Based on discussions with clients, industry, media and the wider community over the past few weeks, CoreLogic we have come up with five points we think don’t quite get the recognition they should, and need to be reinforced.

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1. The number of loans being written is ultra-low

The latest Reserve Bank mortgage lending figures might lead investors to conclude that despite strict deposit rules, tight expense scrutiny, and higher interest rates, they weren’t a disaster – e.g. the value of loan activity in March was $7.3 billion, down from $10.5 billion a year ago, but well above March 2020’s figure of $6.2 billion.

When property values have risen so much, the average loan size tends to increase too, and hence total lending flows as well. The number of loans drawn-down in March, across more than just sales; also including things like top-ups and refinancing, it was actually the weakest figure for that month of the year since at least 2015.

Taking January to March combined, total loans of 45,298 were 37% below the average for that same three-month period over 2015-2021 of 72,370.

2. The rise in listings on the market has not reflected a surge in people wanting to sell

There seems to be a perception that would-be sellers are flooding the market, and this is pushing up the choice for buyers, leading to weaker price pressures.

Although there are always exceptions to the rule, it’s generally the case that actually the rise in stock on the market has simply reflected a relatively typical flow of new listings, if not even a bit below normal for the time of year, but a sharp drop in agreed sales at the other end of the pipeline.

Apart from lockdown-affected second quarter of 2020, total sales over January to March this year have been the lowest for any quarter since the third quarter of 2011.

Once through winter, always a quiet time for sales activity, there’s a chance of a sharper than normal pick up in new listings, perhaps as some investors look to cut out a bit of debt, in response to regulatory changes and the removal of interest deductibility. But there are few signs of that happening just yet.

3. The total loan to value ratio for the market as a whole is actually quite low

Clearly, recent buyers using a mortgage will have mostly been taking out loans based on a fairly small deposit, or in other words a loan to value ratio of 80% - or as close to that as their bank will allow.

Accordingly, this is where a lot of the risk in the market lies, especially if buyers also took out a mortgage at a high multiple to their income, and interest rates continue to rise and/or unemployment starts to increase.

When looking at the estimated total value of all dwellings across New Zealand of roughly $1.7 trillion, and then the total mortgage debt of around $335 billion, the figures show an aggregate LVR of only about 19% – in other words, there are a lot of property owners with a lot of equity too - at least on paper. Back in 2018, the aggregate LVR was about 23%.

4. First home buyers don’t always enter at the bottom rung

The casual assumption that’s often made about first home buyers (FHBs) is that they “start at the bottom” and slowly work their way up through the different tiers/quality of property.

This is not the case in reality. Sure, in recent years they’ve purchased relatively fewer standalone houses and more flats/apartments, which gives access to lower prices.

However, the median price paid by FHBs has still stuck comfortably above the lower quartile (bottom 25%) for all buyers – in the first quarter of this year, FHBs paid a median price of about $750,000, higher than the all-buyer lower quartile of $615,000.

5. New dwelling consents are not the same as more housing stock

For several months, new dwelling consents around most parts of the country have been pushing up to record highs, and this is eating into the accumulated shortfalls - at affordable prices - of housing.

Not all new dwelling consents will result in a finished house, and not only that, as infill development gathers speed existing older properties are being knocked down to allow for the new construction.

In other words, the stock of houses (and its composition) – which is what matters for affordability – isn’t changing as rapidly.
Taking the fact about 39,400 new houses were consented in 2020, and then allowing a 15-18 month lag to actually get those houses built, our data suggests the housing stock has perhaps only changed by 25,900 as a result of those consents.