1. The slowdown rolled on in March
The CoreLogic House Price Index for last month showed a further loss of momentum in the market. In particular, average property values fell in some key areas such as Hamilton, Wellington, Dunedin, and even Christchurch (albeit by a modest 0.2%). For me, the 1.3% drop in Dunedin was particularly striking, with values there now also 2.1% lower than they were in December, which is equivalent to about $15,000. Dunedin had previously seen one of the largest upswings of any part of New Zealand, but of course that comes with a big decline in housing affordability, which is now likely to be contributing to the start of a much weaker phase.
2. First home buyers are still doing it tough
First home buyers’ share of property purchases dropped from 23% in February to 21% in March. That’s their lowest share since late 2017 – not counting April 2020, when the whole country went into lockdown in response to the arrival of Covid-19. The drop comes within an overall quieter market too. Of course, this doesn’t come as much of a surprise, with the effects of tighter (but soon-to-be loosened) CCCFA rules probably still lingering and low deposit finance in short supply. After all, without high equity borrowers coming through the door, the banks can’t advance much low equity finance either – 10% of not much is still not much.
Start your property search
3. All eyes on the Reserve Bank this week
Will the Reserve Bank raise the OCR 0.25% this week or will it opt for a more aggressive 0.5%? We’ll find out at 2pm on Wednesday. Commentators are split on the size of the increase, but given that mortgage rates have already risen ahead of the OCR, the impact of a 0.5% rise on consumers’ pockets may not be massive. And it would be a clear signal that the Reserve Bank is serious about reining in inflation expectations – which are dangerous if they feed back into rising inflation itself. So there you have it; I’m not normally one to stick my neck out if I don’t need to, but on this occasion I’m leaning towards the 0.5% camp.
CoreLogic chief economist Kelvin Davidson: a 0.5% increase would be a clear signal from the Reserve Bank. Photo / Peter Meecham
4. Migration and rents figures also out this week
This week Stats NZ will provide an update on migration flows (Tuesday) and rental prices (Wednesday). Don’t expect the migration numbers to look too much different to prior months – i.e. still low and boring – but the data will become of key interest over the next six to nine months as we all wait to see if the feared brain drain to Australia and elsewhere becomes reality. Meanwhile, rental growth slowed in February, from an annual pace of 5.5% in January to 4.6%. That’s still high, but I suspect March’s number could be down to 4% or thereabouts, and tenants may be able to start to breathe a little easier in the coming months too.
5. Construction costs never too far from the spotlight
And finally just to flag up some data CoreLogic is looking to publish next week: the Cordell Construction Cost Index for the first quarter of 2022. Given the persistent pressure on the price of materials (if you can get them at all, e.g. GIB) and that builders themselves are already flat-tack, the latest figures are likely to show a further acceleration in the cost of residential building. And even if dwelling consents start to tail off from recent record highs, there’s still so much work in the pipeline that it’s hard to see the pressure on construction costs dialing back anytime soon.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
Listen to The NZ Property Market Podcast below
