Housing market in recovery but an ‘underwhelming’ one, says CoreLogic
Friday, 23 February 2024
High mortgage rates are a handbrake on the housing market’s slow recovery and nothing is set to counteract that in the short term, CoreLogic says.
The market was quieter in January than it was at the end of last year, with subdued sales and house prices that went sideways rather than up, according to a range of data.
CoreLogic gave a first quarter market update on Thursday, and its figures showed that prices and sales were going up slowly.
CoreLogic head of research Nick Goodall said the key feature of the recovery was its patchiness, from month-to-month, and between different centres and regions.
“That will continue, as the recovery we see this year will be underwhelming, especially when compared to previous cycles when the downturn has been followed by prolonged periods of strong growth.”
Sales were a good example of the nature of the recovery, he said. While the volume of sales had been rising steadily, it was from a multi-decade low base.
“At the peak of the market, there were national sales of about 110,000, and they dropped back to about 60,000. Now they are up to about 67,000, so they are just creeping up to the ‘normal’ level of 90-95,000 a year.”
The patchiness was also evident in the monthly sales figures, with Tauranga’s sales up by more than 30%, while the other main centres had sales increases in the 15% to 25% range, he said.
“Price recovery is underway, but prices are not rising everywhere with some smaller areas still recording declines, and in the last month or so price growth has lost a bit of momentum, compared to late last year.
“But price growth is coming back, it is just not going to be consistent or happen at great speed, and there will be specific local influences in local markets.”
Goodall said while high migration put pressure on demand for housing, particularly in the rental market, servicing a mortgage was still tricky due to high mortgage rates.
That was a natural handbrake on the speed of sales and price recovery as it impacted on affordability, he said.
The affordability measure has improved over the last couple of years because of the fall in prices, but the measure reflected only prices and income.
“It doesn’t include interest rates, and yet that is a deciding factor in whether or not someone can afford to buy a house.”
Unless prices went down, which was not expected, or incomes went up significantly, affordability was not going to improve until interest rates went down again, he said.
“With ANZ forecasting that the Reserve Bank will hike the official cash rate another two times, the expectation that they will start to fall later this year has been dented.
“And until we see an improvement in affordability we will not see a significant increase in demand for property, despite some post-election improvement in market confidence.”
The loosening of the loan-to-value ratios when the Reserve Bank introduces debt-to-income ratios later this year might give a little boost in demand, but changes to investor tax policy would not make much difference in the short-term, Goodall said.
“Reducing the bright line test to two years will have more impact on investors looking to sell rather than buy, so it might help lift stock a bit.
“The reinstatement of interest deductibility will improve cash flow for investors, but not profitability for most. Most won’t be positively geared, and will still have to top up, so it might increase demand slightly, but not by much.”
While mortgage rates were the number one factor that would influence the market in the future, the recovery would continue although it would be patchy, he said.
“But we expect sales to go up by 10% to about 70,000 this year, and then next year they’re likely to go up by maybe another 10% to 80,000. That growth will be welcomed by many in affected industries.”