1. Low deposit loans stay restricted
Last week’s mortgage lending data from the Reserve Bank showed a weak flow of new activity in July – in terms of the number of loans, it was the lowest figure for that month of the year since at least 2014. Then looking at the breakdown by loan to value ratio, the figures showed just 5.1% of owner-occupier loans going out with a low deposit, only half the allowable speed limit. In this uncertain environment, it’s not surprising that banks are being cautious.
2. Affordability better, but it’s still poor
CoreLogic Housing Affordability Report released last week showed an improvement on some measures – e.g. the value to income ratio (8.5 in Q2, down from 8.9 in Q1) and the number of years required to save a deposit (fall from 11.8 to 11.4). But even with values falling and incomes rising, another measure – payments on a new mortgage as a % of average household income – was driven up to 53% (a record high), on the back of higher mortgage rates. Rental affordability is also stretched. On the whole, then, some better news, but still a long way to go in terms of restoring our affordability position to some semblance of normality.
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3. Consumers still feeling grumpy
Last week’s ANZ consumer confidence measure remained in the doldrums, as the high cost of living and increased mortgage rates weigh on sentiment. Households are currently pretty reluctant to commit to a major purchase, which often signals a weak outlook for retail spending – and of course could have implications for housing transactions too. Of course, the low unemployment rate and rising wages will still be providing some comfort for households – and as I’ve noted before, there’s sometimes a disconnect between what people say and what they actually do.
CoreLogic chief economist Kelvin Davidson: "In this uncertain environment, it’s not surprising that banks are being cautious." Photo / Peter Meecham
4. Employment still a key variable
Indeed, despite sentiment across the economy remaining subdued, firms are still hiring. On that note, the filled jobs data from Stats NZ (July refresh due later Monday) have stayed solid in recent months, with headcounts continuing to rise. And in fact the Reserve Bank’s latest projections (as part of their August Monetary Policy Statement) suggest no meaningful falls in employment in the next 6-12 months either, with the unemployment rate only edging higher due to more people entering the labour force. This labour market strength remains a key factor for the housing market, evidently not preventing price falls, but certainly limiting their speed/size.
5. Another drop for new dwelling consents?
There were signs in June’s new dwelling consent figures that the turning point is here, and so July’s numbers (due from Stats NZ on Wednesday morning) will be really interesting. These figures can be a bit jumpy, but another drop certainly wouldn’t be a surprise, given rapid cost increases, enquiries to house-builders down, and mortgage costs higher (as well development loans probably harder to secure). But as we covered last week, there are forecasts out there that this looming construction sector downturn won’t be as deep as those that have gone before – and the vibe at the Master Builders Conference that I attended last week was certainly cautious, but not panicked.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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