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New Zealand Property Focus a Slow Ship to Turn

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New Zealand Property Focus a Slow Ship to Turn ANZ Research June 2021 New Zealand Property Focus A slow ship to turn At a glance Low inventories House prices to moderate Are making it tough for buyers A bit slower than we thought for 2021 Rates to lift Days to sell remain low As the OCR is hiked from February 2022 Highlighting ongoing pressure 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Meeting Date RBNZ (Qtr avg) ANZ (Qtr end) Market Pricing (Qtr end) Households remain vulnerable Signs of stronger rent inflation With record levels of debt But it’s still early days Source: RBNZ, REINZ, Stats NZ, Macrobond, Bloomberg, ICAP, RealEstate.co.nz, ANZ Research This is not personal advice nor financial advice about any product or service. The opinions and research contained in this document are provided for information only, are intended to be general in nature and do not take into account your financial situation or goals. Please refer to the Important Notice. ANZ New Zealand Property Focus | June 2021 2 Contact Summary Sharon Zollner, Miles Our monthly Property Focus publication provides an independent appraisal of Workman, David Croy recent developments in the residential property market. or Finn Robinson for more details. Housing market overview See page 9. May housing data suggest recent Government policy announcements are weighing on overall housing activity. Sales fell 11.8% m/m in May (seasonally INSIDE adjusted). But with listings also sparse, reduced investor demand hasn’t yet At a glance 2 been enough to slow the monthly pace of house price inflation. This came as a Housing Market Overview 4 bit of a surprise and we have upgraded our near-term house price forecasts to Regional Housing Market include a little more momentum. We have also brought forward our expectation Indicators 6 for OCR hikes by six months to February 2022. That means mortgage rates are Mortgage Borrowing Strategy 7 expected to rise a little sooner than before, taking some of the steam out of the Weekly Mortgage housing cycle a bit earlier. See our Market Overview. Repayment Table 8 Mortgage Rate Forecasts 8 Economic Forecasts 8 Mortgage borrowing strategy Important Notice 10 Longer-term fixed mortgage rates continue to rise and are now well above lows seen earlier in the year. In contrast, shorter-term rates continue to edge lower, taking the average 1-year rate to yet another record low. Appealing as lower short-term rates are, they don’t offer certainty for long. To echo the thoughts we have had for some months now, we think there is merit in considering fixing ISSN 2624-0629 for longer, even if rates have risen slightly. Since our last edition, the RBNZ has signalled that they expect to hike the OCR in 2022, and we expect the first hike Publication date: 22 June 2021 to come in February. That’s less than a year away, and if we are right, it could be more expensive to fix in a year’s time, which supports the idea of fixing for longer now. See our Mortgage Borrowing Strategy. ANZ New Zealand Property Focus | June 2021 3 Housing market overview Summary Figure 2. Number of properties available for sale May housing data suggest recent Government policy announcements are weighing on overall housing activity. Sales fell 11.8% m/m in May (seasonally adjusted). But with listings also sparse, reduced investor demand hasn’t yet been enough to slow the monthly pace of house price inflation. This came as a bit of a surprise and we have upgraded our near-term house price forecasts to include a little more momentum. We have also brought forward our expectation for OCR hikes by six months to February 2022. That means mortgage rates are expected to rise a little sooner than before, taking some of the steam out of the housing cycle a bit earlier. Sales and inventories down, prices up Source: RealEstate.co.nz, Macrobond Housing data clearly show the market is going Overall, while there may well be fewer investors in through an adjustment period following recent the market following recent Government policy Government policy announcements. But exactly what changes, there are also fewer houses available for things will look like when the dust settles remains those who are still looking. That appears to be uncertain. May data brought yet another significant keeping competition fierce and prices rising for now. monthly decline in house sales, down 11.8% m/m following a 10.4% decline in April (ANZ seasonal Indeed, tightness in the market has also been adjustment), suggesting overall activity is waning. confirmed by the recent decline in the number of And while sales tend to lead prices by around three days it takes to sell a house – that fell by 1 day in months (figure 1), the acceleration in the pace of May to 29, well below its historical average of 39 monthly house price inflation in May (1.8% m/m vs (figure 3). 1.5% in April) suggests house price momentum is Figure 3. House price inflation and days to sell holding up for now. Figure 1. House price inflation and sales Source: REINZ, Macrobond, ANZ Research Source: REINZ, Macrobond, ANZ Research A little more price momentum expected in The significant decline in the number of properties the near term available for sale in May (to very low levels by House price inflation came in ahead of our historical standards) goes a long way towards expectation in May, and given the market continues explaining the persistence of price pressures. to look very tight, we’ve baked a touch more Seasonally adjusted inventories fell 5.1% m/m in momentum into our near-term forecast. But we have May following a 10.5% decline in April. Compared to also recently pulled forward our expectation for OCR a year ago, there were almost 30% fewer properties hikes by six months (we now expect the first hike in on the market for sale. A continuation of this trend February 2022). This is expected to push mortgage (figure 2), represents an upside risk to our house rates higher, leading to an earlier trough in annual price outlook (all else equal). house price inflation than previously (Figure 4). ANZ New Zealand Property Focus | June 2021 4 Housing market overview Figure 4. House price forecast Figure 5. Household indebtedness and serviceability Source: REINZ, Macrobond, ANZ Research Source: RBNZ, Macrobond As before, our house price forecasts reflect an But it’s not just house prices that have been on the expectation that Government policies, credit and up lately. Rent inflation is showing tentative signs of affordability constraints, and tighter financial acceleration, with the 0.5% m/m in May the fastest conditions will drive a moderation. But this is now monthly increase since March 2019. That’s following balanced against a better economic outlook, and as a few months of average to sub-par rental inflation, we highlighted in last month’s edition, an ongoing meaning the annual change is nothing spectacular under-supply of housing, albeit one that’s gradually (up 3.1% y/y, within recent ranges) but this is improving with the borders closed. certainly something worth keeping a close eye on over coming months. Higher-than-otherwise rents are With so many factors pushing and pulling on housing a likely unfortunate side effect of recent Government at the moment, risks around our outlook are wide- tax policy changes, but the magnitude of the impact ranging. On balance, we think stronger-than- is unclear. expected house price inflation is probably more likely than weaker, but the lion’s share of the ‘lower- Figure 6. Rental price inflation probability, higher-impact’ risks are skewed to the downside. Households’ debt serviceability (figure 5) looks like it’ll withstand 100 basis points or so of interest rate hikes, but all this debt accumulation means households are very susceptible to an income shock. And of course, even if higher debt servicing cost jumps aren’t a problem in terms of households being able to meet mortgage payments, they can still crimp discretionary spending and therefore have an impact on the likes of the hospitality sector. Source: Stats NZ, Macrobond, ANZ Research ANZ New Zealand Property Focus | June 2021 5 Housing market overview Housing market indicators for May 2021 (based on REINZ data seasonally adjusted by ANZ Research) Median house price House price index # of Monthly Average Level Annual % 3-mth % Annual % 3-mth % monthly % days to change change change change sales change sell Northland $688,226 29.3 5.9 24.8 6.9 164 -28% 34 Auckland $1,131,684 26.6 4.9 26.4 6.6 2,555 -11% 31 Waikato $730,035 21.8 6.7 33.8 10.0 628 -19% 27 Bay of Plenty $831,748 33.0 6.6 30.1 6.8 437 -11% 31 Gisborne $638,528 49.7 18.2 49 +34% 33 Hawke’s Bay $745,734 34.8 9.9 35.7 8.0 208 -6% 29 Manawatu-Whanganui $584,184 38.8 8.6 52.1 9.6 273 -17% 24 Taranaki $556,123 29.2 6.7 33.5 9.4 153 -13% 22 Wellington $887,660 30.5 4.5 41.8 9.0 707 -9% 30 Tasman, Nelson & Marlborough $723,637 22.4 6.7 186 -16% 28 Canterbury $582,883 26.6 6.9 25.6 7.6 1,030 -10% 27 Otago $677,273 33.2 6.5 24.0 4.8 363 -4% 30 West Coast $291,534 33.6 4.8 28.8 8.1 59 +12% 31 Southland $404,645 16.6 5.1 21.5 6.1 136 -16% 24 New Zealand $810,753 32.3 5.1 29.9 7.5 6,956 -12% 29 ANZ New Zealand Property Focus | June 2021 6 Mortgage borrowing strategy This is not personal advice nor financial advice about respective cash rates in 2022 or 2023.
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