Be prepared for a long slow grind in 2024
Kelvin Davidson explains the five things in property you need to know this week
■ 1. 2024 set to see an underwhelming upturn?
Our annual Best of the Best Report was published last week, covering suburb-level data across a range of different measures, such as rent and value changes, yields, and days on the market — and not just the top performers, but the weakest too. Indeed, the data illustrates just how sluggish the overall market actually was in 2023, with the strongest growing suburb, Sunshine Bay in Queenstown, ‘only’ recording an increase in median values over the past year of around 7 per cent. Hargest in Invercargill has recently seen properties sell in about 11 days, whereas Ohakune in the central North Island has been above 100.
The report is also where we provide a written summary of the year that’s just been (2023: the year of two halves) and set out some key expectations for the year ahead. With affordability still stretched, mortgage rates unlikely to fall much until 2025, and caps on debt-to-income ratios firmly on the cards next year too, I think the scene is set for 2024 to be the ‘year of the underwhelming upturn’.
That housing market caution is reinforced by the prospect of a fairly subdued economic outlook for 2024, with the risk of some job losses. Certainly, it was hardly encouraging to see last week’s figures showing a 0.3 per cent drop in GDP in Q3 with Q2’s growth figure also substantially revised downwards. That said, the GDP figures imply more spare capacity in the economy than previously thought, and downwards pressure on inflation — hence reduced chances of another OCR increase in this cycle.
■ 2. Reserve Bank is back in the news, again
It seems that hardly a day goes by without the Reserve Bank being in the news for something or other, and last week it was two things. First, it published a discussion document which looked at the LVR system since these lending restrictions were introduced in 2013. The report didn’t tell us too much new; just that LVRs have played a role in stabilising our mortgage/housing market and financial system, but that other factors matter too (such as interest rates themselves).
Second, the new Government has wasted no time at all in changing the RBNZ’s monetary policy mandate — already it’s been pushed back to a single target; to keep inflation within a 1-3 per cent band over the medium term. It no longer officially has to factor in employment or the housing market, although of course those factors will still play a role in decisionmaking.
■ 3. Migration is straining the rental sector
Another month and another new record for net migration into NZ — a total of around 129,000 in the year to October. This extra demand for property hasn’t necessarily boosted sales or values just yet, but it’s clearly influencing rents, with the availability of property for tenants at low levels.
■ 4 . Sales activity is still rising, but it’s from a low base
Our data shows that agreed sales volumes were 19 per cent higher in November than the same month last year, the seventh rise in a row. But the level of activity is starting from its lowest point in about 40 years, so those increases aren’t yet translating to an overwhelming rise in the number of deals. It may be a long, slow grind back towards normality.
■ 5. Still tight out there for borrowers with low deposits?
Finally for this week and the year, there’s only really one key, property dataset that I’ll be watching in the coming days, and that’s the Reserve Bank’s mortgage lending figures for November on Thursday afternoon.