1. Loan to value rules are about to ease
Last week, the Reserve Bank of New Zealand (RBNZ) announced their intention to slightly loosen the loan to value ratio rules (LVRs) on June 1. It wasn’t a surprise that this is their plan, but the timing of the announcement did take most people aback – coming well before the previously-implied plan of around March next year, which will be when debt to income (DTI) ratio rules are set to commence.
There’s no sense here that the RBNZ feels that they need to rescue the market. Indeed, that’s not actually its job, and even after recent falls, house prices may still be slightly above a normal/equilibrium level. This is more about its perception that some credit-worthy borrowers are being unjustifiably turned away. Overall, the tweak to LVRs isn’t huge, but it does add to the sense that prices may be about to stop falling – for better or worse (depending on your perspective).
Wednesday’s Financial Stability Report from the RBNZ will no doubt provide a lot more detail around its LVR thinking, as well as potentially an update on its DTI plans.
Start your property search
2. CCCFA comes back into the spotlight
On Thursday this week, the CCCFA rules will loosen again, essentially with banks now able to ignore more of a borrower’s discretionary spending, on the assumption that if they did run into financial trouble down the track they’d still prioritise the mortgage and cut those extra spending items. On balance, this basically adds a bit more demand to the market now – although high mortgage rates (and serviceability test rates) are obviously still a key hurdle for would-be borrowers.
3. It’s still a jobfull recession
Across a bunch of economic data releases last week – ANZ’s April business and consumer confidence data, as well as the March NZ Activity Index – we still appear to be in recession, give or take. But employment continues to rise, with filled jobs up by 0.4% in March. Given skills shortages, firms are hanging onto workers, even as their business volumes slide a bit, i.e. a jobfull recession.
CoreLogic chief economist Kelvin Davidson: "There’s no sense here that the RBNZ feels that they need to rescue the market. Indeed, that’s not actually their job." Photo / Peter Meecham
4. Labour market yet to crack
The key economic data release this week will be the official Q1 labour market figures from Stats NZ on Wednesday. The monthly data in this regard has generally remained pretty solid, including of course the filled jobs figures discussed above. And even if the unemployment rate is shown to have increased a bit in the first three months of the year, don’t forget that it could simply be due to a larger labour force (but new entrants to the market finding it harder to secure a job) rather than outright job losses amongst existing employees. On the whole, a flattish unemployment rate in Q1 wouldn’t be a surprise, with limited implications for monetary policy or the housing market. At most, one final official cash rate increase, of 0.25 percentage points, still seems likely on May 24.
5. Construction remains a key focus too
Stats NZ will publish the March dwelling consent figures on Thursday, and it seems likely that the downwards trend will continue. However, the waters could be muddied a little by the increase in insulation standards that is now required in the building code from today. Anecdotally this could add 5% to the value of a consent, meaning some people may have tried to rush these through over March and April to avoid the additional cost. That hints at a temporary spike, but then a renewed drop on consents from the May data onwards.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
