ANALYSIS: The outlook for New Zealand’s economy is always somewhat clouded because we are a commodity exporter vulnerable to shifts in prices and weather, and because our migration flows in and out are unusually high relative to our population and can quickly change.
Last week I discussed the surge in numbers of foreigners coming to New Zealand, and implications for first the rental market and later house sales and prices. This week I’d like to mention the uncertain impact of China’s slowing economy as well as early results from my monthly survey of real estate agents.
We get one-third of our export receipts from China and most things we ship over there are minimally processed commodities. Chinese consumers are cutting their spending as the 80% of their wealth held in housing assets loses value and they seek to boost savings amidst rising unemployment which is so bad the government has stopped publishing data on youth unemployment.
Reduced household spending is causing some large falls in our export prices and it is fair to say that our farmers are now experiencing a recession which will likely extend all through 2024. History tells us that when farmers are in this situation they slash their spending and that as the regions go slightly backwards (unless tourism is big in the area), this feeds through to the cities with lags of 6-18 months. Dunedin gets affected first, Wellington last.
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Hence the worsening predictions for growth in our economy for the next year and a half. This is bad and good for housing. It is bad in that rising unemployment will place some new downward pressure on house prices. But it is good in that the outlook for inflation is improving – even allowing for the effects of a lower NZ dollar – and this interest rates effect can easily dominate in the cities over and above the employment effect.
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That is, the worse China looks, the better the outlook for borrowers in NZ, and probably the greater the extent to which city housing markets will outperform those in the regions affected by the farm, forestry, fishing, and horticulture recession.
It’s no use trying to put numbers on these effects, but suffice to say, once we allow for the Chinese authorities eventually stepping forward to boost their economy, a deep recession for NZ is not on the cards.
Regarding what is happening with the housing market right now, I can see from my monthly survey of real estate agents that the upturn is gathering momentum. With most results in from that survey we can see that the proportion of agents saying buyers are displaying FOMO has risen to around 42% from 34% last month and 9% three months ago. The average since April 2020 has been 39% so we can say that the upturn has already driven FOMO to slightly above average levels. The latest reading for Auckland is 47%.
Independent economist Tony Alexander: “A deep recession for NZ is not on the cards.” Photo / Fiona Goodall
At the same fears of price falls have faded away with only 18% of agents saying buyers are worried about prices falling after they make a purchase. The reading three months ago was 49% and Auckland’s latest reading is 16%.
A net 68% of agents say that they are seeing more people at open homes from only a net 3% four months ago while a record net 70% say they are seeing more first home buyers. What about investors? Perhaps encouraged by the latest political poll results, for the first time since February 2021 more agents say they are seeing extra investors looking to buy than say they are seeing fewer. At a net 4% this reading is low. But it is well above the average net 25% saying they are seeing fewer investors.
These up to the minute coalface readings from agents on what is happening out there tells us clearly that buyers are increasingly entering the market and we are now into a seller’s market once more though only to a slight extent. And it is worth noting all these readings, plus data from REINZ showing rising sales and prices, have occurred while mortgage interest rates are at high levels and have risen slightly in recent months. The economic hit from falling exports to China will have to be extreme to offset the extra housing stimulus to come when interest rates in fact fall.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
