1. Mortgage lending stats point to a slowdown
The Reserve Bank published December’s mortgage lending figures today and they point to a slowdown in the market. Total lending in December was $7.9 billion - $1.7b less than December 2020. This was driven entirely by a drop in lending to investors, with lending to owner-occupiers flat year on year. Could this be the result of the CCCFA? Probably, but it’s hard to know its relative importance, when you’ve also got tighter LVRs etc. in the mix too. Also, $7.9b is still a high figure.
The figures highlight the impact of the LVRs, with 9.1% of lending to owner-occupiers with less than a 20% deposit the lowest since September 2018. I suspect it could drop to 5% (i.e. banks keep a clear buffer to the 10% speed limit), or perhaps even lower. First home buyers clearly starting to feel the pinch: of all lending to first home buyers in December, 32% was at low deposit, the smallest proportion since May 2018. There's also more evidence of shift to longer fixed rates, with "only" 52% of mortgages due to refinance in next 12 months, the lowest level since May 2020.
2. Omicron may not cause too much property disruption
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Clearly, any predictions about how the Omicron variant of Covid-19 may play out over the coming weeks and months carry a high level of uncertainty. But our hunch is that the red traffic light may not mean too much for the property market, at least based on what we know so far. For example, we were already anticipating a slow-down in sales activity, and omicron probably just reinforces that view. However, listings will be worth watching. If levels tail off as more and more people are required or choose to stay home, then we could see yet again a “mini bounce” for property prices in the next few months.
3. New listings ticking along as per normal
For now, the weekly flow of new listings coming onto the market is in line with where it normally sits for this time of year: steadily ramping up after the holiday period, but yet to reach the normal February/March peaks. At the other end of the pipeline, we’re seeing a slight drop in sales volumes, meaning the total stock of listings available on the market has had a chance to replenish, albeit still at comparatively low levels by past standards.
4. Inflation data confirms the next official cash rate increase
Last week’s figures showing that consumer prices rose by 5.9% in 2021 (the highest inflation rate for more than 30 years) confirm the next increase in the Official Cash Rate (OCR) on February 23 and potentially a 0.5-point rise rather than the conventional 0.25. Petrol and housebuilding costs are key areas of price heat in the economy, and needless to say, a higher OCR to try and control inflation also means more upwards pressure on mortgage rates.
Corelogic chief economist Kelvin Davidson: A 0.5 point hike in the OCR is on the cards. Photo / Supplied
5. Labour market data worth keeping a close eye on
Stats NZ will update us with the latest labour market figures on February 2, and all signs point to the unemployment rate having stayed very low in late 2021, at around 3.5% or a touch less. This could be a swing variable in 2022. If unemployment stays low this year (and given that the banks are generally already testing serviceability at rates of 6.5% or greater), we suspect most households will adjust well to the higher mortgage rate environment. But if jobs start to be lost, this could turn from a property market slowdown into a more significant downturn.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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