NZ residential rental market news, May 12

REINZ report summaries, $85b in home loans refinanced & TSB's 6% interest rate

The bullet points from this week:

REINZ Reports suggest market is stabilising

April 2023 figures from the REINZ show pressure on the real estate market due to the economic climate. 
Median prices across New Zealand have decreased but are stabilising. 
The national median price decreased by 10.9% year-on-year to $780,000 in April 2023. 
The time taken to sell properties has increased to 47 days in April 2023, up 9 days from the previous year. 
Inventory levels have slightly decreased month-on-month but increased year-on-year. 
The total number of properties sold in April 2023 decreased compared to the previous month and the previous year. 
New listings decreased by 18.9% year-on-year in April 2023. 
Lower prices and good stock levels present opportunities for buyers heading into the cooler months. 
The REINZ House Price Index showed an annual decrease in residential property value nationwide. 
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Core Logic's FHB Report

First home buyers (FHBs) in New Zealand have maintained their record high market share despite affordability pressures and lending rules. 
In Q1 2023, FHB market share held at around 25%, on par with previous record highs. 
FHBs have benefited from using KiwiSaver for deposits and being willing to compromise on property type and location. 
The downturn in property values and increased listings have also helped FHBs. 
All six main centres in New Zealand have higher than average FHB market shares. 
The proportion of apartments in FHB purchases has decreased. 
Despite purchasing larger homes, the median price paid by FHBs fell to $680,000 in Q1 2023. 
FHBs enter the market above the lower quartile and don't necessarily start at the bottom of the property ladder. 
Auckland had the highest FHB median price in Q1 2023 at $885,000. 
The market is not expected to boom again immediately, and caps on debt to income ratios may be imposed. 
FHBs may continue to benefit from relatively favourable conditions, although mortgage rates are unlikely to drop significantly in the near future.
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$85 billion in home loans to be refinanced

A quarter of all mortgage debt is held by borrowers who took out loans during the peak of the pandemic. 
This amounts to over $85 billion in home loans that will be refinanced at higher interest rates than originally anticipated. 
The Reserve Bank claims that borrowers can manage the higher rates by reducing other expenses and that stress tests have built-in buffers. 
The Reserve Bank's Financial Stability Report found that households who borrowed during the low interest rate period were stress-tested at lower rates than current rates. 
Approximately 20% of borrowers facing higher rates than stress-tested are first-time homebuyers. 
Adjustments in consumption will likely occur as borrowers approach stress test rates due to higher interest rates. 
The government bond and debt markets indicate that the market is not concerned about New Zealand, and government debt is relatively low compared to other countries.
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HUD's increasing interest deductibility rules

Investor Michael Burge has all 17 of his investment properties with a community housing provider for social housing tenants meaning his ability to deduct home loan interest rate expenses for tax purposes remains unaffected while other landlords face phased-out deductions. 
The Ministry of Housing and Urban Development (HUD) is gradually closing this avenue for investors, except for new-builds that are not subject to interest deductibility rules. 
Community housing providers are offering lower rents than before, potentially due to funding allocation changes. 
HUD does not have centralised information on the number of properties leased by CHPs from private landlords or landlords willing to provide properties for public housing. 
The number of private properties being redirected to public housing has decreased since the phase-out of mortgage interest deductibility began. 
HUD aims to increase purpose-built public housing units while progressively decreasing the proportion of private market homes redirected for public housing. 
Community housing providers are becoming more selective about which private rentals they accept, with a preference for new builds. 
Deloitte predicts that with the changes in rules, more rentals will become cash flow negative, resulting in monthly losses for investors and additional tax burdens. 
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Employment's impact on housing

Job numbers in New Zealand grew by 0.8% in the March quarter, indicating a strong job market. 
The unemployment rate remains at a near record low of 3.4%. 
More people being employed contributes to increased demand for housing. 
The Reserve Bank has raised interest rates to suppress job growth and control household spending. 
The Reserve Bank may raise the cash rate by another 0.25 percentage points in May. 
The combination of job growth, job security, population growth, and tourism suggests that a recession is not a certainty. 
House-building is expected to decline significantly for the next 2-3 years due to reduced finance and decreased buyer activity. 
Monthly consent numbers for house construction have not yet reflected the decline, potentially due to developers rushing to secure consents before new requirements come into effect. 
The decline in house construction will have a negative impact on the economy, but could raise concerns about housing availability for a growing population. 
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QV House Price Index

Aotearoa New Zealand's average home value is nearing $900,000, with widespread declines in the housing market. 
The QV House Price Index shows a 4.5% average reduction in home values from January to April 2023. 
The national average home value is now $902,501, 13.3% lower than the previous year but 22% higher than before the pandemic. 
Home value decline rates have slowed in 10 of the 16 largest urban areas, including Auckland and Wellington. 
Queenstown is the only main urban centre with positive home value growth at 2.8%. 
The market fundamentals, such as credit constraints and high interest rates, continue to affect the market, but recent proposals to ease mortgage restrictions and increased immigration may provide some relief. 
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TSB offers 6% interest rate

TSB has joined Heartland Bank and Rabobank in offering a 6% interest rate for a one-year term deposit, making it the largest bank to offer this rate. 
Kiwibank offers the closest rate among major banks at 5.75% for one year, while Australian banks offer 5.70%. 
The most competitive rate for a 3-month term is China Construction Bank's 4.70% for 4 months. 
Bank of China, China Construction Bank, and Rabobank offer the most competitive rates for a 6-month term at 5.60%. 
Rates for terms longer than 12 months are generally lower, with a downward trend in wholesale rate pricing. 
Most savers prefer shorter terms, so while a 6% offer may attract attention, they often opt for shorter-term deposits. The popularity of the one-year term is not as high, although savers who diversify their deposits across terms and institutions may find it appealing.  
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