Our just-released Quarterly Property Market and Economic Update Report found that the first three months of 2019 delivered nearly the same property market performance as for most of 2018 - sluggish sales activity and consistent (yet controlled) value growth - with the notable exception of Auckland. I wouldn’t be at all surprised to see more of the same for the rest of 2019.

I make this call for a few reasons: firstly, the macroeconomic environment remains supportive. Yes: GDP growth has slowed down and will probably ease further still. However at 2-2.5% both this year and next, that growth would still be respectable (and probably higher than Australia’s figures of perhaps 1.5-2%). The labour market is another strong foundation for property sales and prices in NZ, with unemployment low. Limited wage growth isn’t admittedly doing much to help improve that all important topic of housing affordability.

Second, the lending environment is favourable for borrowers - provided of course that they can meet the deposit, income/expense, and debt serviceability tests. For a start, the next move in the OCR now looks likely to be a short term cut (in May or August) rather than a longer-term rise. That will at least help to keep mortgage rates low, even if they don’t fall much further. The intense competition in the banking sector to win new borrowers (or capture market share at refinancing time from other lenders) is also leading to some sharp deals: e.g. sub 4% two-year and three-year fixed rates.

At CoreLogic, we love a good data dig so we looked at who was driving the recent rise in lending volumes (by value). Reserve Bank lending data reveals that largely, it’s first home buyers (FHBs) with greater than 80% LVRs drawing down bigger average loans (rather than more loans). The sector is however still operating well below the mandated speed limit, which determines that no more than 20% of owner occupier loans can be at >80% LVR. It therefore seems unlikely that the Reserve Bank will be especially concerned just yet. In fact, there would still seem to be some impetus for overall lending volumes yet to come from the higher LVR segment.

The overall market might be quiet, but within that: our Buyer Classification series shows it’s FHBs and mortgaged investors that are of most interest.
They each had a 24% share of property purchases in Q1 - putting FHBs well above normal levels and indicating a return to form by investors, even if still below their past levels. Anecdotally, some investors are reported to be exiting the sector and selling to FHBs, however there will also be other investors simply snapping up sales to boost their own portfolios. As a result, it’s tough to envisage that the stock of available rental properties is about to change much anytime soon.

Like us, investors will be watching policy intervention in the housing market from both the Government and Reserve Bank very closely. The prospect of a broad-based capital gains tax in 2021 has been ruled out, but the effects of last October’s Foreign Buyer Ban seem to be playing out in softer sales activity, while the tax ring-fence for rental property losses is currently going through the parliamentary process. It’s not yet law, but when it does pass it will apply to the current tax year (starting from April 1st) so investors will need to be factoring this into their sums right now. Then out on the horizon we have the potential requirement for banks to hold more capital on their balance sheets (less money to lend). KiwiBuild might also impact supply.

What about the situation in our largest city then? Well, when we looked in detail at Auckland, it wasn’t hard to see why values have dipped by 1.5% over the past year and why further modest falls could occur. Auckland’s affordability is still low (FHBs are still managing to buy via KiwiSaver funds and/or compromising on location/property type), listings are high, and buyers aren’t in any rush.

So. Where does all this leave us? Essentially, the NZ property market is on a relatively solid footing however sales volumes are likely to remain subdued in 2019. National average prices may edge up by about 3% from their current level of $686,523. Auckland however looks set for further weakness. More of the same for 2019, or…should we say 2018? 

To download the full report click here.