- The tighter loan-to-value ratio restrictions for investors have had a dramatic effect on investor buying. Lending to investors now account for 26% of mortgage lending, down from 38% in June 2016. That's a major turnaround and is exactly what was intended by the Reserve Bank. Clearly investors are now less active because their line of credit has been restricted.
- Banks are rationing credit. Now a larger share of new lending is on less-risky terms. Lending to those who borrow more than 70% of the property value accounted for only 13% of the total lending in February, down from 33% in July and over 50% in mid-2015. Reducing the risk to the banking sector in this way was another goal of the Reserve Bank that has been achieved.
- Interest rates are rising, not falling, and there are now clear signals that interest rates will continue to rise. That's making borrowers more cautions about trading up or getting into their first home if that involves high debt. Caution is becoming the prevailing sentiment.
Thursday, March 30, 2017
Frank Newman: Property market on the turnLabels: Frank Newman, Property Issues
The latest issue of Property Focus by the ANZ has some interesting, if somewhat sober, commentary about the current state of the property market. In essence they say the market has turned, but due to a lag effect it has yet to become evident in the annual property measures.
They say, "On a 3-month annualised basis, nationwide prices are running at 1.9%, which is down from over 23% in mid-2016. Auckland and Christchurch prices are actually 6.7% and 10.2% lower respectively on the same measure; even if we account for volatility that’s an almighty thump…Nationally, house prices are still up 10.6% on a year ago according to the stratified measures, but annual changes lag turning points. Quarterly changes are noisier but more adept at picking changes in the market. The signal on this front (just +0.5% 3m/3m in February) indicates a clear slowdown."
Supporting their view is a downturn in the number of houses being sold. They say,
"House sales have fallen in seven of the past 12 months, with turnover down 24% since April. This weakness is broad-based. Auckland sales volumes are down 13.6% y/y, with the February seasonally adjusted monthly sales more than a third lower than the September-2015 peak, while ex-Auckland seasonally adjusted sales volumes are down 12% y/y (-21% from their April-2016 monthly peak)."
A slow down in prices and a fall in the number of properties being sold is a clear indication that the market has cooled. The presumption is that this flat-lining will show up in the annual figures over the next three and six months.
The ANZ points to a number of reasons contributing to the turnaround:
The ANZ says that migration flows to and from New Zealand continues to be the one of the major drivers of the housing market. "The early-1970s, mid-1990s and mid-2000s house price booms coincided with large net migration inflows…On a three-month annualised basis, net permanent and long-term migration was close to 74,000 in February, which is near all-time highs and over 1½% of the resident population. More arrivals and fewer departures have both contributed to this large net inflow, although over the past 12 months or so, the former has been the dominant factor."
They expect migration inflows to remain strong, but there is little doubt that a reversal in the migration trend remains the greatest risk for property investors. History shows that migrations numbers are volatile and can change direction very quickly - particularly from Australia.
The great advantage New Zealand has is that it remains attractive to overseas migrants - more so post-Brexit and as the US becomes increasingly polarised politically.
The ANZ also has some interesting comments about home affordability:
"We estimate that for a purchaser of a median priced home (20% deposit), the average mortgage payment to income nationally is around 34% at the moment. However, once again there are stark regional differences, with the average mortgage payment to income in Auckland around 51% for new purchasers. That is on par with the highs reached in 2007 despite mortgage rates being near historic lows currently. It highlights how sensitive some recent home-buyers in Auckland would be to even a small lift in interest rates."
There is no question that quite a few homeowners in Auckland will be becoming concerned that the value of their home is not rising, while interest rates are. Market sentiment in Auckland has shifted from exuberance to caution, and that is likely to become more obvious in the months ahead.
at 9:45 PM