Getting the engine warmed up…

By ANZ chief economist Cameron Bagrie

Confidence continues to build especially in the metropolitan centres. Weighing against this is a further lift in fixed mortgage lending rates, with the likelihood of more to come.


Mortgage rates are heading up the higher way, with the mortgage curve continuing to get steeper, and it’s not hard to see the positive slope continuing. Three to five year mortgage rates are now above their decade averages, and it would be surprising to see too many people at all going into that part of the curve. Those who fixed two years ago at 9.1 percent and one year ago at 8.2 percent who are coming up for renewal will still be looking at decent savings even at the two year part.

What is clear is that more and more people will be heading into floating and fixed short term mortgages, giving the RBNZ the kind of traction they have not had in years. How long before the current mortgage curve starts to weigh on the housing market?

Household lending growth rose 0.3 percent in the month, which is still quite soft considering the pickup in the housing market. This suggests while new lending growth for housing is rising, a lot of people are paying down their existing debt. Confidence may be picking up, but it is certainly not translating into enough of a conviction to get out and invest just yet.

House sales rose 2.7 percent in September, to be up over 43 percent a year ago. Sales have more or less held on to this level of activity over the past six months, albeit with still an upward trend. In saying this though, the number of sales is still well down from the peaks experienced between 2002 and 2007. This better illustrated once house sales are adjusted for the size of the housing stock, which shows turnover still below historical averages.

However, putting this aside, it is still clear that a shortage of listings is continuing to support prices and ensuring a reasonably quick time to sell. The REINZ median house price rose to $350,000 in the month – up 6.1 percent a year ago. The median number of days to sell held constant at a reasonably low number of 34 days. Auckland still appears to be leading the pack in terms of price growth, with the regions median selling price rising 8.3 percent compared to a year ago.

Building consent issuance is now beginning to stabilise, although at this stage the pace of recovery is nothing to right home about and we need to remember that the level remains extremely low. Never the less, we are expecting further rises over the coming months.

With the housing market turnover improving, it is not at all a surprise to see the residential consent issuance begin to rise. There has been a strong historical relationship in the past, and we see little reason to why it wouldn’t continue in the future. The rebound in housing has a course seen wholesale swap yields rise, necessitating an upward re-pricing of mortgage rates, and it looks to be a case of the chicken and the egg between the two.