Last month I noted that my monthly survey of mortgage advisers was telling us that first home buyers are re-entering the residential property market perhaps encouraged by factors like rising wages, house prices having fallen, and cuts to fixed mortgage rates. This month I can report the same return of young buyers now showing up in my regular survey of real estate agents alongside REINZ.
Back in late-September before the shock inflation number came out, a net 27% of agents reported that they were seeing more first home buyers. This fell away to a net 16% seeing fewer at the end of November immediately after the record tightening of monetary policy.
Now, at the end of February we can see a net 24% of agents once again saying that first home buyers are out kicking the tyres. One factor helping explain their return will be the removal of worries about worst case scenarios of fixed mortgage rates going to 8%. Assisting that will be the occasional deep discounting of 1-2 year fixed rates some banks have been undertaking as they realise their mortgage sales targets will be badly missed this financial year.
Will investors soon follow the first home buyers back?
We need to ask this question because this has tended to be the pattern in recent years. I can see from my survey results that reports from mortgage advisers and real estate agents do show reduced withdrawal of investors.
But none of the numbers come close to being positive.
That is, both groups at the real estate coalface still firmly show that investors are not in the market. They remain concerned about interest rate levels, access to bank finance (though that is improving marginally) and the decreasing proportion of interest expenses which can be deducted from rental income for taxation purposes.
The timeframe where investors do eventually come back will be greatly influenced by the general election in October. The National Opposition have promised to restore interest expense deductibility and take the brightline test back to five years from ten. If the polls suggest a win for National, then some investors will re-enter the market.
Perhaps some may also be encouraged back by some new factors suggesting a slight retightening in the rental market. The strong recovery in foreign visitor numbers is encouraging the movement of some rental properties back into the pool for short-term holiday letting. There has also been an unexpected surge in foreign student numbers which is relevant mainly to the cities and Auckland in particular.
We also have some 10,000 people displaced by the recent extreme flooding events and accommodation over an extended period will be required for some. Most importantly however is the rapid change in net migration flows.
Six months ago, the net annual flow was a loss of 16,000 people. That has now switched to a gain of 16,000, and if we conservatively extrapolate recent flows we could see a net gain exceeding 40,000 come the end of this year.
For now the migration shift is unlikely to be affecting sentiment because the data are lost behind the scenes amidst an understandable focus on the impact of recent flooding events. But later this year in the context of new dwelling consent numbers falling away, a focus on the most basic housing driver of new supply versus new demand could provide an interesting level of support for the housing cycle.
Until then the dominance of high consumer pessimism suggests some further easing of prices is in the offing with sales still relatively weak until maybe mid-year.
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