The battle to find a place to call home
The five things you really need to know about the housing market this week.
1 Recovery remains patchy This property market upturn could prove to be underwhelming compared to previous cycles, and is likely to be variable from month to month and across regions, too. Most notably, measured across estate agents and private deals, sales volumes in January were only 2 per cent higher than the same month last year, with key markets such as Auckland, Hamilton, and Dunedin actually seeing a drop in sales. In fact, the national total in January of about 3200 sales was basically (apart from January 2023) the lowest for that month since 1983. It wouldn’t be a surprise to see a bounce back in February, but still, the ongoing pressures from high mortgage rates are pretty clear to see.
2 Houses cheaper, not cheap Another factor behind the variability of this recovery phase so far is simply that housing affordability remains stretched. Yes, if you look at measures such as the number of years it takes to save a deposit, property is less expensive than it was at the worst point in the first quarter of 2022, when it took 11.5 years, compared to 9.3 years now.
But even so, I doubt many people are rushing around saying: “Look how cheap houses are”. Indeed, an alternative measure — mortgage payments as percentage of gross average household income — remains at 49 per cent, still close to the toughest figure on record, of 52 per cent in late 2022. Clearly, we still have a significant affordability challenge in our housing market, which may be helped over the medium term by caps on debt to income ratios. Ultimately, however, it’s about building enough houses (right type/location) to meet demand.
3 Rents are still rising quickly too Meanwhile, housing costs remain problematic for tenants, too, with the latest Stats NZ figures showing rents on new leases rose by 6.8 per cent in the year to January — more than double the longrun average rate of 3.2 per cent. This reflects recent wage growth, as well as the standard combination of high demand (stemming from net migration) and tightening stocks of available rental properties. At a regional level, there’s clear strength in rental growth in Auckland and Christchurch, but all of the other main centres are seeing rents rise fairly quickly, too.
4 Debt to income ratios back in the spotlight The latest figures show lending on high debt to income ratios remains minimal at present — with only 6-7 per cent of first-home buyer loans going out at DTI >6, and a very similar figure for investors at DTI >7. These figures are way below the proposed 20 per cent caps, with high mortgage rates currently doing the job of restraining the size of loans in relation to incomes. Indeed, the DTIs are all about the next cycle, and will only start to bind when mortgage rates drop again. Over the longer term, they won’t stop cut off lending to investors, but it will likely be a slower process to grow a portfolio.
5 Recession averted? Finally, for this week’s commentary, it’s quieter in terms of data releases over the next few days, but I’ll still be watching for the latest NZ Activity Index today, covering January’s performance. The NZAC hints we might have avoided recession in the final quarter of last year, so it’ll be interesting to see how 2024 started. Remember, there are trade-offs here; a stronger economy should support employment and the housing market, but it’d also tend to keep inflation a bit higher for longer, sustaining the pressure on mortgage rates.