ANZ’s latest property report says the housing market looks likely to remain sketchy and prone to short bursts of enthusiasm followed by consolidation, as opposed to any clear trend.
The report said that after a strong surge in May sales, the pace seemed to slow over June and July.
“We estimate July sales volumes were unchanged on June levels in seasonally-adjusted terms. Housing turnover remains 14% below historic averages as a proportion of the housing stock.”
It noted that there had been a few small falls in carded mortgage rates over the past month, with fixed rates from six months to two years below the floating rate.
“This is all the more appealing if, like us, you do not expect the RBNZ to cut the OCR. It makes sense to consider fixing a proportion of debt for up to two years simply to save money.”
Of its 10 property gauges, two clearly pointed towards declining prices and one to rising. The rest were more mixed.
Affordability was clearly a negative pressure, the report said. “Housing affordability has been dented, with house prices moving up faster than incomes.”
A move by households to cut debt was also likely to slow price increase. But historically low interest rates were driving activity.
ANZ noted that the outward flow of migration from New Zealand appeared to be turning, especially in Canterbury, where people were returning. This would eventually put pressure on prices to rise but at present could be having a negative effect.
Supply and demand factors were edging back towards being in synch, although there was still a lack of supply to satisfy demand in many areas. The number of months to sell was at a four-year low.
Median rents were unchanged on last month and up 3.3 per cent over the past year, the report said.
On balance, the report said the market was consolidating. “Signs of improvement are becoming decidedly evident.”
ANZ advised that borrowers should spread their loans over several fixed rate terms while maintaining some exposure to floating rates, to provide flexibility.
But it said the time was not yet right to contemplate fixing for a longer term. “Interest rates would need to rise fairly quickly in order to make it worthwhile fixing for a longer term.”
The report said borrowers who fixed for four years at 6.2% would have to see the three-year rate rise to 6.43% in one year in order to be better off than fixing for one year at 5.5%.