RBNZ’s not keen on lowering rates
The five things you need to know about the housing market this week, according to Kelvin Davidson.
1. Property values slow in January
The CoreLogic House Price Index showed a 0.4% monthly rise in national average property values to start off 2024, a solid result, but a smaller rise than 0.7% in November and 1% in December. Still, with mortgage rates where they are, it shouldn’t be too much of a surprise if the recovery proves to be patchy and variable from month to month, and across regions too. Certainly, Tauranga and Dunedin were stronger in January, but Hamilton and Wellington flattened off.
2. The Government gives a bit …
Of course, even if the outlook for house prices remains a bit subdued, there’s every reason to at least think they’ll continue to rise to some degree. This was reinforced by the announcement last week from the Minister of Commerce that the controversial Credit Contracts and Consumer Finance Act (CCCFA) will be loosened again over the next few months. This will reduce the strict emphasis on a mortgage borrower’s income and expenses when they apply for a loan, making it just a little easier to secure that finance. Expenses, such as trips to Kmart or weekly takeaway coffees, will still be checked, just not as heavily as before, with the bank having more discretion to make choices.
3. … but the Reserve Bank ‘pushes back’
On the other hand, anybody hoping for a near-term fall in the popular 1-2 year fixed mortgage rates had their expectations doused a little last week by the Reserve Bank. In a highly anticipated speech, Paul Conway, RBNZ’s chief economist, stressed that non-tradable inflation is still a large concern (domestic items such as rents and council rates) and also that it’s not obvious a large degree of spare capacity has opened up in the economy either. Taken together, this suggests that the RBNZ isn’t inclined to reduce the Official Cash Rate anytime soon, perhaps not until much later in 2024. This will tend to hold up those shorter term fixed mortgage rates for a bit longer yet.
4. Mortgage lending volumes are slowly rising
In turn, elevated interest rates will tend to keep the emerging increase in mortgage lending activity fairly slow. Indeed, this has been the experience to date. On December’s numbers which were released last week, overall mortgage lending flows (new loans, top-ups, and bank switches) totalled $5.3 billion, up by about $0.2bn from the same month in 2022, and the fifth increase in a row. But from such a low base, a $0.2bn increase is hardly a rollicking result, and just reflects the continued cautious attitudes that prevail from both the banks and borrowers themselves.
Indeed, although the speed limit for low equity (or high LVR) owneroccupier lending is 15%, only about 7-8% of borrowers have recently been getting a loan with <20% deposit. Similarly, less than 1% of investors have been taking out loans with <35% deposit, versus the allowance of 5%. On these numbers, the LVR restrictions currently appear more binding for investors than owner-occupiers, so it wouldn’t be a surprise to see investors react more strongly if/when LVRs ease mid-year.
5. Unemployment rate rising but not due to job losses?
Looking ahead, the hugely important Q4 labour market figures will be published by Stats NZ on Wednesday morning, and it seems likely that the unemployment rate will have risen from 3.9% to more than 4% – at face value, a downwards influence on the property market. But I’d just point out that even a 4% unemployment rate is still pretty low, and more importantly, it could well have been driven simply by more available workers (high net migration) rather than job losses. That’s a less concerning shift for the property market.
Kelvin Davidson is chief economist at CoreLogic