Home loans hit a high and pressure’s building in the rental market. Here’s what you need to know about the New Zealand housing market this week.
1. Investors haven’t disappeared
Mortgaged investors’ share of property purchases is holding steady at around 25% – well down on the “pre-regulation” peak of 29% in the first three months of 2021, but perhaps higher than what many may have been expecting. Clearly, some investors are still seeing buying opportunities, despite low returns and rising costs, especially in terms of mortgage rates.
Meanwhile, first home buyers continue to defy the sceptics and have held their 26% share of purchases – a record high. They’re still using KiwiSaver and are compromising on the types and location of the properties they are buying, but the reduction in low deposit lending will be a hindrance.
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2. Kiwis took out $9.1 billion in home loans at the end of last year
Banks advanced $9.1 billion of lending in November, the fourth highest monthly total on record, as people look to buy properties but also top up existing loans (to take advantage of rising values and rising equity). For now, the amount of low deposit lending to owner-occupiers is above the mandated 10%, but it will fall further in the near term – and based on past experience, banks may ultimately operate at about 5%, i.e. only half the amount they are theoretically allowed, making it tough for would-be buyers with small deposits.
3. High employment bolstering the housing market
The number of filled jobs continues to rise (for 10 months in a row now), and a strong jobs market and low unemployment will bolster the housing market. Barring a COVID calamity, the jobs market looks set to stay robust well into 2022.
4. We’re building at speed
There were more than 48,500 new dwelling consents in the year to November 2021, easily a record high. But construction costs are soaring, so it wouldn’t be a surprise to see dwelling consents finally ease off this year as more households simply can’t make the finances work.
5. Rents likely to go up but market pressure can’t last indefinitely
On Thursday Stats NZ will publish December’s rental price figures, and the annual growth rate is likely to stay in the 5-6% range, well above the more typical figure of around 3%. Clearly, landlords are keen to raise rents at present to try and claw back some of the cost increases they’ve faced, especially around interest deductibility. However, in the long run, rents are anchored by what tenants earn (and can hence afford to pay), so a slowdown in rental growth is on the cards this year.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
