1. Business as usual in the labour market
Last week’s official labour data from Stats NZ contained few surprises. Employment continued to rise in the second quarter of the year, as did the size of the labour force – e.g. due to strong net migration inflows and also higher wages attracting people back to work. In fact, the labour force participation rate hit a new record high (72.4%), meaning that even despite further employment gains, the unemployment rate edged up from 3.4% to 3.6%. Of course, that’s still very low, and on the whole this labour market strength supports the view that the housing market has bottomed out.
That said, in terms of the Official Cash Rate (and hence risks to mortgage rates), it’s possible that the Reserve Bank might still be a little nervous, given that the unemployment rate remains low and that wages are still rising relatively quickly (4.3%) – remember that they want/need to see a softer labour market before they can relax about inflation. However, I don’t think there’s much cause for panic here – it may take time for the labour market to soften anyway, and of course, in the meantime, general inflation itself is showing the required signs of easing (albeit slowly).
2. Key areas show rising house prices in July
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More signs of a trough for property values emerged in July – with large parts of Auckland (e.g. Papakura, Manukau, North Shore) and Wellington (the City, Porirua, Upper Hutt) recording house price increases over the month, according to the latest CoreLogic figures. Granted, other parts of the country saw further falls. But this patchiness doesn’t come as much surprise, and indeed even as the fundamentals – such as labour market strength and rising property demand (on the back of net migration) – translate into some fresh upwards pressure on property values, it may not be consistent or widespread. To my mind, with mortgage rates still high and affordability stretched, the next phase of the cycle may only see modest growth – certainly nothing like that post-Covid boom.
3. Dwelling consents slide further downwards
Stats NZ reported last week that new dwelling consents in June were 16% lower than the same month last year, which was the ninth consecutive fall. Some have suggested that this drop in new consents is a reason why house prices may start to rise more dramatically in the next 6-12 months. But I’d be very cautious of that view. After all, there are long lags involved, and builders are still working through the pipeline of consents previously approved, so in other words a lot of new houses are still hitting the ground. To be sure, we don’t want consents to fall too far, as that may well set us up for shortages of housing further down the track. But that’s not going to be an impact on house prices over the coming year or so.
CoreLogic chief economist Kelvin Davidson: "With mortgage rates still high and affordability stretched, the next phase of the cycle may only see modest growth." Photo / Peter Meecham
4. Fixing short is still proving popular
Later today we’ll get the Reserve Bank’s new dataset covering loan originations broken down by the rate terms chosen (floating or fixed, and for how long). In recent months, around 70% of new loans (which also includes top-ups and bank switches) have been fixed for up to two years, and it seems likely this would have continued in June – as borrowers opt for some certainty, but also try to avoid locking in for too long (just in case rates begin to fall at some stage over the next year or two).
5. Rental growth set to accelerate?
On Friday this week it wouldn’t be a surprise to see Stats NZ’s figures on new tenancies showing a rise in the pace of rental growth in July. Indeed, with rental demand rising and supply still tight, we estimate that the vacancy rate has fallen to 2.5%, down from about 4% a year ago.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
