First-home buyers still have the upper hand ... for now

1. Inflation is heading down

The big release last week was the Q3 consumers price index (CPI) result, and it was relatively good news – the headline inflation rate slowed from 6% in Q2 to 5.6%, with both tradable (imported things such as petrol) and non-tradable (domestic items such as haircuts and rent) inflation slowing. The Reserve Bank will be especially pleased about the non-tradable figure dropping, as that’s what they can actually control the most.

In terms of interest rates, this drop in overall inflation most likely takes a November 29 Official Cash Rate (OCR) increase off the table, which should help mortgage rates to stabilise/plateau. That said, let’s not get ahead of ourselves. Inflation is still far too high – the target being a range of 1-3% – so any meaningful cuts in the OCR or mortgage rates remain a fair way away.

2. First-home buyers still a key force

The latest CoreLogic Buyer Classification figures showed that first-home buyers (FHBs) took a record 27.6% of property purchases in September, enjoying house prices that are down quite a lot from the peak, less competition from other buyer groups (especially investors), while they’re also making full use of the low-deposit lending speed limits at the banks.

However, we’ve probably now got a line in the sand for investors, given the change of government. With property tax rules set to ease – most importantly the phased reinstatement of mortgage interest deductibility for new/existing landlords and older properties – it’ll be interesting to see the scale of any investor comeback. No doubt some will start buying again, but with yields still low and mortgage rates high, it’s unlikely to be a flood – even when you account for smaller tax bills.

3. Listings activity just marking time

The incoming data on new listings flows from week to week shows that we’re firmly into the normal spring lift, but also that volumes remain lower than in previous years. And with sales at the other end of the pipeline starting to pick up, the choice of listings available on the market for potential buyers has crept downwards. In this environment, it’s no surprise that there’s been a re-emergence of a bit more competitive price pressure.

CoreLogic chief economist Kelvin Davidson: "The choice of listings available on the market for potential buyers has crept downwards." Photo / Peter Meecham

4. Another rise for mortgage volumes?

Coming up on Thursday this week the Reserve Bank will publish mortgage lending figures for September. Loan volumes showed signs of picking up in August – indeed the first annual rise for about two years – driven by owner-occupier house purchase loans (as opposed to top-ups or bank switches), and helped along by the recent loosening of the LVR and CCCFA rules. Given the apparent rise in housing sentiment over the past month or so, partially reflecting the election, it wouldn’t be any surprise at all to see another lift in mortgage activity on the latest data.

5. Recession risks seems to be fading

Then on Friday, ANZ will publish their consumer confidence figures for October and Stats NZ will release the NZ Activity Index for September. It seems fairly likely that consumers’ moods may have continued to improve a bit in recent weeks, boding well for the wider economy. And the NZAC for July and August has already been suggesting that Q3 economic growth could come in positive – i.e. no recession, yet. September’s figure seems likely to be more of the same, which would also tend to push back those fears that we might have already dipped into recession.

- Kelvin Davidson is chief economist at property insights firm CoreLogic