1. Suburbs on the rise
The key message from the suburbs this month is that the market appears to be responding well to falling mortgage rates, with the latest CoreLogic suburb value data showing increases in house values in 54% of the country’s suburbs in the last three months.
Lower-priced housing markets are leading the recovery, with West Coast houses, particularly in Buller and Grey District, enjoying value rises of 6%-plus over the past quarter.
Among the main centres, Dunedin’s Waldronville (3.9%), Hamilton’s Temple View (3.5%), and Christchurch’s Kainga (3.3%) recorded some of the strongest gains for standalone houses.
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For flats and townhouses, Glenleith, in Dunedin (6.2%), and Grenada North, in Wellington (4.8%), led the upturn, while areas such as Deanwell, in Hamilton (4.1%), and Auckland North Shore’s Bayview (3.5%) also recorded notable growth.
But there are still limitations too, such as an abundance of listings, the subdued economy, and of course the lurking debt-to-income (DTI) ratio caps. The year ahead looks more likely to be a subdued recovery for the market than a fresh boom.
2. Keeping a close eye on DTIs
Speaking of the lending caps, last week’s Reserve Bank data pointed to high DTI lending for investors and first-home buyers. The investor share at a DTI>7 has jumped from 3% in September last year to 7.1% now, while the tally for first-home buyers has gone from 1.6% at DTI>6 to 5.2%.
To be fair, these figures obviously remain well below the 20% speed limits for high DTI lending, so in other words, the rules aren’t particularly binding right now. But they could become a much bigger consideration as/when the banks’ internal serviceability test rates drop further. Over the medium to long-term, the DTIs will tend to limit the speed at which investors can build their portfolios and also restrain the pace of house price growth.
CoreLogic chief economist Kelvin Davidson: "The year ahead looks more likely to be a subdued recovery for the market than a fresh boom." Photo / Peter Meecham
3. Finally, a meaningful change for land supply?
Another reason to be a bit more conservative about long-run house price growth is the Government’s plan to replace the Resource Management Act with two new (and presumably less complex) pieces of legislation by the end of 2025. The aim is to streamline/standardise planning systems across the councils and presume in favour of development unless there’s a strong reason not to – rather than the feeling that current rules err against progress.
Ultimately, it’s very hard to be sure about just how much impact this new system will have on house prices (not least because the effects will take place over several years), but you’d certainly have to be optimistic that it’ll result in more supply and lower values than otherwise might have been the case – i.e. good for housing affordability.
4. The economy is turning around
After a better official GDP result for Q4 last year (+0.7%), the NZ Activity Index suggests that the momentum has continued into the first few months of this year, with last week’s data showing a 1.5% rise in February (against February 2024). That’s after a 1.4% rise in January, and once you translate this into implied quarterly changes, the early indications are that GDP for Q1 this year might be on track to rise by another 0.7-0.8% or so. That’s good news and adds to the case for thinking that the rises in unemployment are close to finished – which would support a cautiously optimistic housing market outlook for 2025.
5. Better news for the construction sector?
Stats NZ’s new dwellings consented figures for February will be out on Wednesday and recent months have brought clear evidence that approvals have stopped falling – crucially, at a much higher level than previous downturns. There seems a good chance there’ll be more stability in the latest figures, which bodes better for actual construction workloads down the track.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
