Owner-occupiers are poised to move! Has New Zealand escaped recession for now? Key property market developments to watch this week

Owner-occupiers are poised to move

 

CoreLogic’s latest survey data on different categories of property buyers shows that a combination of weak market confidence, restricted access to finance and a shortage of available properties has left most owner-occupiers inclined to stay put. This includes those looking to upsize, downsize or move to another area.

 

However, CoreLogic chief economist Kelvin Davidson says it would still be unsurprising if these owner-occupiers became active again over the coming months. More people choosing to move could reflect a desire to upsize before house prices are pushed higher again. Owner-occupiers also list their existing homes for sale while buying their next property. In addition, many mortgage holders may consider downsizing as a way to manage mortgage stress: reducing their debt when they cannot afford higher repayments, and lowering the risk of a mortgagee sale.

 

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Property investors with deposits of 35–40%

stand to benefit from changes to LVR rules

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In June, new mortgage lending across New Zealand totalled NZ$5,700,000,000, including top-ups and loans taken out when switching banks. To some extent, this figure reflects a recovery in lending to owner-occupiers, who accounted for 6% of the overall lending market in June.

 

By comparison, the share of lending to investment property buyers remained relatively low. In June, only 0.3% of investor lending was at a high LVR, above 65%, well below the Reserve Bank of New Zealand’s 5% cap. Notably, the reduction in deposit requirements for investor buyers from 1 June, from 40% to 35%, did lead to a sharp rise in the proportion of this group buying with smaller deposits, below 40%. These investors had previously been turned away by banks. In fact, Reserve Bank of New Zealand figures show that in June, nearly 18% of investor lending involved deposits of between 35% and 40%, up from 0.3% in May. This was the highest proportion recorded since the end of 2019.

 

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Have we escaped recession for now?

 

Last week, the New Zealand Activity Index released by Stats NZ showed that by June, economic activity in New Zealand had risen by 0.8%, with the index also averaging 0.8% over the 4–June period. Comparing the average New Zealand Activity Index with GDP suggests economic growth of around 0.3–0.5% in the second quarter of 2023. Although Stats NZ will not confirm the actual GDP figures until 21 September, it currently seems likely that the mild recession spanning late 2022 and early 2023 has ended. Of course, many people still worry that the delayed impact of earlier monetary tightening on most households’ spending could bring another recession later in 2023.

 

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This week’s focus: where is New Zealand’s unemployment rate heading?

 

This Wednesday, Stats NZ will release its latest labour market figures, undoubtedly the most important economic data due this week. How the figures turn out will be a significant test of whether the Reserve Bank of New Zealand’s monetary policy can support sustainable employment.

 

Previously released figures show that the employment rate has continued to rise in recent months, while increased net migration has also expanded the labour force. Kelvin Davidson expects the upcoming labour market figures may show no particularly marked change, and will not fully dispel concerns that the Official Cash Rate could rise again later this year.

 

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Foreign buyer numbers are negligible

 

Figures released by Stats NZ last week showed that buyers without New Zealand citizenship or permanent residency accounted for 0.4% of all property purchases in the second quarter of 2023, and 0.8% of total sales value. These figures were already relatively low before the foreign buyer ban took effect in October 2018, and fell further after its introduction.