1. A challenge for landlords, but good news for tenants
The strong growth in rents that landlords were able to push through over 2021 and earlier this year has now well and truly petered out – with rents in November only 0.7% higher than a year ago (and the way things have been going, a fall next month wouldn’t be a surprise). This adds to the current concerns for existing and would-be investors – such as low rental yields, higher mortgage rates, 40% deposits, loss of interest deductions on their tax – but of course is great news for tenants.
2. First home buyers and cash investors still enjoying conditions
We all know that overall property sales volumes remain very low, but within that context, certain groups are hanging on to their market share pretty well. For example, first home buyers (FHBs) retained 24% of activity in November, up nicely from the trough of 20% back in March, and in fact not far off previous record highs of 25%. A bit less competition from other buyer groups, such as mortgaged investors, will no doubt be helping some FHBs. Meanwhile, the other group of relative strength lately has been cash multiple property owners (MPOs, including investors, or bach-buyers), with a 16% share of activity in November – essentially a record high. Of course, given rising mortgage rates and tight credit rules, it stands to reason that cash buyers will be prominent.
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3. Strong GDP result is actually bad news
Last week’s GDP figures for the three months to September showed a strong result – an increase of 2%, driven by tourism-related sectors, and construction also solid. Of course, it’s already a bit out of date, and in some ways continues the ‘good news is bad news’ theme of recent months. That is, a strong GDP base, and continued capacity/inflation pressure, simply reinforces the chances of further official cash (and mortgage) rate rises next year.
CoreLogic chief economist Kelvin Davidson: “2022 has been a milestone year for NZ’s property market, proving that values can go down pretty sharply.” Photo / Peter Meecham
4. A few more things to watch before you hit the beach
Don’t switch off from data releases just yet, as the final week before Christmas brings a few more important updates. I’ll certainly be watching the ANZ December business (Tuesday) and consumer (Wednesday) confidence results with interest, especially for any hints of easing inflation concerns and/or deteriorating labour market prospects. Keep in mind these results are the first ‘clean’ confidence measures after the Reserve Bank’s latest official cash rate hike. The latest aggregated mortgage lending figures (November) are also released this week – likely to be low – as is the November NZ Activity Index, set to ease a bit further I would imagine.
5. 2023 could be a year of two halves
And so to finish off for the year. Clearly, 2022 has been a milestone year for NZ’s property market, proving that values can go down pretty sharply as well as up. Next year, I anticipate more of the same, with a calendar year total for sales volumes not changing too much from this year’s low level (65-70,000), and prices falling further. Certainly, the risk of higher unemployment combined with a typical mortgage rate of perhaps 7% or above is a tricky combination for the property market.
But if the impact of the official cash rate (OCR) increases that we’ve already seen hits hard in the early part of 2023 (which is a distinct possibility), there could be two halves – a weak start to next year, but then an environment later in 2023 where OCR (and mortgage rate) cuts could become part of the conversation again, potentially setting the scene for a bit more sales activity and an end to the downturn in property prices. As ever, the path for employment will hold a big key.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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