1. House price falls across the board
According to CoreLogic’s latest suburb value figures, more than half of the country suburbs have seen declines in their median property value since March, with the falls spread across the country and across different tiers of the market too, from expensive areas to cheaper locations and everything in between. Obviously these falls are great for would-be first home buyers, but anybody who stretched themselves to make a purchase in the second half of 2021 may not be quite so pleased. Of course, amongst the falls, there are also decent numbers of suburbs that have seen further gains since March.
2. Recession risks haven’t really changed
Following the disappointing Q1 GDP result (fall of 0.2%), economy-watchers are hot on anything that gives insight into how Q2 GDP might be shaping up (keep in mind that another fall in GDP would put us into technical recession). For now, it’s all still a bit patchy. Some surveys of manufacturing and services have been encouraging. But consumer and business confidence remains subdued. And last week’s NZ Activity Index indicated a rise in economic activity of 1.2% in the year to May – better than a fall, but hardly a stellar result (it had averaged 1.8% in the previous six months). Overall, regardless of whether we get a technical recession or not, it’s still tough out there in the real world, and this will be another challenge for the property market.
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3. Labour market still vital
At least one silver lining is that we still have very low unemployment, at just 3.2%, and nominal wages are rising (even if they’re still running below the pace of inflation). This week’s data from Stats NZ relating to filled jobs in May will be another key piece in the puzzle, especially after the ‘surprise’ 0.6% rise in April. Another strong month would calm some recession fears, but a reversal of April’s jobs rise would only add to those concerns. The labour market is still key to the property outlook!
CoreLogic chief economist Kelvin Davidson: “One silver lining is that we still have very low unemployment.” Photo / Peter Meecham
4. Easier or harder for low-deposit borrowers?
Also this week we’ll get the aggregated mortgage lending figures from the Reserve Bank relating to May. The breakdown I’ll be watching closest is the split by loan to value ratio (LVR), and whether or not the rise in the share of lending to owner occupiers going out at a high LVR in April was sustained last month too. Of course, even if it did hold steady at around 6%, that’s still a relatively low figure and less than the 10% speed limit. In short, attitudes towards low deposit lending still remain cautious, not least because of the potential drops in the value of the property being lent against.
5. Interest-only lending is sliding lower
The mortgage lending figures also show data by payment type and it’s worth noting that interest-only debt has become less significant over the past few years, dropping from about 40% of existing investor loans pre-COVID to around 34% now, with the fall for owner-occupiers being from around 12% to 9%. A more conservative attitude from lenders will lie behind some of this trend, but demand factors matter too. Indeed, given the phased removal of interest deductibility, there’s more incentive now for investors to pay off debt faster – hence some will have actively switched to a principal repayment schedule. In a world where capital gains look set to be lacklustre over the next few years too, building equity via reducing the debt levels also seems pretty rational.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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