Roller coaster year for housing and mortgage markets

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For the housing and mortgage markets, it’s been a year of fits and starts: by as early as March it looked like a convincing recovery in activity from the depressed 2000 was underway, but then followed a rather fitful winter.

Friday, December 21st 2001, 12:13PM

by Jenny Ruth

Then the 11 September US terrorist attacks dealt a savage, although thankfully short-lived, blow to confidence and it wasn’t until the November figures came out last week that everyone drew a huge sigh of relief and concluded it wasn’t such a bad year after all.

Of course, the recovery wouldn’t have happened at all without the Reserve Bank’s at first cautious interest rate cutting. Although the Federal Reserve kick-started the global trend in early January with a hiss and a roar with the first of its 11 cuts in interest rates this year, our central bank held off until mid-March for the first of its five rate cuts this year.

Indeed, Reserve Bank governor Don Brash only really got enthusiastic after the 11 September’s events. Before that, he had cut his official cash rate (OCR) from 6.5% to just 5.75%. Two cuts after 11 September have taken the rate down to 4.75%.

"It’s taken a lot more to stimulate the market than anyone first thought," says Rob Tucker, chairman of the Mortgage Brokers Association.

The recovery was sorely needed, not just for his organisation, but for the country as a whole.

He notes the recent Massey University study showing the level of home ownership in New Zealand has slipped to just two-thirds of the population and that internationally we rank only eighth. Back in 1986, more New Zealanders owned their own homes than any other nationality.

"There was getting to be a gap between house affordability and incomes and being able to save a deposit," Tucker says. "With lower interest rates, it should be more affordable."

Real Estate Institute president Rex Hadley says it’s been "a bit of a roller coaster" of a year, but in terms of house sales, the market is approaching its best levels in five or six years.

As yet, the increased activity isn’t giving Brash too much to worry about on the inflation front. The national median house price actually fell from $179,000 in October to $176,200 in November. That was still above the $174,000 median house price in November last year.

Hadley says there’s "an air of stability" about the market. "There’s no indication at all that prices are going to take off. There might be some minor steady growth," he says.

For the banks, although the mortgage market continued to growth, it was at about half or less than the growth rates they enjoyed through the 1990s.

Consequently, the competition became far more cut-throat.

One example of that is the diametrically opposite approaches ANZ Bank and WestpacTrust took to Bash’s latest rate cut in mid-November.

ANZ Bank’s approach was to offer a 4.95% six months fixed-rate loan while WestpacTrust offered a five-year fixed rate loan at 6.99%, the lowest five-year rate ever offered in New Zealand. Both offers were withdrawn this month.

David Cunningham, who until a recent promotion was head of residential lending at WestpacTrust, admits that his bank lost market share this year, but is expecting better things next year.

After coming bottom in customer service surveys about 18 months ago, WestpacTrust has been in a "rebuilding" phase, at first concentrating on retaining existing customers and only recently looking to attract new customers, Cunningham says.

"You turn the tide with your existing customers first. Our efforts are now starting to pay dividends and our retention rate is now much better," he says.

National Bank, on the other hand, had a very good year. John Park, chief manager of retail lending, says his bank’s mortgage book grew $950 million to $15.3 billion between December last year and the end of September. That was more than 30% of the total market’s $3.1 billion growth in those nine months.

"All in all, it hasn’t been a bad year," Park says. Certainly much better than 2000 when National Bank was still dealing with merging Countrywide Bank and "life wasn’t easy."

Colin Mansbridge, previously head of Mortgages at Bank of New Zealand, says although his bank has gained only about a percentage point in market share this year, the natural growth in the market has made it a significantly better one than last year.

David Tripe of Massey University says one of the noticeable trends this year was a significant rise in banks’ impaired assets by the middle of the year. "We think that related mostly to the residential mortgage market. The problem in essence was some residential properties, in particular in the residential rental market in Auckland," Tripe says.

Still, the September quarter figures suggest the situation is improving and previously bad debt levels were extremely low, he says.

The signs are certainly looking reasonably good for the housing and mortgage markets for next year, providing the international economy lives up to tentative signs of a recovery.

Consumer confidence is holding up well, unemployment is at its lowest level in 13 years and the tide in immigration has turned.

In the year ended November, permanent and long-term arrivals exceeded departures by 4,900, the first net inflow in a November year since 1997.

While hopes of another interest rate cut in the new year are fading, no body is expecting any sharp increases either, although longer term rates are moving higher.

But WestpacTrust’s Cunningham doesn’t think the market will revert to the good times the banks enjoyed in the 1990s. He estimates the annual average growth in mortgage lending through the 1990s was 11.8% but the average this decade will probably be more like 6%.

Given that household indebtedness, which is mostly mortgages, is now at about 110% of disposable income, almost double what it was at the beginning of the 1990, New Zealanders simply can’t afford to take on debt as much, he says. "We’re in a different world now."

« House sales jump in November

Mortgage borrowing surged in November »

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