1. Small rise in unemployment may mark big shift at Reserve Bank
The most important piece of economic/property news over the past week has been the labour market release from Stats NZ, showing that employment growth moderated in Q4 2022 and that the unemployment rate rose from 3.3% to 3.4% (although wage growth accelerated further). Now, that’s clearly only a small rise in the unemployment rate, but it did differ from the Reserve Bank’s expectation for a small fall. Not only that, we’ve seen from other releases that filled jobs growth has slowed down, business and consumer confidence is poor, and of course that inflation could well have peaked. All up, I think it’s fair to say that “only” a 0.5 percentage point increase in the official cash rate on February 22 is now the most likely outcome, rather than the previously signalled 0.75 point rise.
In addition, we may well end up with a lower peak for the OCR than previously expected (5% or 5.25%, rather than 5.5%) and indeed a number of the main banks have already lowered their longer term fixed mortgage rates in recent days. To be fair, floating rates and short/one-year fixes may still face a bit of upwards pressure, but the generalised peak for mortgage rates has probably now arrived. That will tend to take some of the downwards momentum out of house prices, but don’t expect a near-term floor – after all, a recession could now prolong the downturn. And there are still many existing borrowers who have yet to reprice fully into the new, higher rate environment too.
2. Property values fell further in January
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We released the latest CoreLogic House Price Index last week, and it showed a further drop in average property values in January, of 0.3%. Wellington and Christchurch underperformed, but Auckland and Dunedin were a bit flatter, and Tauranga actually edged higher. Of course, for the reasons outlined above, it’s still much too early to sound the all-clear.
3. New dwelling consents are finally falling
I think we can now finally say that new dwelling consents have started their downturn (after a few false starts). December’s total was 16% below a year ago, the third fall in a row, and bringing the annual running total below 50,000 for the first time since February last year. Of course, they’re still high, and even if they fell very sharply in the coming months (which isn’t expected), builders will still be busy working through the backlog for a while yet – and now there’ll be rebuild work in Auckland too. So on the whole, 2023 does look set to be a slowdown year for construction activity and cost growth, but not to any dramatic extent such as we saw post-GFC.
CoreLogic chief economist Kelvin Davidson: "A recession could prolong the downturn." Photo / Peter Meecham
4. All quiet in the mortgage market
Within the subdued overall total for new mortgage lending in December, advances on interest-only terms were also soft, while it remains difficult to get a low deposit loan too. Of the low deposit loans that are being approved (excluding new-builds), though, first home buyers continue to absorb about 75-80% of them, with around 1 in every 3 FHBs entering the market without a 20% deposit.
5. A few more Aussies are buying, but they’re also selling
And just finally, last week I mused about whether the Q4 figures on buying and selling of NZ property by people without citizenship or a residency visa would show a pick-up in interest from Australians (who are exempt from the ban). In the event, their buying activity did rise a little in the final three months of 2022, but they also sold more properties too – for a net negative flow (i.e. their holdings reduced). This also applied across other nationalities, so as far as the foreign buyer stats go, it’s still a case of “nothing to see here”.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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