1. Recession. What recession?
Last week’s Stats NZ figures showed a very strong bounce-back in the economy over April-June, with GDP expanding by 1.7% (after Q1’s 0.2% drop). The services sector was a key contributor, which includes things like transport, accommodation, restaurants etc. – i.e. the sectors previously hindered by closed borders and social restrictions. So basically, a “technical recession” has been easily avoided. However, we’ve still got the cost of living pressures and for as long as the Reserve Bank needs to keep increasing the official cash rate, the economy will continue to face headwinds.
2. The downturn is deep and wide
The latest refresh to our Mapping the Market tool – an interactive map where (for free) anybody can check the latest median value for their suburb, as well as the change in the past three months – confirms the downwards momentum in the market that we had over winter. Of the 955 suburbs covered, 803 saw a drop in values from June to September – or put another way, 84%. In Tauranga and Dunedin, all suburbs dropped; in Auckland and wider Wellington, it was 97%. In the past three months, values dropped by 5% of more in 81 suburbs. Of course, some also saw further growth, typically smaller/rural areas, such as Patea in South Taranaki and Ngatea in Hauraki.
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3. Net migration still in the red
Meanwhile, underlying property demand is being dampened by negative net migration. In the year to July, NZ’s net migration balance was -12,385, although the most recent few months have bought evidence of a split emerging – net outflows of Kiwis, but (modest) net inflows of non-citizens. This suggests that we’re still an attractive option to overseas citizens – with the borders now easier to cross – but the risk remains that things like higher salaries elsewhere (e.g. Australia) still divert more people to those countries rather than here.
CoreLogic chief economist Kelvin Davidson: “Underlying property demand is being dampened by negative net migration.” Photo / Peter Meecham
4. Rental growth slows further
The net migration outflows we’re currently seeing – which probably tend to have a younger-than-average age profile – seem to be a factor behind slowing rental growth, which dipped from 4.0% in July to 3.6% in August (compared to a year ago). That’s the smallest increase in rents since April last year and means that we’re now getting back much closer to the long-run average growth rate of around 3%. In other words, conditions are shifting a bit more in favour of tenants, after a period where landlords have firmly had the upper hand.
5. But let’s not despair!
Looking back, the tone of points 2-4 this week is quite downbeat. But GDP is positive, and it’s also worth keeping in mind that unemployment is low and, even though mortgage rates have risen a lot in the past year or so, my sense is that households are now starting to adjust to the “new norm” for their finances. We’ve also seen business and consumer confidence lift a touch in recent weeks. On the whole, then, the falls for property values are almost certainly not over yet – but there’s light at the end of the tunnel, and 2023 could well see sales activity rise and property values find a floor.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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