1. Values poised to rise again?

The CoreLogic Home Value Index for January was published last week and it showed another broadly flat month. Technically, yes, national median values edged lower, by 0.1%. But that’s pretty minor, and after falling by around 4% between March and August last year, values have only dipped by less than 0.5% in the five months since then. That suggests a floor has been reached (except in Wellington where the market still looks pretty soggy) and with mortgage rates having fallen significantly, there’s a decent likelihood of a general rise in property values this year. Of course, with listings still elevated, the unemployment rate set to rise further, and debt-to-income ratio limits on the horizon, modest gains in values this year are more likely than a surge.

2. The banks continue to get busier

Inextricably linked to the gradual growth in property sales volumes over the past year or so and the emerging signs of a floor for values is the continued growth in mortgage lending activity. Across house purchases, bank switches, and loan top-ups, there was $8.1 billion of lending in December, the highest for any month since November 2021 and the strongest annual gain ($2.8bn) since June 2021.

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However, there’s nothing risky going on here. Interest only lending hasn’t disproportionately spiked, if anything low-deposit lending has softened as a share of the total, and although high debt-to-income ratio loans are becoming a bit more common, they’re still low – about 5% of the total for investors and 3% for first-home buyers.

It’s also interesting to see that in recent months, bank switching activity has continued to hover at around record highs (data back to 2017), roughly 25% of total lending flows. Cashbacks might be a factor here, alongside potentially attractive rate offers at the new bank, with the growth of mortgage advisers and hence more education about the options potentially playing a role too. In addition, the simple fact that many loans are either floating or on short-term fixed rates at present means that borrowers actually have greater ability to switch at zero cost (break fees) than before.

Mortgage lending in December hit $8.1 billion - its highest level since 2021. Photo / New Zealand Herald

CoreLogic chief economist Kelvin Davidson: "Modest gains in values this year are more likely than a surge." Photo / Peter Meecham

3. The recession is probably over

Last week’s NZ Activity Index for December from Stats NZ showed a minor 0.2% rise from a year ago, but when combined with solid results in October and November, the NZAC hints that official GDP data for Q4 may be looking a lot better (albeit we don’t get the data until March 20). That said, there’s still a lot of pressure on businesses and households, so even if the recession has technically ended, inflation is still well controlled, and further Official Cash Rate cuts remain firmly on the cards. Of course, the largest/fastest falls in mortgage rates could possibly be in the rearview mirror.

4. The labour market doesn’t seem to be in freefall

Another encouraging element to consider is the recent growth in filled jobs, up by 0.2% in November and 0.1% in December. These are still fairly small rises in the context of a cumulative 1.8% decline over April-October, but it’s nevertheless encouraging that the labour market doesn’t seem to be collapsing. Definitional differences mean the benchmark unemployment rate may still have risen in Q4 from around 4.8% to 5.1% (this data due to be released on Wednesday), but ‘it could have been worse’ and there are signs that the latest unemployment rate rise could be the last.

5. New dwellings consented seem to be bottoming out

Just quickly to finish, Stats NZ will publish December’s housing approvals data on Tuesday this week, and I’d expect to see further evidence that the long downturn since mid-2022 is now all but over.

- Kelvin Davidson is chief economist at property insights firm CoreLogic