1. The lending market is slowly turning
Reserve Bank data for November (released the last working week of December) showed $6.5 billion of new mortgage lending activity, across house purchases, bank switches and loan top-ups. That was $500 million higher than in December 2022, and is the strongest rise in this emerging upturn for lending activity, which started in August. There’s been growth in lending to both owner-occupiers and property investors. It reflects lending on less risky principal and interest terms, there not really interest-only activity to any great degree.
In a nutshell, alongside many other housing market indicators, mortgage activity is slowly turning around as well.
However, there are also some other important sub-plots to note. First, a substantial 55% of existing borrowers will see their loan repriced in the next 12 months, typically to a higher mortgage rate than they’re currently paying. And second, the LVR rules are still pretty binding – just 0.4% of investors got a loan with less than 35% deposit in November (versus the ‘speed limit’ of 5% of investors), while about 8% of owner-occupiers got a mortgage with less 20% deposit, versus the allowance of 15%. These are reasons for caution about the speed of any wider housing upturn.
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2. Good news for borrowers ...
Of course, even if general credit conditions remain restrictive for now, at least the cost of finance is showing signs of falling – most notably for the two to three-year fixed mortgage rate terms with the main banks. To be fair, it remains to be seen whether borrowers will take those rates, or some might perhaps fix really short terms (or float) and hold out for an even juicier deal later. But either way, and despite the Reserve Bank still talking tough on inflation and the Official Cash Rate, it does now appear that households have pretty much already seen the worst for interest rates.
CoreLogic chief economist Kelvin Davidson: "The cost of finance is showing signs of falling but look out for changes later in the year for debt-to-income levels." Photo / Peter Meecham
3. … but the bad news too
However, any falls in mortgage rates might have a more muted impact on the housing market and borrowers’ ability to get finance if the Reserve Bank reacts by imposing caps on debt-to-income ratios (DTIs) more quickly. The next step here is another consultation within the next month or two about the actual DTI rules – where the cap might be set, speed limits and any exemptions for new-build properties, as per the current LVRs. To be clear, for now, a DTI system isn’t expected until sometime in the second half of the year. But watch this space.
4. Year of the underwhelming upturn?
So where do I currently stand on overall housing market prospects in 2024? Even when key fundamentals such as housing affordability still look so stretched, the role of psychology or expectations in the market can never be underestimated. But even so, I suspect the upturn over the next six to 12 months is likely to be a little underwhelming compared to the past. I’ve penciled in a rise in sales activity in 2024 of around 10% (but that’s from a low base), and price growth of 5% or so.
5. Ongoing opportunities for first-home buyers?
Existing property owners might be disappointed if those general expectations come true, but there are always two sides to the coin in the housing market, and would-be first-home buyers (FHBs) would tend to be cheerier.
They’re already using their KiwiSaver funds for a deposit (or at least part of it) and also making full use of the low deposit lending allowances at the banks. Another relatively flat year for prices would allow more FHBs to accumulate larger deposits at a time when mortgaged investors might still just struggle a little to get the sums to stack up on a rental property purchase.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
