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Cash will play bigger part in housing market

Equity or cash will be king as the housing market moves to a buyer’s hunting ground.

Thursday, April 7th 2022, 11:07AM

After a period where cheap money has boosted a lot of property buying, the next year or two could see activity slant towards those people who have been in the market longer, but who also feel comfortable keeping or increasing their debt levels - at a time when mortgage rates are rising.

CoreLogic’s latest Buyer Classification Report says observers of the housing market will be aware an abrupt change is underway, with poor affordability, higher mortgage rates, and tighter credit availability all weighing on property sales volumes and prices.

“Part of that also 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,” says Kelvin Davidson, CoreLogic senior property economist.

In terms of overall sales volumes this year, CoreLogic’s forecasting model points to a drop of about 5% from 2021 levels, to a total of about 91,200, before a further fall towards 88,500 in 2023.

Those numbers are lower than the 2020 cyclical peak - which were close to 100,000 - and also below the long-term average. “These figures are not a disaster as volumes averaged about 89,000 per year over 2017-19,” says Davidson.

“In this environment, we’d also anticipate price growth slowing sharply, close to zero, or even a bit below.”

He says market operators such as banks and mortgage brokers are likely to need to operate in a quieter overall environment this year and into 2023, perhaps meaning a key focus on market share and the individual buyer groups, who might be more active than others.

“Given the restrictions on debt such as loan to value ratio rules, CCCFA changes, possible caps on debt to income ratios, and minimum serviceability test rates - not to mention higher mortgage rates - it’s not too hard to imagine that ‘equity is king’ in 2022.

“This trend will possibly increase business volumes for brokers and banks around property owners, who are a bit further along in their home ownership journey as they seek additional debt to trade up.

Davidson says CoreLogic is seeing clear evidence first home buyers’ market share has begun to fall (within that quieter overall market in terms of raw sales numbers too), albeit from a reasonably buoyant level.

At the same time, mortgaged investors’ market share is also lower than it has been in the past, as they’ve been contending with higher deposit requirements, but also the phased removal of interest deductibility and low gross rental yields.

This means, he says, ‘movers’ – or existing owner occupiers who are looking to relocate – as a key group of interest. “They 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. Up until recently, this group of movers has been fairly quiet, often due to the lack of listings. They couldn’t find their ideal next property and as a result stayed where they were, which further froze listings. Now that more listings are on the market, movers have begun to get back into action again and look likely to be key players this year.”

Davidson says the housing credit environment won’t be restrictive forever, especially if and when the CCCFA changes are wound back a bit to ‘carve out’ mortgages. “The loan to value ratio rules could also be softened if the housing market really weakened, and caps on debt to incomes aren’t guaranteed either.”

Tags: cash flow

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Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 4.29 5.09 5.35
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 5.14 ▼5.79 6.15
TSB Special 4.79 4.34 ▼4.99 5.35
Unity 5.65 4.80 5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 19 May 2022 10:42am

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