Most observers of NZ's housing market will be fully aware that an abrupt change is underway, with poor affordability, higher mortgage rates, and tighter credit availability all weighing on property sales volumes (giving total listings a chance to replenish) and prices.
Part of that also seems to be a mindset change, with vendors not necessarily waiting for multiple offers anymore, and credit-approved buyers feeling a much stronger degree of pricing power.
In terms of overall sales volumes this year, our forecasting model points to a drop of around 5% from 2021 levels, to a total of around 91,200, before a further fall towards 88,500 in 2023. Those numbers are lower than the 2020 cyclical peak (which were close to 100,000) and also below the long-term average. These figures are not a disaster as volumes averaged about 89,000 per annum over 2017-19. In this environment, we'd also anticipate price growth slowing sharply, close to zero, or even a bit below.
Market operators such as banks and mortgage brokers are likely to need to operate in a quieter overall environment this year and into 2023, perhaps meaning a key focus on market share and the individual buyer groups, who might be more active than others. Given the restrictions on debt such as loan to value ratio rules, CCCFA changes, possible caps on debt to income ratios, and minimum serviceability test rates (not to mention higher mortgage rates), it's not too hard to imagine that ‘equity is king' in 2022. This trend will possibly increase business volumes for brokers and banks around property owners, who are a bit further along in their home ownership journey as they seek additional debt to trade up.
The CoreLogic Buyer Classification series helps to shed some light on these patterns. We're already seeing clear evidence that first home buyers' market share has begun to fall (within that quieter overall market in terms of raw sales numbers too), albeit from a reasonably buoyant level. At the same time, mortgaged investors' market share is also lower than it has been in the past, as they've been contending with higher deposit requirements, but also the phased removal of interest deductibility and low gross rental yields.
This means ‘movers' – or existing owner occupiers who are looking to relocate – as a key group of interest. They have a bit more of an equity base behind them, but in many cases will also need to keep a mortgage (or even enlarge it) in order to take the next step up the property ladder. Up until very recently, this group of movers has been fairly quiet, often due to the lack of listings. They couldn't find their ideal next property and as a result stayed where they were, which further froze listings. Now that more listings are on the market, movers have begun to get back into action again and look likely to be key players this year.
Having equity or cash is always a good position to be in, so there's nothing revolutionary here. However, after a period where cheap money has driven a lot of property buying, the next year or two could see activity slant towards those people who have been in the market longer, but who also feel comfortable keeping or increasing their debt levels (at a time when mortgage rates are rising).
It's also worth remembering the housing credit environment won't be this restrictive forever, especially if and when the CCCFA changes are wound back a bit to ‘carve out' mortgages. The loan to value ratio rules could also be softened if the housing market really weakened, and caps on debt to incomes aren't guaranteed either.
The key point still remains, in an environment where overall sales volumes are down, a focus on market share is even more important, and those homeowners looking to relocate could be a fruitful area to look at. After all, even if their own property has lost a little value, they could still be very keen to move if they can get a better bargain on their next purchase.