In its quarterly review of the market, CoreLogic says aggressive price cuts from the banks will help drive the market after a slow first three months of 2019.
2019 has been characterised by price wars between the major banks and their smaller rivals, with two and three year rates falling below 4%. CoreLogic says the activity will "support house prices" in the year to come, as volumes in the opening three months remained comparable to the same period in 2018. It expects volumes to remain flat over the course of the year, with stronger growth outside of Auckland.
CoreLogic's Kelvin Davidson told TMM Online rate wars demonstrated banks were "trying to steal customers" amid low turnover rates and slow sales volumes. "There is a competitive banking environment. I don't think sales volumes will surge away in the next year or two, so those sorts of conditions suggest competition will remain tight."
Davidson expects the Reserve Bank's new capital rules will cause rates to rise in the long-term, but says short term rates will stay low for "good borrowers". "If you can pass servicing tests conditions will remain good for borrowers."
CoreLogic said tough servicing tests at theoretical levels of 7%-8% were good for the market, and would leave borrowers "well-prepared" for eventual rate increases. Davidson added: "Tough tests are needed as debt levels are higher than ever before in the economy. A 1% increase would have a much bigger effect than it would 20 years ago, and the market is more sensitive than it was in the past."
Overall, CoreLogic says Q1 delivered an "almost identical" property market performance to Q1 2018, with growing first home buyer volumes a notable change. The company expects investors to remain a strong part of the market despite continued restrictions on investor activity. "Anecdotally, some investors are reported to be exiting the sector and selling to FHBs. But there’ll also be other investors simply snapping up sales to boost their own portfolios, so it’s hard to envisage that the stock of available rental property is about to change much anytime soon."
