Housing confidence and investor buying plunge

ASB’s latest Housing Confidence Report shows the public’s confidence has finally cracked. The number of Kiwis expecting house prices to keep rising over the next 12 months has plummeted from 11% expecting them to increase last quarter, to 31% now expecting them to drop – the lowest in 13 years.

Reserve Bank data shows mortgage lending to investors plunged to $852 million last month, down 19.1% from June and a whopping annual drop of 41.9%.

New mortgage lending to investors dropped to $852 million last month, down 19.1% from June and a whopping annual drop of 41.9%. In July last year investors borrowed $1.466 million and in 2020 $1.433, during a peak buying period after banks’ interest rates started falling because of Covid.

Since the Reserve Bank started publishing detailed mortgage data by buyer types in 2014, investors at 15.8% last month sank to the lowest share ever of the total amount of mortgage money lent.  This was a drop from 17.4% in June.

These figures pale into insignificance when compared to other housing booms. During 2016 investors share of the mortgage market rose to 35% just before the Reserve Bank introduced loan-to-value (LVR) restrictions, to cool the housing market.

It worked until the bank decided to remove the LVR restrictions in mid-2020 and investors share of the total lending topped 25%. Nearly $10 billion in total lending was handed out by trading banks in mortgages. 

Total lending across all borrower types last month was $5.4 billion, down $654 million, or 10.8% from June. In comparison to July last year, total new mortgage lending was down a staggering $3.4 billion or 38.7%.

A total of $1 billion was to first home buyers, a drop of 8 % from June and, $3.5 billion was lent to owner occupiers, down 9.2% from June. As a share of the market first home buyers increased have edged up slightly from 18.3% in June to 18.9% in July, while the share of new commitments to owner occupiers moved from 63.1% to 64.3%.

The average value of new mortgages across all borrower types fell 6.4% from $405,029 in June to $379,061 in July. This is the largest monthly drop since June 2020. The average value increased 14.2% in the year from July last. year.

There were 14,251 new mortgages taken out last month, a drop of 4.7% from June, and a big decline of 46.4% since July 2021. This is the lowest number of new mortgages lent for a July month since data collection began.

Seeing is believing: housing confidence crumbles dramatically

ASB senior economist Mike Jones says It’s not surprising. “We registered our surprise last quarter that housing confidence had managed to remain positive.

“Despite all manner of housing health warnings and policy changes, Kiwis remained steadfast in their belief that house prices would keep on rising. Until now.

“It seems to have been a case of seeing is believing. With the housing downturn now plain to see, and house prices about 8% off their peak, confidence is finally crumbling.”

Jones suspect confidence will remain in the doldrums for some time as the bank continues to expect a 12% peak-to-trough decline in house prices, with the downturn extending through to about mid-2023.

The silver lining is a much-needed improvement in housing affordability, says Jones. “It’s occurring from both falling house prices and roaring wage growth and has shown up in the form of a bounce in buyer sentiment.”

A net 9% of respondents feel it’s a bad time to buy a house, a noticeably ‘less bad’ score than last quarter’s net 20% thinking it was a bad time.

The percentage of surveyed respondents who think it’s a good time to buy a house lifted to 14% in the three months to July, a small increase on last quarter’s 9%. They remain outnumbered though – 23% of respondents think it’s a bad time to buy.

Still, this net 9% that think it’s a bad time to buy is an improvement on last quarter’s reading.

Jones says buyer sentiment tracks affordability closely. “Buyer sentiment fell to record lows as house prices shot the lights out through the 2021 boom. But with house prices now in decline and wage growth exploding, the affordability silver lining has arrived. We expect further improvements over coming quarters.”

Delving into the regions, North Islanders (ex-Auckland) are now the most downbeat about house price prospects with a net 35% of respondents expecting house prices to fall.

Jones says this looks like a Wellington story, with the capital experiencing the biggest pull-back in house prices to date (down 14% from the peak, seasonally adjusted). By contrast, Auckland (net 28% expecting house price falls) and Canterbury (net 23%) are slightly less gloomy.

As expected, higher mortgage interest rates are behind the fall in housing sentiment. A full 84% of surveyed respondents expect interest rates to keep rising over the coming 12 months, with just 3% expecting them to drop. This net 81% expecting higher rates is the same as the prior quarter’s 26-year high.