1. The cost of building a house will get a lot more expensive
The latest Cordell Construction Cost Index showed a rise in the cost to build a typical house in NZ of 6.1% in the 2021 calendar year. But with Omicron slowly worsening and supply chains still under pressure, not to mention the capacity pressures faced by builders which are likely to persist for a while yet, it wouldn’t be a surprise to see cost growth hit double digits shortly. That might start to subdue new dwelling consents as more households pull back from the new-build path (either by choice or because they can’t get finance for a more expensive project), but the builders themselves may not be too concerned – given their workloads are assured for some time yet.
2. Not much love for first home buyers
It’s Valentine’s Day today, but unfortunately first home buyers may be feeling a little shunned right now. The CoreLogic Buyer Classification series showed that their market share of property purchases fell from 26% in the final few months of 2021 to 24% in January – no doubt reflecting the double whammy of tighter loan to value ratio rules and the changes to the Credit Contracts and Consumer Finance Act (CCCFA). At the same time, with a few more listings becoming available, previously-stuck owner-occupiers are enjoying more choice and moving around more frequently.
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3. Housing (un)affordability still a key concern
As a sneak peek, our soon to-be-released Housing Affordability Report shows a further deterioration across the board, with rising mortgage rates now adding to the pre-existing affordability pressures that we face. With first home buyers having to save far longer to get their deposit and existing homeowners also having to buckle down (as mortgage costs rise), this is another factor that points to a significant housing slowdown this year.
CoreLogic chief economist Kelvin Davidson: “First home buyers [are] having to save far longer to get their deposit.” Photo / Peter Meecham
4. Be wary of the migration optimists
December’s migration figures will come and go this week without too much fanfare (because they’ll still be very low). However, as the borders reopen, these figures are likely to come back into public discussion fairly prominently – and no doubt some will suggest that a possible surge in returning Kiwis (as well as non-citizen arrivals) will kick-start housing again. But don’t forget that it’s the net figure that matters, and we’ve got no doubt that many current residents will want to leave, especially for the sunnier shores of Australia (where the border is open shortly).
5. More insight into debt to income ratios on Friday
At 3pm on Friday the Reserve Bank will publish the latest three-month batch of debt to income (DTI) ratio stats for mortgage lending. These are of key interest, given the current open consultation on how a system for capping DTIs might operate (while also noting that at least two major banks already use DTI caps). The most recent figures showed that investors borrow at high DTIs far more frequently than owner-occupiers, so any system that eventually gets implemented (and to be fair that is not necessarily a given) can be expected to hamper investors the most.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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