1. Debt to income ratio caps fade into the distance
Last week, the Reserve Bank (finally) released the submissions they received on their consultation around debt to income (DTI) ratio caps and minimum serviceability test interest rates for new mortgages, along with some of their own comments in response. In a nutshell, nothing is going to change on this front for a while yet. The RBNZ will be pressing ahead with constructing a DTI framework in the meantime, but it wouldn’t be enforced until mid-2023 at the earliest, if required. The RBNZ also noted that the banks have been raising test rates anyway, so there’s no immediate rush for formal rules here either. Basically the RBNZ wants to give other regulatory changes (e.g. LVRs, CCCFA) time to take their full effect before enforcing yet another set of rules in an already-slowing housing market. This will no doubt be a relief for property investors, as they borrow at the highest DTIs more often, so would be hardest hit by any formal caps.
2. But it’s still tough for low deposit borrowers
Even though DTI caps aren’t on the cards anytime soon, the loan to value ratio (LVR) rules are clearly still biting. Last week’s mortgage lending figures from the Reserve Bank showed $7.3bn of new lending in March, not a terrible result, albeit still down significantly from $10.5bn a year ago, with that fall driven roughly equally by owner-occupiers and investors. Most striking, however, was the breakdown showing that the share of lending to owner-occupiers at a high LVR (or low deposit) fell even further, from 3.4% in February to 3% in March - well below the 10% speed limit, and also going against the whispers that a bit more low deposit finance had started to become available again. Maybe we’ll see that show through in April’s figures (due May 25). But for now, it’s still tough out there in the mortgage world, especially with interest rates up sharply too.
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3. Confidence low, inflation prospects high
Meanwhile, ANZ’s latest business confidence measure last week showed that firms remained pessimistic in April, with cost pressures still a major issue (and in turn that’s squeezing profits). Consumer confidence was also out last week too, and it was more of the same – pessimism about the activity outlook, but big concerns about inflation (albeit both indicators were “less bad” in April). All in all, plenty more work for the Reserve Bank to do yet in terms of raising interest rates to try and get inflation back down again.
CoreLogic chief economist Kelvin Davidson: “It’s still tough out there in the mortgage world.” Photo / Peter Meecham
4. Filled jobs have lost momentum
There were also some potentially concerning figures last week from Stats NZ showing that filled jobs ticked down by 0.1% in March (seasonally adjusted), the second fall after February’s 0.2% decline. The falls have been driven by the services sector, which of course includes our COVID-hit cafes, restaurants, hotels etc. Overall, the falls to date have been small, and for now it’s probably better to label this a plateau rather than the start of a clear downturn – but certainly something to watch, especially in light of my next point ….
5. Watch the benchmark unemployment rate data on Wednesday
By far the highest-profile data release this week will be the labour market stats. The previous figures showed that the unemployment rate fell to a record low of 3.2% in the final three months of 2021, and this week’s data will probably show another strong result – maybe even falling to 3% or so. But it remains to be seen how long unemployment can stay this low, and any upwards trend that might start to emerge in the rest of the year would pose extra risks to the housing market, especially with households’ budgets already under pressure from high inflation and rising interest rates.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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