Mortgage lending grows but still soft

However, while mortgage lending is rising slowly, January’s figures were 35.6% down from $5.3 billion lent in December.

Annually the value of new mortgages has risen by 23.0% from $2.8bn in January 2023.

Even with an annual increase, it is still low historically compared to the same month in previous years, the RBNZ says. In January 2021 there was $6.4 billion of lending.

First home buyers continue to take advantage of LVR speed limits, accounting for 80% of all low-deposit owner-occupier loans. Mortgages to first home buyers increased by 28.3% compared to January last year.

The value of new mortgages to other owner occupiers increased by 15.9% over this period, and the value to investors increased by 41.8%.

The share of new mortgage commitments to first home buyers fell to 24.1% in January, down from 25.2% in December. The share has increased from 23.1% in January 2023.

There were 10,334 new mortgages lent in January, down 31.2% from 15,013 in December. In comparison to January last year, the number of new mortgage commitments has risen by 19.1% from 8,680.

The average new loan value across all borrower types fell to $330,300, down 6.5% from $353,300 in December.

The average value of loans for first home buyers fell by 2.1% between December and January and the average value for investors increased by 1.2% to $484,100.

Changes by mortgage holders to a different lender rose by 36.5% compared to January last year, while mortgage top-ups rose by 8.8%.

The message for mortgage holders from the RBNZ’s OCR review last week is “higher for longer” with no falls possibly for more than a year.

Underwhelming for housing growth

CoreLogic says this year will be underwhelming for housing.

Its latest House Price Index shows although house prices were up 0.3% in February, rising for the fifth consecutive month, the pace of gains is down from November's 0.4% rise and December's 1% increase.

The average property value across the country now stands at $930,495, up 2.8% from September's trough, but still 10.8% below the recent peak.

CoreLogic chief property economist, Kelvin Davidson says the recent muted house price figures show this isn't a straight-line market recovery.

He says housing market sentiment has improved a little in recent months, and CoreLogic is anticipating growth in national sales volumes of about 10% this year, with prices potentially rising by about 5%.

“But that’s coming from a low base, and the averages could also mask quite a bit of regional variance, with the main centres boosted by stronger population growth, yet some other areas perhaps held back by affordability concerns.”

Bark worse than bite

Meanwhile Kiwibank chief economist Jarrod Kerr says the RBNZ is, “a sheep in wolves clothing”, because after some ferocious barking and a lot of huffing and puffing about potential rate hikes, it shed its wolf skin and lowered the OCR track. 

It seems that after a three-month break, the RBNZ came back to the drawing board and concluded: Monetary policy is working, he says.

The RBNZ’s comments around migration and the labour market are key.

Signs of a slowdown in economic activity are abundant, Kerr says. “Whether it’s retail sales, construction, or manufacturing, tighter financial conditions are weighing on activity. Household consumption is weak and business activity is subdued.”

The RBNZ’s new forecasts were little changed and continue to paint a soft economy, continued rise in unemployment, and a (slightly) faster return to the 1-3% inflation target band.

Monetary policy is restrictive and having the intended impact. The need for further pain is unwarranted, Kerr says.

“The Kiwi economy is weak and has been for 18 months. There was a massive 3% decline in economic output last year, on a per head basis. Economic growth is expected to have been flat in the final quarter of last year. And looking beyond, we’re in for a few more quarters of rather subdued growth.”

Restrictive interest rates and below-trend global growth is weighing on demand in the economy. Rapid population is supporting aggregate output and remains an upside to the economic and inflation outlook.

Kerr says the demand impact of strong migration is emerging in the form of rising rents. And retail sales volumes, down 4% last year, would be weaker still if not for population growth.