1. Housing is more affordable but not necessarily cheap
The latest six-monthly Housing Affordability report from Cotality shows that across a range of measures, the situation for buyers has improved. The ratio of property values to median household incomes has dropped to 7.5, its lowest level since 2019, while the share of income required to service a new mortgage is currently 44% – the lowest since late 2020/early 2021 and pretty close to the long-term average of 43%.
Now, there are always caveats to these types of measures. For example, renting remains challenging, especially for households paying a typical rent but on a below-average income. Similarly, although affordability measures have generally improved as a result of falling prices and mortgage rates and rising wages, buying a house still isn’t easy. Indeed, it’s not as if the affordability measures have fallen significantly below their averages.
That said, purchasing a property at less than the average price with a high income will be easier than these measures suggest, and even based on the headline indicators, the key point is that housing affordability is not the handbrake on the market it once was. Even so, over the longer term, we’ll still need supply to outpace demand (or at least match it) to keep things in check. The debt-to-income-ratio rules may also help on this front.
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2. Bank switching remains the biggest story in lending town
July was another solid month for mortgage lending activity, up 36% year-on-year. Many of the underlying trends we’ve seen for several months now remain in place; high LVR lending is just ticking along, as is interest-only, and a lot of first-home buyers (49% in July) continue to get in at <20% deposit. High DTI lending as a percentage of the total is also slowly trending higher, but remains well below the 20% cap.
Cotality chief economist Kelvin Davidson: "Borrowers can jump ship more easily and more cheaply than in the past, with cashbacks from the new bank a strong incentive to do so." Photo / Peter Meecham
The big story, however, is the continued surge in borrowers switching banks. July’s tally exceeded the record flow in June, with more than 3800 borrowers swapping lenders. The short-term structure of existing debt (either on floating rates or short-term fixes) means borrowers can jump ship more easily and more cheaply than in the past, with cashbacks from the new bank a strong incentive to do so.
3. Tentatively better signs for employment
Last week’s filled jobs data from Stats NZ showed a 0.2% rise in July, after a (revised) 0.1% increase in June. Now, these are obviously small changes, and the number of filled jobs is still about 2% (or circa 46,000) below its peak in late 2023. But now with two monthly increases in a row, there are just some hints starting to emerge here that the labour market has troughed.
4. And maybe, just maybe, the wider economy is turning around too
It was disappointing to see muted results from ANZ’s business and consumer sentiment surveys last week, but we also got the NZ Activity Index from Stats NZ, which showed a decent annual lift of 1.9% in July. GDP may well have dropped a bit in Q2 (results due 18th September), but from Q3 onwards the data is now suggesting the start of a recovery, albeit modest. That would be consistent with the falls in interest rates now passing through to real activity.
5. Borrowers still hedging their bets?
The main release on my radar this week is a different split of July’s mortgage lending stats from the Reserve Bank on Thursday – this time looking at whether people favoured floating or fixed rates, or both. Indeed, the recent preference has been to take a mixture of terms, keeping some flexibility but also removing a bit of risk by locking in a longer fixed rate at <5%. This hedging behaviour may well continue for a while yet, especially given the clear expectation that the Official Cash Rate has further to fall before the end of the year.
- Kelvin Davidson is chief economist at property insights firm Cotality
