The five things you need to know about the housing market this week.
1. The falls in property values roll on, albeit not everywhere
The latest figures from the Cotality Home Value Index show further drops. The 0.4% fall in the nationwide median property value in October was the seventh monthly drop in a row. The nationwide value of $790,987 is now 2.3% below where it was last year, 19.1% below the January 2022 peak, and the lowest it's been since December 2020.
Auckland and Wellington property values also suffered further declines, but Christchurch and Dunedin values showed a bit more resilience. Meanwhile, if buyers are confident about their own income security and can pass the bank tests too, it’s a great time to be out there looking to make a purchase. That being said, existing owner-occupiers also need to sell their own house, which is a bit of a challenge right now. And investors, of course, are facing a few headwinds too (e.g. sluggish rents, rising costs), so it’s not all in favour of some buyer groups.
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2. New dwelling consents move past the peak?
Turning to construction, Stats NZ reported last week that new dwelling consents in September were almost 5% lower than the same month last year, the first fall in 14 months. It’s early days and one softer month doesn’t necessarily signal a new trend; indeed, the rolling 12-month total is still pretty solid at around 41,100.
Unfortunately, further falls in consents wouldn’t be a surprise if fuel costs remain high and builders have to pass on higher materials costs to their customers. That’s a tough ask in a market where existing property values are weak (and mortgage rates have risen). It may lead to a further retreat from new builds.
3. Labour market figures were disappointing too
Just when you thought there was a whiff of better economic news coming through ... Stats NZ reported last week that the unemployment rate edged higher again in Q3, from 5.6% in Q2 to 5.7% (an 11-year high). It was no surprise that the working-age population grew and the participation rate fell. Both tend to offset each other in terms of registered unemployment. But the swing (shock?) variable was that employment fell by 0.1%, when many had expected it to increase.
Cotality chief economist Kelvin Davidson: "The popularity of longer fixed terms has fallen sharply in the past 3-4 months." Photo / Peter Meecham
On balance, then, these figures would tend to reduce the chances of an OCR rise on December 9, especially since wage growth remains soft (and hence the risk of second-round price pressures is lower than otherwise). But there are caveats: labour market data is lagging - it's not a forward-looking indicator; inflation is expected to rise above 4% in Q4; and every member of the Reserve Bank's Monetary Policy Committee indicated last month that the OCR hasn't finished its upward swing yet. December's OCR meeting is certainly live.
4. Taking a punt on flatter rates?
The share of new lending on a one-year fixed rate rose to 35% in September, from 30% in August and 24% in June. By contrast, longer fixed terms have fallen sharply in popularity in the past 3-4 months. With the margin (about 0.3%) between two-year and one-year rates relatively high at the moment (roughly 5.3% versus around 5%), I suspect people are taking the cheapest rate and punting that the one-year fix won’t have spiked when they need to review it this time next year.
Fair enough. To "break even" by taking the shorter rate, the one-year fix would need to be 5.6% or less this time next year, which right now isn’t a bad bet. But there’s also value in spreading debt over various terms, and a two-year rate of around 5.3% still offers some certainty too. Each to their own.
5. Migration continues to drift higher?
Just a quick look ahead: Stats NZ will publish September’s net migration figures on Thursday, and there may well be a continuation of the recent upward trend. But it’s coming off a low base, and there’s no obvious pressure yet on housing demand.
- Kelvin Davidson is chief economist at property insights firm Cotality
