1. A bit more pain and a bit less gain
The latest CoreLogic Pain & Gain report (Q1 2024) was published last week, and with buyers in the ascendency when it comes to pricing, it was no major surprise to see another relatively subdued quarter for property resellers. In Auckland, 10.5% of properties that were resold in the first three months of the year got a price less than originally paid, up from 9.2% in the final quarter of 2023. In Hamilton, the pain share was 9.4%, although Tauranga eased down to 6.0% (from 6.5% previously), and Christchurch remained fairly low at 4.4%.
Tauranga ($417,000), Wellington ($405,000) and Auckland ($388,000) had the largest gains of the main centres in Q1 2024, whereas Hamilton, Christchurch, and Dunedin, all delivered resale profits in the $275,000-$300,000 range.
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On the other hand, given that most properties are held for the ‘long run’ (typically 7-8 years), the actual size of the gains remains significant and the losses relatively small. Indeed, the median resale profit nationally was still above $300,000 in Q1 2024. For some, that might be a cash windfall, e.g. an investor selling out, or an owner-occupier downsizing or moving to a cheaper location. But for many homeowners, that fresh equity will just need to be ploughed straight back into the next purchase, often alongside some more debt too.
2. Rental growth and net migration are finally easing
One tip I’ve always remembered from early in my career is to be absolutely sure that a turning point has been passed before "calling it" (and so I say this tentatively), but it does now appear that the pace of rental growth has peaked, and that net migration is also on the way down too. For example, the Stats NZ flow/new tenancy measure of rents was up by 4.2% in the year to April; still about 1%-point above the long-term average, but well down on the 7% peaks from late 2023. And net migration was about 111,000 in the year to March (dropping as resident departure levels rise), with the peak looking like it was around 139,000 in October last year. These developments bode well for the wider inflation outlook, although it might be cold comfort for tenants, for example, given that property demand has already been boosted and that rents are at a high level relative to incomes.
3. Sales are rising as vendors give ground
We recorded a 15% rise in property sales volumes in April compared to the same month last year, measured across both estate agents and private deals. That was the 12th rise in a row, and signals that deals are being done (albeit coming off a low base), perhaps helped along by the rise in listings and hence greater ability for buyers to find what they actually want. Of course, property values have really flattened off in the past few months too, suggesting that vendors are meeting the market, with buyers having the pricing power – or at least those buyers who can secure/afford the finance.
CoreLogic chief economist Kelvin Davidson: "The Reserve Bank has had a very consistent message for about a year now that inflation remains too high, and that interest rates won’t be cut until it’s back to the target range." Photo / Peter Meecham
4. Debt to income ratios under control
As we await the final decision from the Reserve Bank on the timing and structure of debt to income (DTI) ratio restrictions, in the meantime the actual lending flows at high DTIs remain relatively low – which is no surprise, given that mortgage rates are currently doing the job of capping how much debt people can get/service compared to their income. Over the first three months of the year, only around 5% of first-home buyers took out loans at a DTI >6, and about 7% of investors at a DTI >7. Keep in mind that the proposed allowances for lending outside the DTI rules are right up at 20%.
5. Another ‘boring’ Official Cash Rate decision?
Ordinarily I’d allocate lots of space to previewing an OCR call, which is due this Wednesday at 2pm. But this time around I just think it might come and go pretty quickly, with no change to the cash rate (5.5%), and also very little deviation in the RBNZ’s forecasts for things like GDP, employment, inflation, the OCR itself, and house prices, nor much change to the vibe of their commentary. In a nutshell, the Reserve Bank has had a very consistent message for about a year now that inflation (while coming down) remains too high, and that interest rates won’t be cut until it’s back to the target range. Nothing’s changed enough in the past 4-6 weeks to really sway that.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
