‘Groundhog Day’ for sales and values, but there’s still churn beneath the surface

At face value, the housing market remains pretty subdued. Sales activity is sliding lower (albeit from a decent level) and property values are still subdued, while buyers continue to enjoy plenty of choice. But as has often been the case over the past year or two, there’s a bit more happening beneath the surface than the headline figures suggest.

One of the more notable themes continues to be the strength of first home buyers. Their market share has recently pushed above 29%, another record high, supported by lower property values than a few years ago, elevated listings, KiwiSaver assistance, and the ongoing availability of low-deposit lending. Current conditions remain among the most favourable for FHBs that we've seen for some time.

By contrast, movers have generally been more cautious. In fact, relocating owner-occupiers have been a key contributor to the slowdown in sales activity this year, with many households preferring to stay put rather than trade up or down in an uncertain economic and labour market environment. Investors are still active to a degree, but many seem content to wait and see what happens after the election before making major decisions. Labour’s announcement that they’d keep interest deductions in place will at least remove one source of uncertainty for some investors.

Of course, the OCR and mortgage rates remain front of mind for many borrowers, if not all. The Reserve Bank lifted the OCR to 2.75% in early September and indicated that further increases remain possible. Mortgage rates haven’t perhaps reacted fully to that move right across the curve, although that’s because the OCR rise had already been priced in to a degree.

We’re still not really seeing the speed limits for high LVR or high DTI finance being tested, while interest-only lending remains fairly controlled too. Bank switching or refi activity remains relatively buoyant by past standards, albeit now showing signs of a slight downwards trend.

It seems likely that the main focus for many borrowers could be on their best decision in a rising rate environment. Obviously that comes down to the individual, although the data is telling us that many new borrowers are favouring a two-year fixed rate at present, with existing borrowers who are rolling over onto new rates potentially thinking similar things. There may also be some who are looking to break existing loans to get in earlier and (potentially) avoid an even higher rate later. 

Meanwhile, housing values continue to drift lower. The latest Home Value Index recorded a sixth consecutive monthly decline in September, with the national median value now sitting around $797,000. Yet it would probably be overstating things to describe conditions as a fresh downturn. High listing levels are giving buyers negotiating power, but most vendors are not under significant pressure to sell. As a result, value movements remain relatively modest and patchy across the country.

Looking ahead, a dramatic change in direction still seems unlikely in the near term. Economic uncertainty hasn't fully disappeared, mortgage rates may yet edge a little higher, and the election remains a key consideration for many households and investors.

Kelvin Davidson
Cotality NZ Chief Property Economist

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