Now it sits at 4.5%, which is down from 4.9% in June and 5.4% in May. The speed of change has accelerated recently.
This change can also be seen in the net proportion of landlords who say that it is easy to find a good tenant. At the end of 2023 a net 26% said finding such a desired person was easy. Now, for the first time since December 2022, more investors say it is hard rather than easy to find a good tenant. The reading is -12%.
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Most of my other measures in the survey are about where they were three months ago. This includes the net proportion of investors looking to sell a property – now 11%, down from 13% in April. The proportion of all investors saying they plan to keep their asset for at least 10 years or never sell is steady at 52%.
But this latter measure was 65% two years ago, and it looks like the ageing of the investment property-owning group along with the sharp increase in key costs like insurance and rates is contributing to a structural rise in the desire of many to place their funds elsewhere.
Whether that continues or not remains to be seen. Interest rates are now falling and are likely to edge downward for the next two to three years though not to the extremely low levels seen over 2020-21 when worries abounded about deflation and a pandemic-induced depression.
Independent economist Tony Alexander: "Interest rates are now falling and are likely to edge downward for the next two to three years." Photo / Fiona Goodall
Still, only 31% of investors looking to make a fresh purchase say they want something new or would undertake the development themselves. This reading is unchanged from three months ago but well down from 44% a year ago and 53% two years ago. This helps explain the escalating weakness in residential construction around the country – for now.
Construction will recover once the bulk of the over-stretched developers and builders are weeded out, interest rates are much lower, and consumer sentiment much higher. Those conditions should exist before the end of 2025, but not this year.
On another matter, my survey suggests banks are getting a bit anxious about the low growth in their mortgage books. Mortgage debt has grown by just 3% in the past year and the year before compared with 7% in 2019, and 6% in 2018.
A net 1% of my survey respondents have just reported that they feel their bank is becoming more willing to lend. A year ago a net 5% said the banks were getting tougher, two years ago 30%, and three years ago 35%. As banks start to become more accommodating to credit requests, the scene will become set for slow rises in house prices and then construction to return.
But again, this still looks like a story for next year rather than 2024.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
