More than six percent of buyers denied finance

You might have noticed recently some comments from two bank CEOs indicating that only 6% to 7% of mortgage applications had been declined specifically because of the CCCFA changes from December 1.

On that basis you might be thinking that the Act’s impact has been over-stated. But there are three points worth noting.

First, plenty of applications will have been scaled back as people found instead of borrowing $850,000 under the old rules, they can now only borrow $700,000 or less. These people will have scaled back their purchase plans.

Second, many people use mortgage advisers, and those advisers would have told them about the rule changes. This would have resulted in no application being made – hence nothing to be recorded as denied at the bank’s end.

Third, as word spread about difficulties getting finance a lot of borrowers have not even bothered contacting a mortgage adviser.

The monthly survey of advisers which I run with shows a substantial decline in reports of first home buyers showing up with queries kicking in from November, before the changes became effective.

We can see that since November a lot of buyers have simply not shown up.

But as noted before, we are probably in the worst part of the CCCFA-induced credit crunch as young buyers undergo a three month period of vastly restrained spending. When completed they will be able to prove ability to adjust spending when laden with a mortgage and banks will be able to lend without any obvious breach of responsible lending requirements.

What about if the Act is changed so the worst of the impact on banks is removed? This will allow many buyers to return to the market. But by then interest rates will be higher and reports of prices flattening out more widespread. FOMO is likely to ease further and that is something important to note.

If it were just CCCFA causing buyers to not be able to make a purchase FOMO would still be high. They would still be very eager. But a measure of frustration would be through the roof.

However, FOMO as measured by the only gauge available in New Zealand from my monthly survey of real estate agents with REINZ, has collapsed.

There is more than CCCFA in play. Other factors are causing people to lose the feeling that they need to make a purchase as soon as possible to avoid future price rises.

These include banks applying DTIs, reduced ability to lend where the deposit is less than 20% of the property’s valuation, rising interest rates, net migration outflows, booming supply, and plans for shifting spending back towards overseas travel or just getting out of this country.

New Zealand property is well off the radar for people overseas and likely to be getting more so as other countries move away from Covid restrictions while we shrink deeper into them.

Three weeks ago, I gave my first in-person talk for the year at Edgewater Resort in Wanaka. Professor Michael Baker was also speaking there, and he hitched a ride in my rental car from Queenstown airport to the venue and then back the following day.

In response to the slow speed with which case numbers were rising back then I asked if this absence of a surge was the worst-case scenario. Would the government continue to push out further and further in time their prediction for the peak and their shifting away from stringent isolation requirements towards greater freedom and living with an illness considered mild for those of us tripled vaxxed?

He did not give a response but expressed confidence that the trend is up. It is and it is perverse to think that this is something to be grateful for as we shy away from getting tested in order to avoid 24 days of isolation. But the way we have reacted to news of three and a half week’s isolation seems nothing compared with the incredulous response of people offshore when told of this situation here.

This can do little else than reduce the willingness of Kiwis to return and have more potential foreign visitors planning trips later this year take our country off their list of options.

The upshot of relevance to this discussion about housing market prospects for the year is this. The longer our version of the Omicron wave rolls on, the greater will be the eventual brain drain from New Zealand, the smaller the number of people returning and buying, and the more certain we can be that prices will be flat to lower on average through 2022 into 2023.