NZ residential rental market news, January 19

House prices drop in December but the market shows signs of strengthening and do DTIs make sense for IPs?

Too long; didn't read? Here's this week's TLDRs...

Core Logic data shows signs of strengthening market

December 2023 sees a 1.0% increase in property values in New Zealand, the strongest monthly gain since January 2022. 
Average property value now stands at $924,489, up 2.1% over the past three months. 
National property values remain 3.3% below last year and 11.4% lower than the peak two years ago. 
Tauranga, Auckland, and Christchurch register increases of more than 1% in December. 
Affordability pressures persist despite some drops in mortgage rates, with debt-to-income ratio caps anticipated in the coming year. 
Wellington's sub-markets show growth, but affordability remains a key concern in Wellington City. 
Provincial value results for December vary, with Queenstown standing out with values almost 6% higher than a year ago. 
Core Logic predicts continued 'patchiness' in property value changes in 2024, influenced by mortgage rates and lending restrictions. 
They also anticipate a 10% rise in sales activity and a 5% increase in national property values in 2024, with regional variations. 
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REINZ December data show momentum, though house prices drop  

December 2023 real estate figures by REINZ indicate increased sales activity, rising median prices, and a boost in market confidence year-on-year. 
Property sales across New Zealand rose by 14.1% (from 4,509 to 5,145) compared to December 2022, with most regions experiencing year-on-year increases. 
Median sale prices were mixed for December, but year-on-year, the national median sale price decreased by 0.7% to $779,830. 
Nine out of 16 regions saw an increase in median sale prices year-on-year, signaling a positive trend. 
Auctions as a method of sale grew to 14% of total sales in December 2023, up from 11.4% in December 2022. 
The national median days to sell decreased to 36 days, down by two compared to the previous month and four year-on-year. 
New listings decreased nationally by 6.4% year-on-year, with 24,867 properties available for sale at the end of December, down 4.6% from the previous year. 
Despite some regional variation, the real estate market ended the year on a positive note, with the Housing Price Index (HPI) showing a 0.5% increase compared to the previous year. 
In 2023, there were 63,361 sales, a slight increase from 2022, while property listings decreased by 12.1%. 
Looking ahead, increased levels of enquiry and positive sentiment from buyers and sellers are expected to boost market activity, supported by lower listings and potential return of investors. 
The HPI for New Zealand in December 2023 was 3,647, reflecting a 1.1% decrease from the previous month but a 0.5% increase compared to the same period last year. The HPI remains 14.7% below the peak of the market in 2021. 
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Suburbs to watch in 2024

Affordability is a key factor driving first-home buyers to more affordable suburbs in urban centres in New Zealand. 
In Auckland, suburbs like Ōtāhuhu, Pukekohe, New Lynn, Massey, Glendene, and Wainui offer properties in the $800,000 to $900,000 price range with good commuter links. 
Eden Terrace, situated between CBD and Mount Eden, is highlighted as an area to watch, expected to benefit from the City Rail Link project. 
Experts suggest looking into growth corridors when buying in Auckland, with Drury in the south mentioned as a significant developing area. 
Clevedon and Papakura are also expected to have new developments coming on stream during the year. 
Hamilton and the wider Waikato region are recommended for potential buyers due to ongoing growth and big tracts of new builds. 
Larger cities like Auckland, Wellington, and Christchurch might see faster house price growth over the next few years due to strong net migration and price drops in these areas. 
Papamoa in Tauranga is mentioned as a top pick, offering a coastal lifestyle with properties ranging from $800,000 to $1 million. 
Personal preferences and reasons for relocation are emphasised as crucial factors in property decisions. 
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Kiwibank cuts home loan rates

Kiwibank is reducing several home loan interest rates. 
Two-year special rate drops from 7.05% to 6.89%, three-year from 6.89% to 6.75%, four-year from 6.79% to 6.69%, and five-year from 6.79% to 6.59%. 
Standard two-year fixed rate falls from 8.05% to 7.89%. 
Predictions suggest fixed interest rates may decrease by 0.5% to 1% by March due to a fall in wholesale rates. 
There are speculations about the Reserve Bank possibly moving the official cash rate earlier than predicted. 
Kiwibank's chief economist considers a rate cut in the first quarter as too early and expects it may happen later in the year. 
Kiwibank is also reducing term deposit rates by 10 to 15 basis points. 
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Tony Alexander: At some point the Reserve Bank will capitulate on interest rates

Recent small cuts in bank mortgage interest rates are due to a fall in wholesale borrowing costs. 
The decline in rates is almost one percentage point over the past three months. 
The best fixed mortgage rate from major banks dropped from 6.99% to about 6.89% since mid-October. 
Banks' margins for fixed rate lending have increased from 1.35% to near 2.2%. 
Banks have not passed on the cost reduction fully, influenced by factors such as term deposit rates and profit considerations. 
New Zealand lenders haven't slashed mortgage rates due to the Reserve Bank's caution about offshore rate falls affecting local lending rates. 
The Reserve Bank is concerned about inflation in New Zealand, currently at 5.6%, and is wary of the speed at which it will decline. 
Expectations of US interest rate cuts influence New Zealand's borrowing costs. 
The Reserve Bank may eventually allow mortgage rate reductions, but it may be months away from doing so. 
Small tweaks in mortgage rates may continue before more significant reductions possibly occur around the middle of the year. 
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Should buyers be worried in 2024?

Mortgage rates expected to dip, although the timing remains uncertain. 
ANZ economists predict a 4% lift in house prices. 
Last year, ANZ lowered some home loan rates due to a drop in wholesale rates. 
Concerns about potential pressure on rents and house prices due to strong population growth. 
New Government policies may make residential investment more attractive. 
ASB senior economist anticipates a 7-10% pick-up in house prices this year. 
Factors contributing to potential house price growth include strong population growth and likely peaked mortgage rates. 
Unemployment is forecasted to rise, and house prices to income ratio and rental yield may cap significant growth. 
Sanjeev Jangra, a Loan Market mortgage adviser, advises first-time buyers to take advantage of the current market with low house prices and good deals. 
Buyers cautioned against fixing rates for a long time due to potential break costs if rates decrease rapidly. 
Banks are reportedly more lenient with deposit sizes since changes in Loan to Value ratio. 
Many first home buyers are utilising five percent deposits through Kāinga Ora. 
Advisers emphasise getting into the market rather than waiting for ideal conditions. 
Brokers are recommended for negotiating rates as competition between lenders exists. 
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DTIs on investment properties don’t make sense

Property values closed strongly last year with three consecutive rises. 
Kelvin Davidson, CoreLogic's chief economist, suggests the property market recovery this year might be underwhelming. 
Mortgage rate movements and Reserve Bank lending restrictions, such as Debt-to-Income ratios (DTIs) will impact the market. 
Finance Minister Nicola Willis and ACT leader David Seymour have expressed concerns about DTIs. 
Kris Pedersen, a mortgage adviser, believes DTIs might be introduced but criticizes applying them to all lending, suggesting it doesn't make sense for investment properties. 
TailRisk Economics principal Ian Harrison criticizes the application of DTIs to investor loans, pointing out potential restrictive outcomes. 
Pedersen emphasizes that investors don't go broke on equity but on cash flow, suggesting DTIs make sense for owner-occupiers but not for property investment. 
CoreLogic's Davidson highlights the role of psychology in the housing market and the potential for sentiment to overtake fundamentals. 
Davidson anticipates a rise in sales activity by about 10% and national property values by about 5% in the coming year.
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Tenant who found neighbour hiding in his ceiling wins compensation

Auckland renter Felino Turner, reporting 25 incidents involving neighboring tenants, including threats and privacy violations, to be compensated. 
Turner moved into a Grey Lynn unit managed by Central West Property Management in April 2023. 
Issues started with a washing machine delivery, involving police, a recovered washing machine, and subsequent security camera installation. 
Incidents included people urinating on his unit, peering through windows, exposing themselves on camera, and a person hiding in Turner's ceiling. 
Turner sought reimbursement for security measures and requested a rent reduction due to feeling unsafe using common areas. 
Landlord's property manager argued he took reasonable steps, but tribunal adjudicator found the incidents formed a pattern of harassment. 
Central West Property Management ordered to reimburse $200 for the security camera, $30 for window film, $20 for letterbox locks, and $60 for blackout curtains. 
The company also ordered to pay $625 in compensation, reflecting a rent reduction of $25 per week from June 2023 until the tribunal hearing. 
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