1. Will the Reserve Bank meet expectations?
Clearly, the biggest housing market event this week is the Reserve Bank's official cash rate (OCR) decision on Wednesday. There's little doubt there will be a cut, but just how much of a cut is up for debate. I personally think the Reserve Bank will go for 50 basis points, bringing the OCR down from 5.25% to 4.75%. Financial markets and the bank economists all expect that move, so in some ways, the Reserve Bank may as well deliver that. Indeed, given the continued weakness of economic data, the greater risk now is arguably that inflation goes too low.
This suggests that getting the OCR back down to at least a neutral level sooner rather than later is probably a good idea, and whereas in the past that might have run the risk of stoking house price growth, this time around we have an insurance policy in the form of the debt-to-income ratio rules, which are likely to start having an effect next year.
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2. Inflation pressures are probably still dissipating
Two days after the Reserve Bank’s decision, we’ll get Stats NZ's monthly inflation measure, which includes rents and covers around 45% of the full Consumer Price Index figure. There’s every chance this data will show a further drop in price pressures across the economy, supporting the outlook for further cuts to the OCR. Certainly, falling net migration lately has helped to stabilise rents.
3. Lower mortgage rates not boosting values yet
CoreLogic's latest market stats suggest the recent mortgage rate cuts by the major banks have yet to flow through to house prices, with property values nationwide dropping 0.5% in September, the seventh monthly drop in a row. Since February NZ values have fallen by nearly 5% and Auckland values have dropped by about 7%, whereas areas such as Dunedin and Christchurch have been a little more resilient.
CoreLogic chief economist Kelvin Davidson: "There's little doubt there will be a cut, but just how much of a cut is up for debate." Photo / Peter Meecham
The downturn will eventually come to an end, but when it does, vendors should temper their expectations. Reasons for caution about where house prices go over the next 12 to 18 months include still-stretched affordability, abundant listings available for sale, the weaker labour market, and, of course, debt-to-income ratio rules.
4. Home-ownership rates have risen lately
One positive aspect to the weakness of property values in the past two to three years is that first-home buyers have had good scope to enter the market. Consistent with that, Stats NZ released an early batch of 2023 Census data last week, and it showed that the home-ownership rate had risen from 64.5% in 2018 to 66.0%. At a regional level, Waimakariri (82.2%) and Selwyn (80.5%) had the highest rates, whereas Hamilton (53.5%), Wellington (58.6%), and Auckland (59.5%) were amongst the lowest. Overall, not too many surprises in the data, but great to see the home-ownership rate rising.
5. Is the end in sight for the dwelling consents downturn?
Last week Stats NZ reported that new dwelling consents in August were 9% lower than the same month in 2023, which at first glance doesn’t look particularly encouraging. But if you look at the smoother 12-month rolling total, it’s flattened out at around 33,500 in the past two to three months. Not definite evidence yet that the long downturn is coming to an end, but it’s worth keeping a close eye on anyway. Certainly, you’d anticipate that 2025 could be a lot better for the construction industry as interest rates drop and potentially the economy starts to recover.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
