1. The climb continues on Wednesday
Come 2pm Wednesday and our official cash rate (OCR) is odds-on to be raised to 3.5% – the highest level since June 2015, when it was cut from 3.5% to 3.25%. Of course, this will be surprising nobody, and hence fixed mortgage rates are unlikely to change, although floating rates may increase again. As always, the key question is what happens next, and there are now diverging views about where the OCR ends up, ranging from a peak of 4% in November to as high as 4.75% next year. Either way, it’s arguably offshore developments that now matter more for our fixed mortgage rates anyway, and on that front, the key word is “uncertainty” – against this backdrop, I’m not yet convinced that mortgage rates have peaked (albeit they’re perhaps not far off).
2. Focus on that deposit
Clearly, the rises we’ve already seen in mortgage rates over the past 12-15 months have made it tougher for borrowers, let alone any further increases that might occur in the coming period. On top of that, it’s still pretty much impossible to get a new mortgage if you don’t have 40% equity as an investor or 20% as an owner-occupier. For example, after exemptions (e.g. for new-builds), just 4.1% of owner-occupier loans had less than 20% equity in August, versus the allowable cap/speed limit of 10% of loans. Of course, with property values falling, a cautious attitude from the banks towards people who already have low equity levels isn’t hard to understand.
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3. Labour market still going well
Stats NZ released another solid labour market indicator last week, with the number of filled jobs rising by 0.4% (seasonally adjusted) from July to August. That was the third 0.4% rise in a row (despite employers still having problems actually finding staff), and the fifth increase since omicron-related volatility in February/March this year. Not surprisingly, with the borders now easier, the services sector was a key contributor to jobs growth, covering tourism activities such as accommodation, transport, and restaurants. This continued strength in the labour market clearly isn’t preventing house price falls, but it is likely to be limiting their speed/size.
CoreLogic chief economist Kelvin Davidson: “Strength in the labour market clearly isn’t preventing house price falls, but it is likely to be limiting their speed/size.” Photo / Peter Meecham
4. Confidence remains patchy
ANZ’s measure of business confidence rose modestly again in September, which is encouraging, and bodes well for employment, for example. However, it also needs to be noted that the rise in confidence is from a very low base, and in addition, there aren’t many clear signs yet of costs/inflation becoming less of a concern. The same messages applied for the consumer sentiment measure too, although it didn’t even manage to rise in September. So on the whole, sentiment still remains patchy, which the Reserve Bank will just have to ignore as it continues to fight inflation.
5. Dwelling consents – wrong again
I had been expecting a third straight fall (compared to a year ago) in new dwelling consents in August, but they actually ended up 1% higher, driven by townhouses in Auckland and Christchurch in particular. It’s the economic indicator that just won’t die! To be fair, the conditions are there for a general slowdown over the next 12-18 months, but at the same time, the longer consents stay high the better – as it will help housing affordability, provided that the approvals actually get turned into houses and that we don’t need to demolish too many in the interim.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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