Have house prices hit the bottom yet?

1. It’s taken some time, but the banks are now reacting

The banks are finally starting to push up retail interest rates, following the 0.75 percentage point hike in the Official Cash Rate almost two weeks ago and the Reserve Bank’s concerning economic outlook for 2023. ANZ was the first to raise rates in the middle of last week. This isn’t so much a reaction to the latest OCR decision itself; indeed, that was already “priced in”. The latest rate moves are actually more about the prospect of a “higher for longer” OCR next year. Also note that rates are moving on both sides of the equation, more expensive to borrow, but also better returns on term deposits – which will tend to raise the incentive to put money in the bank and reduce the incentive to buy investment property.

2. Don’t interpret smaller house price falls as the end of the downturn

The latest CoreLogic House Price Index showed a further monthly drop of 0.6% in average property values in November, the eighth fall in a row, taking the total decline to date to more than 8% (or about $85,000). Some may pick up on the latest drop being the smallest of the downturn so far and interpret that as the “beginning of the end”. A couple of months ago that may well have been a sensible view to take. But with inflation proving much more stubborn than expected and the OCR potentially going all the way to 5.5% – nudging one-year fixed mortgage rates as high as 7.5% – this downturn in property values may actually be only about halfway through. The prospects for the labour market in 2023 remain vital to the property outlook.

3. Filled jobs fail to rise in October

On that note, the data last week contained a hint of concern. Stats NZ’s monthly measure of filled jobs was flat in October, the first time it had failed to rise since March (when there was an omicron-driven 0.4% drop). The services sector was flat in October, which weighed on the overall total. To be fair, it’s only one month of data, and jobs may have been flat simply because of a lack of skilled workers rather than firms not wanting them. But it’s still worth keeping a very close eye on – this could be the first sign of the weaker labour market that the Reserve Bank is anticipating, and in some ways hoping for, as they continue to fight the inflation war.

CoreLogic chief economist Kelvin Davidson: "The prospects for the labour market in 2023 remain vital to the property outlook." Photo / Peter Meecham

4. Dwelling consents weak in October

The latest dwelling consent figures showed a 12% fall from the same month last year, quite a sharp drop and probably signalling the start of the long-anticipated slowdown. To be fair, consents can be ‘lumpy’, e.g. a big apartment complex next month could bump the figures up again. But the forces are certainly there for the slowdown (e.g. high construction costs, rising mortgage rates), so the hope just has to be that it’s not an outright slump like we’ve seen in the past.

5. Business confidence slides lower again

Finishing the trifecta of disappointing economic news last week was the ANZ business confidence measure, which dropped again – while inflation concerns remained high – a potent combination for the Reserve Bank to fret about. But not only that, firms reported a slump in hiring intentions too, highlighting the labour market risks for next year.

- Kelvin Davidson is chief economist at property insights firm CoreLogic.