1. Construction costs are still rising quickly
CoreLogic’s latest construction cost data (Cordell Construction Cost Index) showed no let-up in the pressure across the house-building industry, with the 2.4% quarterly rise in Q1 2022 the highest on record – as was the 7.3% annual increase. Many materials have seen big cost increases (if you can get them at all), while wage pressures in the construction industry must be accumulating too, especially if more young builders start to head overseas. Even if new dwelling consents do start to tail off – perhaps as cost pressures deter some households from the new-build path and/or bank finance gets tougher to secure – there have already been so many approved that builders are likely to be busy for an extended period yet. That hints at continued capacity and cost pressures into 2023 as well.
2. Who remembers June 1990?
Continuing the inflation theme, the latest CPI was also out last week, with house-building costs a key contributor to the overall 1.8% quarterly rise in general prices, for an annual inflation rate of 6.9% – the highest since the June 1990 quarter, before even Jim Bolger had become Prime Minister! The latest data was a bit better than analysts had been expecting, but that won’t be of much consolation to people when they’re buying petrol, food, or a new house. That said, it won’t actually mean much for interest rates – after all, everybody already knew that general prices are rising fast and the Reserve Bank is already on the case, fully expecting continued high inflation.
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3. Confidence is probably still in the doldrums
Over the course of Thursday and Friday this week, ANZ will publish their business and consumer confidence readings for April. It’s hard to see much of a turnaround from March’s weak results, given that inflation has remained a key issue, mortgage rates have risen further, and fears about the “brain drain” have grown. The labour market is still a key factor for housing’s path this year, and lingering weakness for business sentiment could see new hiring slow down, and possibly even some jobs lost. That would simply be another challenge for the property market in 2022.
CoreLogic chief economist Kelvin Davidson: “The word on the street is that this pressure has eased a little.” Photo / Peter Meecham
4. Keep an eye on job stats
Speaking of employment, Stats NZ will update the filled jobs data this week too (Thursday morning), and after a surprise drop in the figures in February something of a rebound couldn’t be ruled out in March. Of course, if we see another fall in filled jobs, it would start to add to the uneasy sense that a sharper economic slowdown might be building – just at the time that the Reserve Bank needs to keep raising the official cash rate to try and bring down inflation.
5. A little easier for low deposit borrowers in March?
To finish off a busy week for key data releases, the Reserve Bank will publish March’s aggregated mortgage lending figures on Thursday afternoon. As always, the overall total will be of interest (likely to still be low), but I’m more intrigued by the loan to value ratio breakdown. In February, just 3.4% of lending to owner occupiers was done at a low deposit/high LVR – despite the banks having a 10% allowance. However, the word on the street is that this pressure has eased a little in recent weeks, so it wouldn’t be a complete surprise to see that number rise back towards 5% or so. That’d be a welcome respite for under-fire first home buyers.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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