Mortgage lending still in doldrums – no lift in sight

RBNZ data show lending of $5.9 billion; the third lowest on record for the month of May since the records began in August 2013. Only May 2014 and 2020, during the first Covid lockdown, were lower.

Although this was up 35.3% or $1.5 billion from April’s $4.3 billion, it was way behind $6.8 billion in May last year and $8.9 billion lent in 2021.

But figures are slightly improving meaning the property market floor might take some time as more than $130 billion, or just under 40%, of all mortgages move to higher interest rates in the next three to 12 months.

This will continue to impact market confidence and consumption, with many consumers having less disposable income.

Housing sales are also lagging. Website realestate.co.nz had nearly 26,700 properties for sale at the end of last month but only 5,752 sold, REINZ figures show.

Analysis by independent economist Tony Alexander shows no period of extra strong buying immediately beckons due to interest rates, tax and cost challenges for investors, consumer pessimism, and lagging supply growth.

His analysis of market nervousness suggests buyer sentiment that time is on their side remains high but is slowly easing.

“When will the market truly move upward? Probably after the election when we will be talking about interest rates going down.”

Mortgage data

In the meantime, RBNZ data show first home buyers (FHBs) are propping up mortgage lending taking out $1.4 billion in new mortgages in May, up $0.4 billion or 35.6% from April. That compares with $1.3 billion last May and $1.7 lent in 2021.

FHB share of new mortgages rose slightly to 24.3% from 24.2% in April. This is the highest share on record. In May 2022 it was 19.3%. 

Lending to owner-occupiers for a second or more property hit $3.2 billion, up from $2.4 billion in April, but way behind $5.5 billion borrowed in May 2021. The market share of new mortgages to owner occupiers fell to 57.4%, down from 57.6% in April. This is the lowest share of new mortgages to owner occupiers since January 2021, when the share was 57.1%.

Investors’ new mortgage lending rose by $0.3 billion or 37.9% to $1 billion last month compared to $1.5 billion in May 2021 when the housing market was in a buying frenzy. Their market share of new mortgages also rose in May, up from 16.6% in April to 16.9% in May. However, compared 12 months ago, the share has fallen from 17.5%.

There were 16,258 new mortgages last month, up 34.5% from 12,084 in April. In comparison to May 2022, the number of new mortgages fell 2.6% from 16,693.

The average value of new mortgages across all borrower types rose to $360,400 in May, up 0.6% from $358,300 in April. The average value has fallen 11.8% from $408,400 in May last year.

Property sales versus fresh listings

Alexander is keeping an eye on the availability of listings to gauge a surge in buyer interest.

Looking at the realestate.co.nz end-month stock of listings, the number of properties available at the end of May was down almost 13% from the peak in December using seasonally adjusted data.

He also looks at the flow of new listings each month compared with the number of properties sold.

The first point to note is sales are typically outnumbered by new listings but many ‘fresh’ listings are in fact properties which have not sold, been taken off the market then put back on, he says.

Also, agent switches are probably recorded as fresh listings. But as long as these factors don’t shift too much they can provide useful insights, he says.

Secondly there was a rising ratio of sales to new listings broadly from 2007 to just before the pandemic. Thirdly the ratio of sales to new listings rose in the pandemic frenzy until the sharp decline in prices and sales late in 2021.

“Fourth, there was a false recovery in the sales to listings ratio in the first quarter of last year, which got shattered by extra tightening of monetary policy from November last year.

“Fifth, and clearly the bit we are most interested in; the ratio is now trending back up again.”

In the three months to May it hit 0.68 which is the highest reading since the three months to December 2021 when the credit crunch was fully blazing.