1. No debt to income limits … yet
In the end, the latest six-monthly Financial Stability Report (FSR) from the Reserve Bank last week was a bit low-key, basically just noting that our system is still fairly resilient with the banks well-capitalised, but also that there are some risks to be aware of – including the issues around coastal retreat and insurance provision/cost. On the housing market, it noted that we’re a decent way through the mortgage repricing process, with only around 10% of outstanding loans still on rates of 4% or less. The report also noted that caps on debt-to-income ratios are still being figured out, but didn’t go as far as announcing the actual policy change just yet.
2. Job losses are now hitting the data
Just a bit after the FSR, Stats NZ also released some high-profile figures, relating to the labour market. The data showed a rise in the unemployment rate from 4% in Q4 last year to 4.3% in Q1 this year, largely as expected. But it was a bit more concerning that, rather than being driven by more workers available, the rise reflected some outright job losses. This was a bit surprising, given that the January-March figures for filled jobs had still been rising.
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Either way, it’s worth noting these figures can be a little erratic, and in big-picture terms the unemployment rate remains low. Even so, there are certainly more job losses to hit the figures (e.g. pending cuts in the public sector), so this remains a clear risk to the housing market, with mortgage rates still set to be high for a while yet. In other words, a softer labour market reiterates our view that house sales and prices are unlikely to soar higher this year.
3. House prices have gone flat
Indeed, the latest CoreLogic House Price Index did nothing to throw that expectation off course. At the national level, average property values technically dropped in April (by a minor 0.1%), but I’m calling that flat. After a more buoyant end to 2023 over November and December, it’s no surprise that the momentum in property values has faded, given that mortgage rates remain high and that the rise in listings on the market has given pricing power to buyers. On top of that, housing affordability remains very stretched, even though values are still about 11% lower than the peak.
CoreLogic chief economist Kelvin Davidson: "There are certainly more job losses to hit the figures." Photo / Peter Meecham
4. At least dwelling consents are ‘less bad’ than post-GFC
There were 2931 new dwelling consents in March, down by 26% from a year ago, and the 18th consecutive fall. Clearly, things are pretty downbeat in the house-building sector right now, with future workloads looking softer. However, at more than 35,000 consents in total over the past 12 months, they’re still far higher than the post-GFC period, which troughed at only about 13,000 in mid-2011. So the silver lining is that a return to those levels seems unlikely, and also the risks of housing shortages and a big spike in prices are also lower (albeit not zero) at present.
5. Still fixing short, and first-home buyers remaining active?
Looking ahead, on Tuesday we’ll get the latest figures (March) on the loan terms being chosen by borrowers when purchasing a house, switching banks, or topping up. In February, a record share fixed their loans for a short period of up to one year, and it seems likely that March will be similar, as people look to avoid fixing for too long, in order to benefit if/when mortgage rates start to fall.
Meanwhile, April’s CoreLogic Buyer Classification figures will be available later in the week, and I’d anticipate another solid result for first-home buyers in terms of their percentage share of activity.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
