1. NZ Activity Index won’t calm recession fears
The NZ Activity Index – the timely monthly indicator for how the overall economy is tracking – continued to slow in June, only up by 0.8% from a year earlier (May’s figure was 1.2%). After Q1’s disappointing GDP result, the latest NZAC results may just keep those recession fears bubbling away under the surface. That’s a challenge for property, especially if we started to see some job losses coming through, at the same time as borrowers are adjusting to sharply higher interest rates.
2. Filled jobs a key indicator to watch
As it happens, Stats NZ will actually update us with the June filled jobs data this week, and as ever, employment remains a key factor for the property market outlook. Obviously the labour market has been very resilient in the past few years, which will currently be limiting the downturn for property prices. So any signs over the next few months that some job losses were starting to be seen would be a concern for property. To be fair, there’s no evidence of job losses yet. But one to watch.
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3. Low deposit loans back into reverse in June?
Also this week, the Reserve Bank will publish the mortgage lending figures for June, and given that we already know sales volumes remained low last month, the overall lending stats are also likely to be sluggish (covering new loans, top-ups, and bank switches). So rather than the total, my focus will be on the breakdown by loan to value ratio (LVR). In the past few months, the share of owner-occupier lending at a low deposit/high LVR has risen – and got pretty close to the 10% cap – but recently some of the major banks have announced a pause on these loans. As such, I wouldn’t be surprised if high LVR activity tightened up again in June.
CoreLogic chief economist Kelvin Davidson: “Employment remains a key factor for the property market outlook.” Photo / Peter Meecham
4. Construction costs still rising quickly
Last week the CoreLogic Cordell Construction Cost Index (CCCI) for Q2 was published, and no surprises that the costs to build a new property are still running hot – up by 2.6% from Q1, and by 7.7% from a year earlier (for a conventional 200sqm three-bedroom house). Both those figures were record highs. Given the sheer number of dwellings already consented in the pipeline, the industry may well remain busy, with costs rising for the rest of 2022. But with signs now emerging that new-builds might be losing their lustre a bit – enquiries are reportedly down, as costs rise, on top of finance getting harder to secure and more expensive – it wouldn’t be a surprise to see activity and inflation in this sector ease off next year.
5. KiwiBuild changes useful but maybe not revolutionary
Speaking of construction and rising costs, the Government has raised the price caps that developers need to work within when producing KiwiBuild homes, with the aim being that they’ll now be able to deliver more properties. It seems a worthy idea and could allow home ownership for more people, but as always, the issue will be whether it actually produces more properties (and at a price people can afford). After all, KiwiBuild hasn’t been a roaring success to date, and any buyers under this scheme still have to face up to higher borrowing costs. That said, the public sector intervention may be at a fortuitous time, given that a private sector construction slowdown could be looming.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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