Where the cost of buying a four-bedroom home has dropped by $32,000

1. Trading up is getting a little easier

One way to measure the cost of upgrading in the property market is to look at the value gap between three- and four-bedroom homes. The "trade-up premium" ranges from $100,000 to $600,000, depending on your location. The good news for potential movers, though, is that the gap has closed a bit over the past year, falling by 5-6% in both Auckland City and Wellington.

The research found that the step up to four bedrooms in Auckland City requires an extra $601,000, which probably isn’t too surprising given the concentration of expensive homes and suburbs in the district. That said, the gap in Auckland City has fallen by more than $32,000 over the past 12 months, with the value of four-bedroom homes dropping slightly more than the value of three-bedroom homes.

Graph / Cotality

Manukau, North Shore, and Rodney also currently have trade-up premiums in excess of $300,000 (albeit all are lower than 12 months ago), while at the other end of the chart, the gap is sub-$200,000 in Dunedin and Upper Hutt. The only market amongst this group where the trade-up premium has actually increased to any meaningful degree in the past year is Franklin, with four-bedroom house values falling by less than three bedrooms.

Considering the abundance of homes on the market and the recent falls in mortgage rates, there may well be good opportunities for some households to upgrade.

Granted, a lot of movers still need to sell before they can buy, and conditional offers are always trickier. Even so, movers have been relatively quiet in the past few years, and the recent changes in market conditions mean it wouldn’t be a surprise to see them start to relocate a bit more in the coming months.

2. Banks continue to get busier

The latest Reserve Bank data showed $8.6 billion of gross new mortgage lending in May, up $1.7b annually, and the sixth rise of at least that amount in the past eight months. In other words, mortgage lending activity continues to rise steadily.

The splits by LVR, interest-only v principal and interest, and by DTI were all fairly consistent in May, so perhaps more focus should be on the loan types – top-ups rose a bit, as did bank switching, which hit a new record high, involving close to 3200 borrowers. The short-term nature of many loans simply means more people can switch if they want to, and at low/no cost in terms of break fees.

Cotality chief economist Kelvin Davidson: "Our economy remains in a delicate position and a strong upturn isn’t yet in sight." Photo / Peter Meecham

3. Economic activity still battling along

A couple of indicators last week reiterated the sense that our economy is going nowhere fast. Granted, GDP was up by a solid 0.8% from January to March, but that’s old news. Rolling forward, June’s consumer confidence measure from ANZ remained sluggish, and the NZ Activity Index for May was only up by 0.5% from a year ago; the softest figure in eight months. It’s another sign that our economy remains in a delicate position and that a strong upturn isn’t yet in sight.

4. Soft labour market still acting against lower mortgage rates?

In the same vein, this week's filled jobs data for May from Stats NZ might also remain pretty soft. The weakness of the labour market is a key reason why the effects of lower mortgage rates on property values have remained muted so far in this cycle.

5. Better times ahead for builders ... eventually

Tomorrow we’ll get May’s data from Stats NZ on the number of new dwellings consented, which may well show a continuation of the recent stability after a previous long downturn. The consensus expectation is that dwelling consents should begin to rise over the medium term as the effects of lower interest rates come through, but it may not be immediate or strong.

- Kelvin Davidson is chief economist at property insights firm Cotality