1. Everything’s on the table now
Last week’s inflation figures ramped up interest in the Reserve Bank's remaining monetary policy decisions for this year, with some pundits believing an August cut in the official cash rate is a live possibility. All options are on the table!
So what did the figures say? Headline consumers price inflation (CPI) was 3.3% in the year to June, down from 4% in Q1, and the lowest since mid-2021. It was also below the Reserve Bank’s expectation of 3.6%, with tradeables/imported (0.3%) doing the work, as opposed to non-tradeables/domestic, which stayed a bit high (5.4%). In turn, the non-tradeables component reflected continued pressure on rents, council rates, and insurance.
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What does it all mean? Well, a rate cut before the end of the year is now looking highly likely. The question is when. The remaining dates for the OCR decisions are August 14, October 9, and November 27. My hunch is November 27. By then, we’ll have the official CPI figures for Q3 (due October 16), which will likely show inflation has returned to the Reserve Bank's 1-3% target band. For credibility reasons, I think the Reserve Bank will want that box ticked, before cutting – especially given their recent, lingering concerns about domestic inflation pressures. On the other hand, a weak economy could force an early cut.
2. A chilly winter for house sales
Last week we got the house sales figures for June. The number was 22% lower than the same month in 2023, breaking a 13-month run of growth. The earlier fall of Matariki this year (hence fewer working days in June) might have played a role, but it’s not the full story; sales were simply weak, as the power lies with buyers (or at least the reduced numbers who can afford and secure the mortgage) and they are taking their time to make a decision. Restrained levels of turnover are also feeding through into lower house prices.
CoreLogic chief economist Kelvin Davidson: "It’s never easy to buy that first home but current market conditions are helping those who can." Photo / Peter Meecham
3. It’s never easy, but first-home buyers are still finding a way
Of course, what’s problematic for some is beneficial for others, and those first-home buyers who are active in the market are taking advantage of reduced competition. The share of property purchases made by first-home buyers was a high 26% in the second quarter of this year. It’s never easy to buy that first home but current market conditions are helping those who can: right now, prices are lower than they were at market peak and investors and movers are in retreat. It’ll be interesting to see if the recent loosening in the loan-to-value ratio rules (LVR) further helps first-home buyers who are already making full use of the banks’ low deposit lending allowances.
4. Mortgage lending set to soften too?
On Wednesday, the Reserve Bank will release the mortgage lending figures for June. Lending volumes showed greater signs of life in May, but given that we already know property sales themselves were soft in June, there’s every chance that the latest mortgage figures have weakened too. That said, the breakdown by LVR is always a key focus, and while the looser LVR rules didn't come into effect until July 1, the shake-up was announced on May 28, so banks may have had some scope to act early.
5. Foreign buyer ban still a tight control?
On Thursday, Stats NZ will publish the Q2 numbers on the buying and selling of New Zealand houses by people without citizenship or a residency visa. Given the foreign buyer ban is still in play, the latest numbers will almost certainly still be low, barring a major surge in activity from exempt Australians and Singaporeans.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
