1. First-home buyers and investors both growing their share
The latest CoreLogic Buyer Classification data showed that first-home buyers remain a strong presence in the market, growing their share of purchases from a touch less than 27% in Q3 to almost 28% in October – a new record high. It’s never easy to get that first property, but the successful purchasers continue to make the most of KiwiSaver withdrawals for at least part of the deposit, as well as tapping into the low deposit lending allowances at the banks, and also looking at new builds or cheaper/smaller existing properties perhaps further afield from their ideal location.
Meanwhile, the gradual re-emergence of purchasing by mortgaged multiple property owners (i.e. investors) continued in October, with a 23% share of activity, up from a lull of less than 21% back around April. It’s not a rampant return at this stage, but the fall in mortgage rates will certainly have been a factor, alongside reduced deposit requirements and the reinstatement of interest deductions. Investors are likely to be a group to watch in 2025, although just at the point where the cashflow is a bit more sustainable again (i.e. top-ups from other income have dropped), some might find it harder to actually get a loan in the first place, due to the debt-to-income (DTI) ratio restrictions.
2. Lower interest rates not boosting loan sizes just yet
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Speaking of DTI restrictions, the data shows that high DTI lending is subdued, at less than 5% of activity for both investors and first-home buyers – versus the speed limit of 20%. Even though lower mortgage rates (and bank servicing test rates) have theoretically raised how much money households can technically afford, the continued low figures aren’t actually too surprising. After all, borrower (and bank) attitudes towards large mortgages probably remain a little cautious. And with house prices still soft, borrowers might not really have needed to stretch themselves a bit more anyway.
CoreLogic chief economist Kelvin Davidson: "Investors are likely to be a group to watch in 2025." Photo / Peter Meecham
3. Flatter rents will be welcomed by tenants
Turning to the rental market, the headline message is that it remains soft. Last week’s Stats NZ data showed that the flow/new tenancy measure only rose by 0.7% in the year to October, the lowest since November 2022. Wellington and Auckland both saw a fall of about 1%. With demand growth slowing, more rentals listed on the market (and also the fact that rents are starting from a stretched position in relation to incomes), the recent sluggishness is no surprise – and it may well continue for a while yet. Great for tenants, but potentially dampening some of the recent investor enthusiasm.
4. A bit more pain and less gain for sellers
Meanwhile, CoreLogic’s latest Pain & Gain Report showed that around 90% of property sales in Q3 received a price higher than the owner originally paid, down from about 92% in Q2, and the lowest figure since mid-2015. The median size of those gross profits/gains has also moderated, from $305,000 in Q2 (and $440,000 at 2021’s peak) to $269,000 in Q3. Hold period plays a crucial role here; given most people own for at least 7-8 years, it helps to explain a strong likelihood of still making a significant gross profit (albeit just recycled into the next purchase for owner-occupiers). By contrast, anybody who’s had to buy and sell within the past 2-3 years has a strong chance of losing money.
5. It’s still tough out there in the economy
It largely goes without saying at present, but economic indicators generally remain weak – keeping the path clear for more cuts to the Official Cash Rate. Last week’s data on electronic card spending and manufacturing activity was still fairly sluggish, and that theme looks likely to be repeated in this week’s services sector data (BNZ-BusinessNZ) and the NZ Activity Index.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
