Don't expect a GFC-level collapse in NZ house-building sector

1. Dwelling consents ease lower

Meanwhile, last week’s Stats NZ figures showed that new dwelling consents in January were 2% lower than the same month last year, the fourth fall in a row. Of course, the level of consents is still pretty high and the pipeline already approved will keep builders busy for a while yet – alongside cyclone rebuild activity too. So although the residential construction sector has now entered slowdown mode, it seems unlikely to collapse like it did post-GFC.

2. The downturn gathers steam again

The latest CoreLogic House Price Index showed that average property values dropped by 1% in February, a sharper fall after a couple of flatter months in December and January. Auckland, Wellington, and Dunedin were the weakest of the main centres, while Tauranga and Hamilton were a little more resilient (although still saw falls), with Christchurch actually edging higher. Looking ahead, the market still faces some significant challenges over the next three to six months – not least high mortgage rates – but things could look a bit brighter later in the year. Part of that rests on employment not falling too far (if at all), and this is certainly what’s currently being forecast by the Reserve Bank. Their projection of a higher unemployment rate is mostly about more people coming into the labour force (and struggling to find work), rather than mass job cuts.

3. Filled jobs rise in January

On that note, Stats NZ released some positive data last week, with filled jobs rising by 0.8% in January. To be fair, that’s after a random-looking 0.5% drop in December – so I suspect that the latest number isn’t as strong as it looks (although December probably wasn’t as weak as it looks either). But it’s obviously still good news and a relatively resilient employment headcount would help households to negotiate the continued increases in their mortgage payments as they progressively reprice from previous lower rates onto the current higher levels.

CoreLogic chief economist Kelvin Davidson: “First home buyers have still been holding a strong presence lately.” Photo / Peter Meecham

4. Businesses and consumers still pessimistic

ANZ’s measure of business sentiment rose again in February, which at face value is a good result. However, it still remains at a very low level, and given the issues faced by many people around the North Island, submission rates for the survey from the affected areas were understandably reduced. In other words, the survey still paints a picture of a pessimistic business sector, which is also continuing to face intense cost pressures. There’s certainly a lingering risk here in terms of new job creation, which does temper some of that relative optimism noted above about the labour market. ANZ’s consumer confidence measure was also out last week, and it showed a similar message.

5. A continued high presence for first home buyers?

The latest CoreLogic Buyer Classification figures (February) will be available at the end of the week and, as always, they’ll be intriguing. The wider context at the moment is that the number of purchases across all buyer groups has fallen. But within that quieter overall market, first home buyers have still been holding a strong presence lately, with around 25% of activity – with low deposit finance one support for first home buyer activity. By contrast, mortgaged multiple property owners (including investors) have been running at relatively low levels, given headwinds such as low rental yields, 40% deposits, and the removal of interest deductibility. It seems fairly likely that these market share patterns will have continued in February.

- Kelvin Davidson is chief economist at property insights firm CoreLogic

Listen to The NZ Property Market Podcast below