Details of new debt-to-income rules could arrive this week: are they worth looking forward to? This week’s key events for property investors

 

Figures released by the Reserve Bank of New Zealand last week show that, much like many other current property market indicators, mortgage lending volumes show no clear signs of recovery. After 7 consecutive months of growth in lending volumes, this year’s March new lending totalled just NZ$6,000,000,000, essentially unchanged from a year earlier, marking a clear slowdown in growth. A breakdown of the figures shows that only around 8% of owner-occupiers are still applying for low-deposit, high-LVR loans, leaving considerable room below the market limit of 15%.

 

 

This will be a week to watch closely for banks and borrowers, with the Reserve Bank of New Zealand releasing its Financial Stability Report (FSR) on Wednesday. The report typically reviews changes in the financial system over the preceding six months and is also used to announce major policy decisions. The Reserve Bank is also likely to use the opportunity to introduce the final details and implementation timetable for debt-to-income (DTI) limits.

 

CoreLogic chief property economist Kelvin Davidson says the new debt-to-income restrictions will not have an immediate impact on the market, given that current high interest rates are already clearly constraining how much borrowers can borrow. Looser LVR rules will do more to help investors enter the market than owner-occupier borrowers. Either way, high interest rates remain the market’s biggest obstacle.

 

 

 

Following the Financial Stability Report, Stats NZ will also release official employment and unemployment figures for the first quarter of 2024 this Wednesday. Unemployment has undeniably been rising recently, driven not by a decline in jobs but by a substantial increase in labour supply supported by rising net migration. This trend is set to continue in the upcoming figures. Meanwhile, recent announcements of redundancies in parts of the public sector will also begin to show up in the data over the coming quarters.

 

 

This Thursday, Stats NZ will also release the latest March figures for residential building consent applications. Previously released data suggest a renewed acceleration in construction is unlikely in the short term. This does increase the possibility of another housing shortage in New Zealand at some point in the future. Davidson says one reassuring point is that the current situation remains very different from the broad, precipitous fall in new home construction following the 2008 global financial crisis, so the risk of a housing shortage is still relatively low.

 

 

 

The latest sales figures from agencies including Barfoot & Thompson show that property sales volumes and prices are still trending upwards, although growth is relatively slow and uneven across regions and months. For buyers, although high mortgage interest rates remain the biggest stumbling block, rising numbers of properties for sale mean buyers with loan approval have more choice. Their bargaining power has also increased considerably: they can shop around instead of having to make an immediate decision at auction.