1. Thursday is inflation day
On Thursday, Stats NZ will publish the all-important inflation figures for the first three months of 2023 – and they’ll be heavily analysed, especially by the Reserve Bank and Governor Adrian Orr. For the last three months of 2022, we had an inflation rate of 7.2%, and it’s far from certain that this next reading will have changed much, hampered in no small part by weather events.
To be fair, another inflation number of around 7% may not affect the trajectory of the Official Cash Rate or mortgage rates too much (notwithstanding some small rate increases by a few banks in recent days), given that the Reserve Bank has been anticipating a long, slow grind for getting inflation back down anyway. But a significant drop in inflation would at least cement the chances that the OCR does finally peak at 5.5% after one more increase in May.
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2. Net migration is absolutely soaring
Once again the net migration figure was strong in February, with figure for the past 12 months now sitting at just short of 52,000. The net balance relating to NZ citizens is still negative, but this is being far outweighed by an influx of new overseas arrivals to NZ. Granted, these data could be subject to heavy revisions as the months go by. But even so, we again have a net migration inflow that is running pretty hot (the average is about 25,000-30,000 p.a.), bolstering property demand, and adding to other evidence that the downturn for house sales/prices might be on its last legs.
3. Rental growth probably still subdued
That upturn in net migration (and hence overall population growth) may well lead to some renewed rental pressures down the track, but for now this segment of the property market remains fairly soft. Indeed, in recent months the annual rental growth rate has averaged about 1%, significantly down from roughly 6% a year ago. Stats NZ will update us with the March figures this week, which I’d expect to have stayed relatively sluggish.
CoreLogic chief economist Kelvin Davidson: "Movers are really just sitting tight at present." Photo / Peter Meecham
4. Movers aren’t moving
The latest CoreLogic Buyer Classification data showed that first home buyers are still holding on to a decent share of purchases, hitting 24.6% in March (albeit that’s in a quiet market where the number of transactions is low). Making full use of the low deposit lending speed limit at the banks is one approach they’re taking, while many will be using KiwiSaver for at least part of their deposit too.
Multiple property owners paying in cash are also running at a solid share of activity, but by contrast, mortgaged multiple property owners are struggling compared to past norms – with just 20.7% share of activity in March. Of course, that’s hardly surprising, given factors such as low gross rental yields, 40% deposits, and the removal of interest deductibility.
But perhaps most notable about the latest data was the low figure for movers (relocating owner-occupiers), at just 23.4% in March. We know that owner-occupiers won’t generally be listing/selling at the moment unless they really have to, so if you’re not selling in the first place then you’re obviously not going to be buying either. In other words, would-be movers are really just sitting tight at present, given uncertainty about how long a sale might take and what price might be achieved.
5. Construction cost growth eases
The latest Cordell Construction Cost Index (CCCI) showed only a 0.6% rise in house-building costs in Q1 2023, across materials and labour related to a standard three-bedroom dwelling. This is significantly lower than typical growth of 2% each quarter over 2021 and 2022, and fully consistent with the fading of supply chain pressures (e.g. plasterboard) as well as a likely interest-rate driven drop in households’ demand to take on a new-build project. It may not get cheaper to build a new house, but at least the growth in costs should continue to slow in the coming quarters too.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
