1. All eyes on inflation
This week, the key release is clearly the Q1 consumers price index (CPI) from Stats NZ at 10.45am on Wednesday. In its latest projections, the RBNZ expects a 0.4% quarterly rise in the CPI, with the annual figure slowing from 4.7% in Q4 last year to 3.8%, which would be the first time the rate was below 4% since mid-2021. If the actual result is roughly in line with those projections, don’t expect too much to change in terms of market expectations or mortgage rates.
As usual, though, keep an eye on the tradable/imported vs non-tradable/domestic split. We know local inflation pressures such as rents and council rates remain problematic, so any surprises on the imported front right now (e.g. higher petrol prices) will tend to hold up the overall index.
2. Short and sharp – no OCR falls yet
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In what must have been the shortest statement the Reserve Bank has ever released when it comes to explaining its rationale, the Official Cash Rate (OCR) was left unchanged at 5.5% last week. The decision surprised nobody and it was very much a “nothing to see here” call. The Reserve Bank essentially stuck to the script it’s been reading from for some time now: inflation is dropping, but it remains too high, which means the OCR will stay high. Nothing changes in terms of the housing market outlook – sales and prices should continue to rise in a slow/patchy fashion, restrained by elevated mortgage rates for at least the next few months.
3. Borrowers think rates have peaked
Speaking of short, last week’s figures from the Reserve Bank showed that a dominant 56% of new loans (house purchase, bank switches, and top-ups) in February were fixed for only one year or less. That’s a sharp jump from just three months ago, and shows that people are now pretty certain mortgage rates have peaked and that the next moves (whenever they happen) will be down – hence people don’t want to lock in for too long. Of course, given that one-year rates are still quite a bit higher than, say, three-year rates, there’s a premium to be paid for fixing short.
CoreLogic chief economist Kelvin Davidson: "People are now pretty certain mortgage rates have peaked." Photo / Peter Meecham
4. Construction costs have flattened out
Meanwhile, the Cordell Construction Cost Index – which essentially measures the materials and wage bill for a standard new build across NZ – only rose by 0.5% from Q4 2023 to Q1 2024, with the annual rate of change sitting at less than 2.5%. By contrast, in late 2022, annual cost growth was running in double digits. The easing of supply chains and more capacity floating around in the construction sector are clear factors behind the flattening out for house-building costs, and it probably comes at a good time – giving households more confidence that any new-build project they take on won’t see costs spiral over time, and also allowing builders to price jobs more easily. Anything that boosts confidence within the construction sector is welcome right now, given the ongoing downturn in dwelling consents and actual workloads, and the rise in builders’ liquidations.
5. Glimmer of hope for renters
The Stats NZ flow/new tenancy measure released last week showed that rents rose by 5.1% in the year to March, still well above the average of around 3%, but the lowest figure since July last year (4.1%). It’s probably still too early to say that rental growth has definitely peaked, given that net migration (and demand for rental property) is still very high. But there’s no doubt that rents are already expensive in relation to household incomes, so growth was always bound to slow at some stage. Maybe now we’ll just have to wait and see.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
