ANALYSIS: Last week I noted that there is a growing list of things which will eventually be supportive of the NZ housing market but that for the next few months the negatives will easily dominate, with house prices falling further and real estate sales remaining weak. Nothing has happened over the past week to change that outlook.
In particular, my latest monthly Spending Plans Survey shows that consumers remain highly pessimistic and intend cutting their spending more than they were thinking a month ago. There also remains zero sign of investors following first home buyers back into the open homes.
Just before the high inflation number of October 18 last year and the Reserve Bank’s record raising of the official cash rate on November 23 a net 15% of consumers replying in my monthly survey said they intended cutting back spending. That proportion fell to a net 43% planning reductions in December.
This then improved to 30% last month but is now back at 37%. This is bad news for retailers but is likely to please the Reserve Bank as it awaits more indications that our economy is weakening and inflationary pressures are coming off. It might also be pleased with the new worsening in people’s plans for buying both a house to live in and an investment property.
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But we have to be cautious about economic data in the near future because of the naturally depressing impact on sentiment of the recent extreme flooding events. My survey is probably capturing that deep sense of concern we now have of the living environments for many people around the country.
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However, the survey also still shows the return of first home buyers to the housing market. In February a net 5% of people aged over 30 intended pulling back on buying a house to live in. That worsened to 9% this month. But for those 30 and below an unchanged net 25% still intend buying their own house.
This confirms the findings in my other surveys that first home buyers are back in the market – or at least the younger ones, given that the age of buying one’s first home has crept into the 30s on average nowadays. But to repeat, there is still no sign of investors returning. Credit for most is hard to get, interest expense deduction from rental income is falling away as each year goes by, and most will probably be giving thought to the problems owners of rented property in flood affected areas will be having now – on top of the obvious issues for the tenants.
Independent economist Tony Alexander: “The growing view offshore [is] that inflation is going to prove harder to get down.” Photo / Fiona Goodall
Another development this week telling us that the short-term housing track is still downward is the growing view offshore that inflation is going to prove harder to get down than earlier thought. In the United States expectations for how high the Fed.’s funds rate have to go are rising as economic data surprise more often on the strong than the weak side.
US wholesale interest rates have been rising for many weeks now and that has fed through into higher costs to NZ banks of borrowing money at fixed rates to lend to you and I for our new fixed rate mortgages and rolled over existing ones.
Is it likely that we will see a round of fixed rate rises here any day? It is not impossible but it doesn’t seem likely given that banks are failing to meet sales targets and there is a strong risk of rapidly losing market share as $170bn worth of mortgage rates come up for renewal in the coming year. What about the potential return of rates discounted as low as 4.99% for one year fixed?
That’s possible. But you’ll probably only know such offers exist if you ask your banker and threaten to take your business elsewhere. So ask. You’ve nothing to lose.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
