Will new housing market stimulus policies bring more property investors back? 5 things to watch in the housing market this week

The latest buyer classification data from property research firm CoreLogic shows that small-scale property investors account for the largest proportion of buyers who have withdrawn from the market in recent years. These are the so-called “mum and dad” investors who own their own home and have some savings. Some may have considered the returns from keeping their money in a “safe” term deposit more attractive than investing in a market where house prices continued to fall. Others may have been unable to obtain loans because banks tightened lending standards and raised their mortgage test rates. Either way, there is reason to believe small-scale investors will return as mortgage interest deductibility is restored in stages. Of course, this also depends on rental yields and mortgage interest rates returning to levels investors can afford. We will have to wait and see.

Although most investors currently still need to use other income to cover their investment properties’ monthly mortgage interest payments, one thing has fundamentally changed: rising rents are gradually improving their returns. Survey data shows that rental growth nationwide is approaching a record high at 7.2%, while Auckland’s rate has reached 9.4%. Population growth figures released by Stats NZ last week may explain why rents are rising so quickly. The recent migration boom has brought large numbers of new arrivals into many major centres. Auckland, for example, recorded a slight population decline in the year to June 2022. In the year to June 2023, however, its population rebounded sharply, growing 2.8%, compared with nationwide growth of 2.1%. Given that new migrants are more likely to rent, the sharp rise in rents is easy to understand.

{ad}Mortgage lending figures released by the Reserve Bank of New Zealand last week show total lending of NZ$5,200,000,000 in September. This was slightly above the NZ$5,100,000,000 recorded a year earlier, but represented a smaller increase than in August, when lending totalled NZ$5,500,000,000. A breakdown by loan-to-value ratio shows that borrowers with smaller deposits were more inclined to reduce their total borrowing last month, as high mortgage interest rates encouraged people to avoid additional repayment pressure and risk. The September lending figures provide further evidence that the housing market’s recovery will not be smooth or follow a “neat” straight line.

At 9 am this Wednesday, the Reserve Bank of New Zealand will release its latest Financial Stability Report (FSR). It is very likely to reveal information about the closely watched debt-to-income ratios (DTIs), such as details of proposed limits or a possible implementation date. Either way, this will mark a major change in New Zealand’s mortgage sector.

This week, Stats NZ will also release its latest benchmark labour market figures for the third quarter. The previous release showed that New Zealand’s unemployment rate had begun to rise, and it is likely to have risen further over the three months to September. If the figures confirm this, the Reserve Bank of New Zealand will actually take reassurance from them, as they would suggest it has done enough with the Official Cash Rate. It is also worth noting that rising unemployment reflects an expanding labour force, driven by increased net migration, rather than a decline in the number of jobs. As existing mortgage holders move from their previous lower interest rates to higher rates, there is therefore still no need to worry about their ability to meet repayments given their current financial circumstances.

Information for this article was sourced online.