"Movers" likely to be the key players this year
Poor affordability, higher mortgage rates, and tighter credit availability all weighing on property sales volumes and prices, are bringing an abrupt change in New Zealand’s housing market. Part of that change, CoreLogic NZ said, 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.
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In terms of overall sales volumes this year, CoreLogic is predicting 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 figures are lower than the 2020 cyclical peak (which were close to 100,000) as well as the long-term average. These numbers are “not a disaster” though, CoreLogic noted, as volumes averaged about 89,000 per annum over the 2017-19 period. The company said it is also anticipating “price growth slowing sharply, close to zero, or even a bit below” in this environment.
CoreLogic said market operators such as banks and mortgage brokers will likely need to operate in a quieter overall environment this year and into 2023. This means more focus on market share and on the more active individual buyer groups.
Given the restrictions on debt such as LVR rules, CCCFA changes, possible caps on debt-to-income ratios, minimum serviceability test rates, and higher mortgage rates, CoreLogic said it’s not too hard to imagine that “equity is king” in 2022. This trend will possibly push business volumes up for brokers and banks around property owners, who are a bit further along in their homeownership journey as they seek additional debt to trade up.
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Already, CoreLogic said it is seeing clear evidence that first-home buyers’ market share has begun to fall, albeit from a reasonably buoyant level. Also lower is mortgaged investors’ market share, as it has been contending with higher deposit requirements as well as the phased removal of interest deductibility and low gross rental yields.
CoreLogic said “movers,” or existing owner-occupiers who are looking to relocate, will likely be the key players this year, now that there are more listings on the market. Movers 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.
At a time when mortgage rates are rising, CoreLogic expects the next year or two to see activity slant towards those people who have been in the market longer, and who also feel comfortable keeping or increasing their debt levels (at a time when mortgage rates are rising).
CoreLogic reminded mortgage brokers that the housing credit environment won’t be this restrictive forever – CCCFA changes could be eased to “carve out” mortgages, LVR rules could be softened if the housing market really weakened, and caps on debt to incomes aren’t guaranteed either.
The key point still remains, CoreLogic said, is that “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.
