Sticky market for investors – first home buyers in control
Large numbers of property investors have not come back into the market despite the reintroduction of 80% interest deductibility for landlords and the lowering in July of the Brightline test from 10 years to two years, QV says in its latest update.
Wednesday, May 15th 2024, 1:57PM
by Sally Lindsay
QV operations manager James Wilson says the looming introduction of debt-to-income restrictions will almost certainly hamper their ability to buy existing property when it eventually happens.
“Residential property values have mainly plateaued across the country, domestic inflation remains stubbornly high, the unemployment rate is rising, business confidence is low and cost of living pressures remain a significant challenge for many households.”
Waikato registered valuer Marshall Wu says cost of living pressures remain a significant challenge for many households resulting in lower savings rates, persistently low sentiment, and increased uncertainty when it comes to making high-commitment financial decisions like buying property.
Auckland QV valuer Hugh Robson says generally speaking, people seem to be more concerned about their jobs and the high cost of living than buying property. Those who are active in the market tend to be looking for bargains, making lower offers and therefore putting downward pressure on prices.
Wilson says amidst all this, a surplus of real estate listings is also helping to maintain price drops.
And he says while a flat market over winter is to be expected, it will provide a stable foundation to step up off when interest rate pressure finally begins to ease, but that won’t likely be until late this year, if at all.
“In the meantime, mortgage holders are finding ways to hold on and banks are being supportive where possible.”
Meanwhile, first-home buyers have the upper hand, provided they have stable employment and finance in place.
“Although getting finance and being in a position to service a mortgage in this economic environment certainly isn’t easy, buyers now control the narrative in most areas. They have time on their side and plenty of options to choose from,” Wilson says.
Inflation forecasts revised
As domestic inflation remains high and the RBNZ gets ready for next week’s OCR review and Monetary Policy Statement looms, Westpac has revised its forecasts.
It is expecting domestic inflation to settle slightly above the long-term average, and not at 2% - the midway point of the RBNZ’s remit to keep it between 1-3%.
Westpac’s economists think the central bank will be content with an ‘almost 2%’ CPI outcome.
The upside risks to this are a faster than expected recovery in demand and the possibility that price pressures are stickier than assumed.
On the other side, the downside risks include the possibility that imported tradables inflation weakens below long-term averages (e.g. weaker oil prices, Chinese deflation or an earlier NZD recovery) or if the domestic economy underperforms expectations.
The bank says the OCR will probably remain at 5.5% until February next year when it should be clear that inflation will settle below 2.5%.
It says further tightening or delayed easing is feasible if inflation stalls around 3% or if demand picks up sooner/more strongly.
While Westpac has February as its earliest date for OCR cuts, its economists say easing could be brought forward to November if inflation and the labour market cool adequately.
Long grind ahead
In the meantime, Westpac chief economist Kelly Eckhold says households and businesses will feel uncomfortable this year.
He says while growth is not at disastrous levels, it is weak, and the labour market will need to do a greater share of the required adjustment.
“The Government will also begin fiscal consolidation which will aid economic adjustment, but it’s going to be a long grind to fiscal balance.”
The global economy is still weak, but some green shoots suggest promise down the track, and plenty of risks remain from China and geopolitics, Eckhold says.
“Past interest rate increases are now having their peak effect, which means we all can look forward to better inflation outcomes this year and next.
But for now, we find ourselves with inflation still too high and with the easy inflation wins behind us.”
Tailwinds from weaker foreign-driven prices should ease from here, but local inflation remains sticky, which means the RBNZ will keep the pressure on to reduce inflation despite weak growth.
“Those looking for large, front-loaded OCR cuts will be frustrated.”
| « Low house prices and deposits help first home buyers | First home buyers making hay, investors MIA » |
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