Sales dive to new depths – lending at low DTIs

This comes at the same time Reserve Bank figures show borrowers taking out mortgages in excess of the central bank’s proposed debt-to-income (DTI) levels are well below the six times income for owner-occupiers and seven times income for investors.

The RBNZ data covering the final quarter of last year show borrowers well within the proposed restrictions expected to be imposed from the middle of this year.

In December, 29.6% of new mortgages had a DTI of five – the lowest since data collection began in 2017. For first home buyers 24% of new mortgages had a DTI of five – also the lowest since data collection began. This share has fallen from 35.3% in December 2022. New mortgages to investors with a DTI of five reached a low of 39.4% in October but rose to 42.4% in December.

Borrowers taking out mortgages with a DTI of seven hit 6.1% in December, up from a record low of 5.2% in September. The highest share was in January 2021, when 26.5% of new mortgages were with a DTI of seven. The lowest share of new investor lending with a DTI of seven was during October at 8.6%.

The average gross income for first home buyers was $151,200 in December, up 3.6% annually from $146,000 in December 2022.

Under the Reserve Bank’s DTI restrictions,  banks will be able to lend 20% of their residential loans to owner-occupiers with a DTI greater than six and 20% of their residential loans to investors with a DTI greater than seven, while easing loan-to-value ratios to allow 20% of owner-occupier lending to go to borrowers with an LVR greater than 80% and 5% of investor lending to borrowers with an LVR greater than 70%.

Although CoreLogic chief property economist Kelvin Davidson says DTI’s will not have much effect on lending initially because high interest rates are doing the job, last month’s sluggish house sales are a timely reminder the housing market is still facing mortgage rate pressure.

CoreLogic’s February Housing Chart Pack shows there was a total of 3,169 sales in January measured across agent-led and private transactions.

Despite this, he says there is still clearly a gradual upturn underway, as sales volumes have risen compared to a year earlier in each of the past nine months.

On a 12-month basis, national sales have risen 4.5% to more than 67,000. This is up from the April trough of less than 62,000 annually, but still well below “normal” levels of 90,000-95,000 a year.

The swing is also reflected in total sales across the main centres at 5% and provincial markets at 3.6% over the 12 months to January.

"Arguably, listing levels have returned to some kind of normality, so the reduced sales over the past month probably hints at some uncertainty around buyer demand, rather than a lack of choice," Davidson says.

"It’ll be interesting to see how sales and listing activity evolves in the next month or so, and how market confidence moves. We suspect the demand will be there to match any additional supply coming on to the market, resulting in an associated rise in agreed sales activity as buyers can see more choice," he says.

February Housing Chart Pack highlights

• Residential real estate is worth $1.62 trillion
• National property value gains eased in January, with a rise of ‘only’ 0.4%. Main centres Dunedin and Tauranga slightly outperformed with other markets recording flatter results for the past month
• Sales volumes in January, across both private deals and real estate agents, were about 2% higher than the same month last year, the ninth rise in a row. And on a 12-month total basis, sales have now risen to 67,400, up from the April trough of less than 62,000, but still well below the average of 90-95,000 per year
• New listings activity has started to rise again after the holiday period, with 8,916 new listings over the four weeks ending 11 Feb, well below the 8,577 from the same time last year and the five year average (11,428)
• Total stock on the market is 36,802, which is 8% below this time last year.