Market buoyed by rate cuts

Fixed mortgage rates, particularly two years and up, have fallen recently in response to declines in wholesale interest rates. The "step up" between floating and fixed rates has decreased, as floating rates rise in tandem with the Official Cash Rate (OCR) and many people are choosing to start fixing their loans.

"There is some value in fixing, particularly in the one to two year maturities," ANZ says in its report.

Around a third of all mortgages are currently floating, according to the bank, and it is expecting more people deciding to fix for two years.

The June and July hikes in the OCR are one factor encouraging increasing caution by buyers, although offsetting that has been recent cuts to fixed rates, which ANZ believes may start to entice more buyers into the market.

"Given the low number of sales, this cannot come too soon."

House sales remain uninspired and the number of sales were broadly unchanged from June, but were 27% below July 2009.

ANZ uses 10 gauges to assess the state of the property market and for signs changes are emerging, and what effects those changes will have on the direction of house prices. The August gauges showed a largely neutral to negative impact on house prices, suggesting that although they have been resilient, prices may be starting to crack.

A large supply of existing dwellings on the market, ongoing household deleveraging, low income growth and lower net migration are all playing an influential role in constraining the residential market.

Affordability improved in the June quarter, after deteriorating over the past year and improvement is likely to continue, according to ANZ.

Deleveraging continues, as households become more conscious of paying off debt, but the impact on the property market will see house prices decline.

Migration eased in the June quarter, after the steady flow turned to a trickle. The June figure for permanent and long-term arrivals saw the lowest monthly inflow since November 2008.

Supply-demand remains out of kilter, with excess properties on the market, while consents and house sales are facing headwinds. Liquidity, which looks at the availability of credit to support the housing market, may have turned the corner but remains very illiquid.

Overall, ANZ believes "there is not a lot of optimism currently in the housing market" and that the residential property market will contribute relatively modestly to GDP growth over the remainder of this year.