1. Sales activity is at rock-bottom levels
There were fewer than 61,000 property transactions in the year to February 2023, the lowest 12-month total since October 1983 – that’s even more striking when you consider that our stock of housing is a lot bigger than it was 40 years ago too. On one side the equation, many buyers will be finding it difficult to secure finance, and even when they do, they’re in no rush – given the abundant stock of available listings and the expectation that house prices have further to fall yet. And then from a vendor’s perspective, with employment high, the pressure to sell is also quite low. All of this adds up to a low level of agreed sales.
2. The recession may well be here already
Compounding the soft housing market conditions at present is the very real chance that we’re already in a recession. That is, although the latest NZ Activity Index (NZAC) for February was up by a decent 1.6% from a year ago, when you translate these figures into what they imply for quarterly GDP data, things start to look more concerning. Indeed, assuming that March’s NZAC doesn’t spike off the charts, the statistical relationship suggests that GDP could be on track to drop by about 1% this quarter – which spells recession (after Q4 2022’s drop of 0.6%).
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Of course, uncertainty is high, and I wouldn’t treat that projection as gospel. But even if we are in a technical recession, this might be nothing new for many people, who have already been feeling recessionary conditions on the ground for some time now. On the plus side, however, if the recession is already here, this might mean we get through it faster than previously expected too, making the outlook for the second half of the year look brighter – for the economy and housing.
3. Filled jobs growth to soften?
To be fair, there are still some challenges to negotiate first and the economy/property outlook would be much more concerning if we started to see widespread job losses. On that front, we’ll get a data update this week from Stats NZ, with February’s filled jobs figures due Tuesday. After a chunky 0.5% fall in December, there was an offsetting 0.8% rise in January. That recent volatility makes it tricky to predict February’s result, but I wouldn’t be surprised to see a more normal change, of perhaps a 0.2-0.3% increase.
CoreLogic chief economist Kelvin Davidson: “Be careful about banking on sharp mortgage rate falls over the next year or two.” Photo / Peter Meecham
4. Construction outlook has conflicting themes
Stats NZ will also update us with February’s new dwelling consent figures this week (Thursday), and there’s every chance that they will have dropped again – in other words, the long-anticipated slowdown has now firmly arrived. But then if you look from a more positive lens, you need to recognise that consents are still very high and that the sector will also be pulling in new work related to the flood/cyclone rebuild programme. On balance, I suspect overall construction workloads will ease in the next 1-2 years, but it may not be an outright slump like we’ve seen in the past.
5. Sentiment is probably still on the floor
At the end of the week ANZ will publish the March results for both business and consumer confidence, and it seems almost certain that both indicators will remain low. This just reinforces the idea that a recession is already here. As always, there’ll also be a focus on the cost/price components of the surveys, and given the disruption to production and supply chains from the recent weather events, it wouldn’t be a complete surprise to see evidence of further inflationary pressure. In other words, don’t casually assume that inflation has been slayed just yet, and also be careful about banking on sharp mortgage rate falls over the next year or two.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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