1. Sentiment takes a tumble
Following in the wake of the “shock” 2023 projections (e.g. 5.5% official cash rate, mild recession, lingering inflation) delivered by the Reserve Bank in late November, it was little surprise to see that both business and consumer confidence fell in December. In fact, not only did both measures fall, both actually hit new record lows – worse than the GFC; worse than the initial Covid uncertainty back in 2020. Of course, sometimes firms and consumers can say one thing and yet do another. But the latest figures are still troubling and suggest that the appetite to rush out and buy houses isn’t about to snap back in the near term.
2. Economic activity also easing
On top of the dip in confidence at the end of last year, the NZ Activity Index – a timely indicator of economic momentum – also continued to moderate, with November’s figure only 0.8% higher than a year earlier. Now to be fair, year on year comparisons may still be affected by Covid gyrations (e.g. Auckland’s extended lockdown in 2021 and then re-emergence), but again, these numbers are not exactly encouraging – certainly reinforcing the prospect of a sluggish economy this year. In turn, that will also keep a lid on the housing market.
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3. Still quiet for new mortgage lending
The latest Reserve Bank figures showed that there was about $6.1bn of mortgage lending advanced in November, across new loans, top-ups, and bank switches. That was $3.1bn less than the same month in 2021. The flow of interest-only lending was relatively quiet, and low-deposit loans remain difficult to obtain – e.g. just 4.3% of owner-occupier lending in November last year was done with less than a 20% deposit, which is well below the allowable speed limit of 10%. The loan to value restrictions tend to hamper first home buyers more than investors, and indeed, around three in every ten first home buyers got a low deposit loan in November – down from about four in ten a year earlier.
CoreLogic chief economist Kelvin Davidson: “The flow of interest-only lending was relatively quiet, and low-deposit loans remain difficult to obtain.” Photo / Peter Meecham
4. Small drop in property values in December probably a ‘false dawn’
The latest CoreLogic House Price Index showed that average property values only dropped by 0.2% in December, a further slowdown in the rate of decline, after falls of 1.3% in October and 0.6% in November. The modest falls in December were replicated around the main centres, with Tauranga actually recording a mild 0.1% rise. However, I’d be very cautious of concluding that the downturn is about to come to an end. After all, the Official Cash Rate has further to rise yet, and even if mortgage rates don’t suddenly spike higher, they’re probably not quite at the peak yet either. This will restrict borrowing capacity, and until mortgage rates genuinely stabilise we should be prepared to see further declines in property values this year.
5. Filled jobs a key indicator this week
If you’re back at work (or can be bothered reading the news from the beach), the most important indicator to look out for this week is Stats NZ’s November filled jobs measure, due Wednesday. Last month’s figures were on the subdued side, with filled jobs flat in October – the first time that employment had failed to rise since March (0.4% fall from previous month). So this makes the next set of figures really interesting, especially since the labour market holds a big key in terms of whether or not house prices do eventually find a floor this year. Indeed, a fall in filled jobs when we get the data on Wednesday wouldn’t be a great start to the year for those hoping for a quick end to house price drops.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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