Two numbers that could mean another interest rate hike is on the cards

1. We dodged a recession - sort of

Last week Stats NZ reported that GDP expanded by 0.9% in Q2 2023, ahead of the general expectation for a 0.5% rise or thereabouts – driven by sectors such as business services (e.g. IT) and manufacturing. What’s more, the "technical recession" over Q4 2022 and Q1 2023 was revised away. But when you adjust for migration-driven population growth, the figures are less impressive – just a 0.2% gain in per capita GDP in Q2.

So what’s the key conclusion? At face value, the latest figures suggest that the economy is now bigger than expected, with less spare capacity, and perhaps a bit more inflationary pressure. However, they’re also "old news", as we’re almost at the end of Q3 already, and I’m not sure they change too much about the near-term outlook.

That is, a new mini-recession can’t be ruled out (and may already have started), while arguably the more important indicators to watch are still the next/Q3 CPI and labour market figures (17th October and 1st November respectively). If those two measures were stronger than expected, then perhaps the odds of another OCR increase might rise more significantly.

2. New listings flows are still pretty quiet

Turning to property itself, we’re now firmly into the spring lift for new weekly listings flows, but while the numbers are rising as per the usual seasonal pattern, they remain quite a bit lower than previous years – in other words, property owners are still proving reluctant to go to market. In the case of existing investors, there’s no doubt that cashflows are under pressure, but I suspect there may be a "Brightline handbrake" in play. That is, running losses aren’t great, but a large capital gains tax bill (if they sold their property for a profit) could well be worse. And for owner-occupiers, the costs required to move house, not to mention the extra equity/debt that might be required to trade up, seem to be significant hurdles at present. Election-related uncertainty could also be a factor.

Overall, it’s never easy to predict listings flows, but it wouldn’t be a complete surprise if the number of properties coming to the market stayed relatively subdued for the foreseeable future. And with agreed sales at the other end of the pipeline now rising, the number of available properties for sale is declining – inevitably leading to some re-emerging price pressures.

3. Credit conditions appear to be easing

Meanwhile, off the back of the easing in the loan to value ratio rules from June 1, we’ve recently seen a sharply rising share of investor loans going out with between a 35-40% deposit (previously locked out by the 40% deposit requirement) and the share of owner-occupier loans with less than a 20% deposit has also been trending higher, with first home buyers accounting for a large chunk of that lending. The Reserve Bank’s next update to these figures (due Tuesday), which will cover August’s activity, seems likely to show more of the same, adding to the sense that it’s getting easier to secure a mortgage again. That is also a factor adding to re-emerging price pressures.

CoreLogic chief economist Kelvin Davidson: "It wouldn’t be a complete surprise if the number of properties coming to the market stayed relatively subdued for the foreseeable future." Photo / Peter Meecham

4. The labour market is still supporting property too

There are signs that unemployment has recently started to edge higher, but that’s much more about a larger labour force (e.g. due to high net migration) than any meaningful job cuts amongst existing workers. Indeed, Stats NZ’s measure of filled jobs has risen in 15 of the past 16 months, and August’s data which is due on Thursday this week could well show a further increase. That’s helping new borrowers access finance, as well as playing a key role in the adjustment phase for existing property owners as they fully reprice their loans off previous, lower mortgage rates and onto current levels.

5. More evidence of a double-dip recession?

Finally for the week, there is a lot of concern at present that after a brief rise in GDP (Q2), we’ve only managed to dip back into another (mini-) recession as of now. We’ll get further insight into that possibility this week, with the release of the NZ Activity Index for August (Thursday), and also ANZ’s business (Thursday) and consumer (Friday) confidence measures for September. A further easing in the NZAC, and any signs that sentiment across firms and households is faltering, would only reinforce those new recession fears.

- Kelvin Davidson is chief economist at property insights firm CoreLogic