Blog: The Landlord says...

A sudden and unexpected easing in home loan rates this week is to the property market, what a bit of rain is to drought-stricken farmers.

The past few days have seen rates in the shorter end of the interest rate curve fall quite significantly – up to 45 basis points in some cases – taking two-year rates down to the 9.40% mark.

While these are not cheap by historical standards, they are significantly better than what homeowners and buyers could have secured a couple of weeks ago.

One of the interesting things about the changes is that that for some time the five-year rates have been the cheapest in the market – and therefore appealing to many borrowers. These rates have remained static over the past week and now we are seeing shorter-term rates on par with longer-term ones, or in some cases lower.

While the falls are good news, they are just the first drops of rain in a struggling market.

There are still two major issues facing buyers. One is that banks are tightening their lending criteria – or more accurately, they have done the tightening and don’t appear to have much intention of loosening things up. Secondly non-bank lenders are struggling, with more falling by the wayside in recent times.

I guess the big issue people are pondering is whether or not these interest rate falls will help stoke up the flame which has been burning under the housing market.

My guess is a muted yes.

For people who can meet the lending criteria or have cash on hand then they are likely to start getting more active.

Also astute buyers will know that it is not easy to pick the bottom of the market. To wait until prices are rising again maybe too late – well, too late to get the best bargain anyway.

As one real estate agent said: “It is very hard to judge the bottom of the market but most people will miss out on the real bargains as they will wait until the prices are going up and confidence returns before buying.”

The Auckland house sale figures from Barfoot & Thompson are fascinating. While the company tried to paint a positive picture of what was happening in New Zealand’s biggest real estate market, others interpreted it far more negatively.

Sure – the numbers weren’t flash with sales down and rents flat. But there may be some good news in the picture as B&T managing director Peter Thompson says.

He says that a growing proportion of sales are taking place in the less than $500,000 bracket, and that the average price in this market has held up.

”This suggests two things. That new buyers entered the market encouraged by the wide range of stock available and that price discounting is nowhere near as prevalent as media reports would have us believe.”

My previous Blog suggested that maybe there is some good news out there – one of those factors being that interest rates may fall sooner than expected.

The B&T sales numbers help support that view, as I note Goldman Sachs JB Were read them and was moved to comment:

“With accumulating evidence of broad-based slowdown in the economy and credit rationing by banks, the need to pursue very tight monetary policy has reversed. We continue to expect interest rate cuts to begin between June and September.”

The other positive bit of news was the ANZ/NZ Property Investors Federation survey of investors.

Overall the respondents were positive. Some may say over-optimistic. (Take off your rose-tinted glass, I hear you say!)

I think it is imperative to look at who the respondents are. To me they look like investors who are experienced and have a good level of knowledge of what is happening in the property market.

These people don’t see a market slow down as a negative. In fact, they see opportunities to buy. These are opportunities they haven’t had for some time as prices have been way ahead of themselves.

Most of the talk in the media is all about bad news in the property market. There is no point listing the sorts of stories they run, but it seems, particularly on the weekends, that negative headlines sell papers.

Here at Landlords we like a bit of balance and reality on the situation. To us it seems there have been a couple of bits of good news for the market in the past week.

First up was the Reserve Bank’s official cash rate announcement. To the ordinary bloke (or sheila) who invests in property, the statement seems pretty bland. But economists, who tend to specialise in decoding these official statements, reckon the bank had changed its stance on easing rates.

This time the central bank said that it “expect(s) that the OCR will need to remain at current levels for a time yet”.

Previously it said that the OCR will stay where it is for “a significant time yet”.
The economists reckon this is a big change and cuts could come earlier that the RBNZ previously suggested.

That’s good news for the market. When rates start falling and banks become a bit more generous, the property market will accelerate.

I still reckon that when the market turns the corner and starts heading up it will do so quickly and sharply.

Secondly we had some migration figures, which again were positive. They showed a slight increase in the number of people coming to New Zealand.

There is a view that migration and the housing market dance together. The reason is pretty obvious. The more people we have coming to live here means that there needs to be more houses.

As BNZ chief economist Tony Alexander said: “This is actually the first positive piece of news for our poor housing market in a very long time.”

While this post is about positives, it would remiss to say there is one negative. That is some research from Westpac which looks and the supply and demand balance for housing. Its key view is that they are roughly in balance. But it does suggest a slight oversupply of houses which is a negative for house prices.

I guess a few more immigrants will get us balanced again?