1. Borrowers fixated on short-term fixes
The Reserve Bank’s latest mortgage lending figures show that activity is trending higher, thanks to more house sales and borrowers who are keen on switching banks. The data also showed that high loan-to-value lending and debt-to-income ratios remain under control, as does lending on interest-only terms.
Arguably the most intriguing aspect of the mortgage market at present is the stampede towards short-term fixed rates or even floating loans. Indeed, in November, 47% of new loans were taken out on floating rates, with just 6% fixed for longer than 12 months. To be fair, this all makes sense as borrowers try to ride the wave of falling mortgage rates down as quickly as they can. But it’s going to be interesting to see if or when people start to see value again in those longer-term fixed rates (say 2-5 years) and change their preferences.
2. Inflation still under control
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Speaking of the Reserve Bank and monetary policy, there was further good news last week in the form of new inflation figures from Stats NZ. The latest selected price indexes, which cover almost half of the goods in the consumer price index, showed that inflationary pressure remained very low, at less than 2%. To be fair, not a lot of the items covered are in non-tradable or domestic baskets, where the more problematic parts of overall inflation reside.
But even so, the figures suggest that the CPI numbers out on Wednesday and covering the last quarter of 2024 will show a result fairly close to the 2% mid-point of the Reserve Bank’s 1-3% target band. That’s good news and means the Reserve Bank still has a clear runway to keep lowering the Official Cash Rate.
CoreLogic chief economist Kelvin Davidson: "It’s going to be interesting to see if or when people start to see value again in those longer-term fixed rates." Photo / Peter Meecham
3. The number of new dwellings consented may have bottomed out
One part of the economy that might already be showing the first signs of improvement, or at least the last signs of deterioration, is residential construction. In particular, last week’s Stats NZ figures showed that the number of new dwellings consented in November (3100) was about 5% higher than the same month in 2023, the second rise in the past three months – and meaning that the annual running total has now been pretty stable at just short of 34,000 for the past six months.
In other words, it’s looking more and more likely that dwelling consents have stopped falling (and crucially are still at a reasonably high level by past standards), which bodes well for actual construction output over the next 12-18 months. To be fair, a fresh boom in house-building may not start for a while yet. But at least the end of the downturn would be something to celebrate.
4. Watching jobs and other timely economic indicators
Last week Stats NZ reported that filled jobs rose a touch in November (encouraging for the housing market) and this week we’ll get the December NZ Activity Index, which is a timely proxy for the overall quarterly GDP figures. A positive NZAC result would add to the tentatively encouraging message from those filled jobs figures.
5. Net migration still likely to be subdued
Finally for this week’s column, look out for the November’s net migration figures on Thursday. They’re likely to be fairly soft (with arrivals down and departures up), which is helping to explain why property rents are relatively flat at present.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
