Market Update | Finding good tenants

Hannah Williams

Independent economist, Tony Alexander, provides a market update – discussing the implications for landlords and their ability to find good tenants.

As an economist, I don’t have all that much interest in the structure of the housing market. What I am interested in is how things are changing.

These changes are what we need to know if we are to pick where the housing market is headed. Static cross-sectional insights give no directional guides.

The rental market is moving in favour of tenants,

We’re seeing a strong shift in the proportion of investors saying they’re finding it easy to get good tenants. The net proportion is now firmly negative. Landlords are less able to pick and choose amongst many good tenants now.

rental market update finding good tenants
That has implications for rent rises and that is something you will see for yourself next week.

The rent implications are one of the early things which will soon start feeding into scaling back of inflation forecasts in coming months and solidify a view of mortgage rates for most fixed terms being at or near their cyclical peaks.

We’re not quite there yet. People are fixating on the level of the cost of living annual change now – not where it is headed. Their views and their emotions are backwards-looking, not forward.

If you’re looking to find tenants for your investment property, please get in touch with our award-winning team here.

Investors are sniffing around

At the margin, we are seeing some investors showing an increased interest in purchasing properties. One source of evidence for this comes from my monthly survey of real estate agents alongside REINZ.

rental market update find good tenants

The gross per cent of agents saying that investors looking to buy are doing so because they hope to get a bargain has risen to a two-year high of 45% from 40% in June and 34% at the start of the year.

Note that this is not the same thing as saying these investors expect prices to rise.

This is not a widespread trend yet of investors coming out of the woodwork. But from my monthly survey of mortgage advisors, we have received anecdotes of some investors making tentative enquiries for finance. Especially ahead of next year’s general election.

Signs suggest soem are willing to buy in the next few months while the market is firmly in their favour. Particularly if the political polls suggest a good chance of National winning next year.

National has said they will fully restore the deductibility of interest expenses and take the bright line test back to two years.

There is no wave of investors selling

I’ve been making this point for over a year. Since the tax announcement of March 23 last year investors have stepped back from their buying. But they have not stepped forward to sell in any identifiable numbers. Over the past three months, there has been a noticeable decline in the proportion of agents seeing investors looking to sell.

Over the past three months, there has been a noticeable decline in the proportion of agents saying that they are seeing investors looking to sell.

The results of my latest survey of portfolio investors will be released at the end of the month. They also show a mild downward trend in the proportion of people looking to sell their residential property. Given that consumer confidence is already slammed, mortgage rates have about peaked, and house prices on average have probably completed over half their likely declines, the factors which would encourage investors to sell are not strengthening. Soon they will be easing.

I look at these very early indications of changes at the margin then add in a few other things.

Before the end of this year there is a good chance that the Reserve Bank will ease up LVR rules. Plus mortgage rates will probably be assessed to have started falling as evidence accrues of inflation pulling back. But I won’t be calling an end to falling prices and the potential for some average gains until some other things happen. One of those is evidence of vendors capitulating to the new pricing reality and accepting first-up offers from buyers rather than continuing to hold off in case they can get the price they could have got late last year.

If I were a first home buyer would I look to buy at the moment? Yes.

You have a wide range to choose from, vendors are more willing to negotiate and the media scare them more and more with stories of woe about virtually everything in New Zealand. I’d be confident of keeping my job or getting a new one easily if laid off.

However, opting to buy and being able to get the finance are two very different things. For many young buyers making a purchase is not going to be an option for a while now that some bank test interest rates are almost at 8%, getting a loan with less than a 20% deposit is very hard, and the changes to the CCCFA rules are not good enough. 

Originally posted by economist, Tony Alexander.