With most people now back at work and the kids back at school, passage of time away from the election and pre-Xmas hassles will likely start encouraging more people to give thought to buying or selling a house. In the June quarter of last year real estate sales rose about 20% seasonally adjusted as a rush of first home buyers entered the market to take advantage of lower prices, their higher savings and incomes, little competition from other buyers, easier lending criteria, and stronger listings.
Then things flattened out over the second half of the year after that initial burst of buying
Can we see evidence yet that a new wave of buyers is coming through? I can gain some early insights by looking at my first monthly surveys of mortgage brokers and real estate agents for the year.
In association with the folk at mortgages.co.nz my brokers survey has shown a strong net 38% of them are seeing more first home buyers and a net 29% are seeing more investors. The December readings were 21% and 42% respectively so what we can say is that the New Year has not brought evidence of a rush of investors, but young buyers seem to be looking anew.
My latest survey of real estate agents with NZHL — which is still underway — shows with most results in that a net 56% are seeing more first home buyers. This is up from a net 47% at the end of November but about equal to all other months from May through to October. The survey shows young buyers remain active.
A net 25% of real estate agents say that they are seeing more investors
This is up from a net 22% two months ago, about the same as the late-October result, and well away from the net 13% in late-July saying they were seeing fewer investors. This tells us again that investors are there, but no rush is underway. This is understandable when we consider the cash flow problems being caused by high interest rates and charges for maintenance, insurance, and council rates.
Will more investors enter the market once April 1 arrives and ability to deduct 80% of interest expenses against rental income returns?
Probably. But no substantial movement is likely until interest rates solidly fall and based on some comments from the Reserve Bank’s Chief Economist this week, we are still well away from that happening.
What about the impact of Debt to Income (DTI) ratios?
The Reserve Bank will tell us in the middle of the year when these rules will start and we already know key details. Up to 20% of bank lending to investors will be able to undertaken where the debt exceeds seven times investor income from all sources. For owner occupiers up to 20% of lending can be undertaken above a ratio of six times gross household income.
Given that currently fewer than 10% of loans exceed these 20% limits, the introduction of DTIs now would have no impact. The effects instead will be felt when the next boom comes along. During the frenzy from mid-2020 to late-2021 at one point 28% of loans to first home buyers, 36% of loans to other owner occupiers, and 40% of loans to investors exceeded the six and seven times income boundaries.
The imposition of DTIs will have the effect of smoothing the booms and therefore will likely extend them through time
Before then the market is likely to receive a further boost from first home buyers because the Reserve Bank have said that they will ease up Loan to Valuation (LVR) rules slightly when DTIs are imposed.
This will be helpful to young buyers who usually struggle to get a 20% deposit.
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