Property Market Update - Kelvin Davidson Senior Property Economist March 2021
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Property Market Update Kelvin Davidson Senior Property Economist March 2021
Outline for today Recent economic & property data – momentum still strong What will happen in 2021? The year of property politics
Outline for today Recent economic & property data – momentum still strong What will happen in 2021? The year of property politics
Housing has got very political
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 3
Government announcement could be a line in the sand
Much tougher for mortgaged investors, but new-builds still a clear option
▪ SIGNIFICANT: Investors can’t offset interest against income anymore to lower tax – immediate for new buyers, phased
over next four years for existing – changes sums by $’000s per year
▪ LESS IMPORTANT: Brightline Test extended, FHB income and price caps raised, extra supply measures (Kainga Ora funding,
infrastructure development)
▪ Bottom line:
– Interest deductibility change looks out of synch with other business investments
– But whether it’s right or wrong, there were no ‘carrots’ for other investments
– Suspect investors generally continue to buy and hold property – just less profitable, and/or go new-build
– But still an impact - long-time landlords (with more equity) may buy off newer investors
– A near term psychology/perception shift too; Government relentlessly chasing property
– Electoral cycle; National could well campaign on reversing these changes
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 4
Sales volumes have been solid, but a slowdown is looming
Sales high again in February, driven by Auckland
But low listings could be a restraint, and some sales rushed to beat LVR changes
NZ sales volumes Change in sales in three months to February
compared to year ago
Source: CoreLogic
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 6
Total listings lifting, but still low
New weekly flows started slowly in 2021
NZ stock of existing listings on the market NZ weekly flow of new for-sale listings
Source: CoreLogic
18 July
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Property values have soared, on the back of tight supply/demand
Property values growing quickly again
15% rise in year to Feb - strong demand hitting up against low listings
Change in national average property values Average property values – main centres
Source: CoreLogic
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 9Broad-based upturn since lockdown
Suburb median value % change since March 2020
Auckland Wellington
18 July
© 2019CoreLogic, Inc. All Rights Reserved.
Source: CoreLogic 10Mortgaged investors active, but first home buyers waning?
Investors & FHBs not selling anything, movers sitting tight = listings issues
Buyer Classification Buyer Classification
New Zealand Auckland
Source: CoreLogic
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 11Strong contributor is of course low interest rates
Investors ‘searching for yield’ – LVR removal played a role too (but no more)
Lending to investors Breakdown of existing mortgage debt
50%
1,600 18% 46%
45%
1,400 16%
Investor $ flows >70% LVR (LHS)
40% Owner occupiers
High LVR investors % of total lending (RHS) 14%
1,200
35% Investors
12%
1,000
30%
10%
800 25%
8%
600 19%
20%
6% 16%
400 15%
4%
10%
200 10%
2% 5%
5% 3%
0 0%
Jan 2019 Jul 2019 Jan 2020 Jul 2020 Jan 2021 0%
Floating Fixed < 1 year Fixed > 1 year
Source: RBNZ
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 12Still many areas where housing ‘need’ has outpaced stock change
Hence we need high levels of dwelling consents to continue
Required extra housing minus stock change 2015-20
Source: CoreLogic
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 13It’s got political quickly
Some of the economic ‘headwinds’ are losing intensity
Unemployment rate fell from 5.3% to 4.9% in Q4 2020
NZ Activity Index and GDP Stocks and flows of mortgage
payment deferrals ($m)
10%
Annual % change 25,000 Weekly new applications
5% Total stock
20,000 Deferral exits
0%
15,000
-5%
NZ Activity Index (advanced 2 months) 10,000
-10% GDP
5,000
-15%
0
-20%
-5,000
-25%
Mar 2020 May 2020 Jul 2020 Sep 2020 Nov 2020 Jan 2021
2012 2014 2016 2018 2020
Source: RBNZ
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 15But the ownership ‘divide’ has got political quickly ….
‘Comfortable’ for existing owners, very hard for those saving a deposit
NZ: value to income ratio and NZ: years to save a deposit and rent to
mortgage payment affordability income ratio
8 70% 10 35%
9
7 60%
8 30%
6
50% 7
5 6 25%
40%
4 5
30% 4 20%
3
Value to income ratio (LHS) 3 Years to save a deposit (LHS)
20%
2 Value to income average Deposit years average
2 Rent to income ratio (RHS) 15%
Share of income required for repayments (RHS) More affordable 10%
1 1 Rent to income average
Repayments average More affordable
0 0% 0 10%
2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: CoreLogic
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 16…. hence the rules are tightening for investors
Interest-only loan restrictions could be next cab off the rank (May)
Interest only lending as % of Source: RBNZ % of new lending at debt to income ratio
stocks and flows greater than 5
50%
50%
45%
45% 42%
39% 40%
40%
35%
35%
30%
30%
25% First home buyers
25% 22%
20% Other owner occupiers
20%
15%
15% 13%
10%
10%
5%
5%
0%
0%
Jun 2017 Dec 2017 Jun 2018 Dec 2018 Jun 2019 Dec 2019 Jun 2020
Owner-occupier stock Owner-occupier flow Investor stock Investor flow
• Government emphasis is on equity – either to satisfy LVR requirements and/or reduce your interest
payments (so that deductibility is less of an issue anyway)
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 17Could rents rise? Maybe ….
But some tenants doing it hard, and income is still an anchor
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 18Near-term: ‘more of the same’ Second half of year: slowdown
2021 is already the ‘year of
property politics’
▪ Near-term momentum still upwards (tight
listings, low mortgage rates), but bear in mind
‘lost summer’ of tourism
Annual sales volumes (incl. forecast)
160,000 ▪ Some sales have been ‘brought forward’ - and
140,000
listings could restrain activity too
120,000
▪ So, with LVRs now also back in place, and
100,000
potential psychology effects of Government
80,000
measures, second half of the year may be
60,000
slower for sales, and price growth to cool too
40,000
20,000 ▪ Affordability is also a problem, and I-O lending
0 limits probably on the way
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▪ ‘Real’ effects of Government measures (esp.
Source: CoreLogic interest deductibility) a slower-burner – might
change buyer mix, rather than drop prices
18 July
© 2019CoreLogic, Inc. All Rights Reserved. 20Let’s discuss Kelvin Davidson Senior Property Economist Kelvin.davidson@corelogic.co.nz @KDavidson_CL
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