ANALYSIS: According to the monthly data released by REINZ house prices around the country have gone up 0.5% a month on average over the three months to the end of October. This is a change from average falls of 0.6% a month in the three months to July and 0.3% in the three months to April. The price cycle has turned upward.
For Auckland the average change in prices has risen to +1% a month from falling 0.9% a month but you need to be careful not to read too much into regional data over such short periods of time as things can go all over the place at times.
A clear contributing factor to the direction of price movement shifting upward is declines in interest rates with people strongly expecting more falls will arrive soon. In fact, next week the Reserve Bank will almost certainly cut the Official Cash Rate again by 0.5 percentage points taking it to 4.25% (1.25 percentage points lower than what it had been between May 2023 and August this year).
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By the end of 2025 - but probably before then - the rate will likely fall to 3.5%, perhaps even lower). But it pays to remember that the Reserve Bank will be wary of applying too much stimulus to the economy when underlying inflationary pressures are still at unusually high levels considering the weakness in economic activity over the past two to three years.
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In the housing market, a pricing impact from falling interest rates is apparent. But we can see some signs of life in other areas as well. Spending which Kiwis undertake using debt and credit cards over the three months to October was ahead 0.4% from the three months to July. That earlier period saw a fall of 0.9% which followed a 1.1% fall in the three months to April.
This year our economy has been on a roller coaster ride. We started with some upward momentum but then things fell away solidly from about February as people worried anew about rising interest rates, job security disappearing, costs for council rates and insurance soared, and the IRD began chasing businesses for money owed.
Independent economist Tony Alexander: "Many in the business sector may be getting overly optimistic." Photo / Fiona Goodall
I mention this because much as most of us want to see the economy lift there is a risk that people over-extrapolate the likes of the shifts in data I have just mentioned. Some of the turnaround in the numbers is simply a bounce-back from a very hard winter and I think many in the business sector may be getting overly optimistic.
Their confidence about the economy has soared along with hiring and more recently investment plans. But cash flows are very tight, margins are squeezed to a greater degree than any time since 1976 according to one measure I track, and some sectors like residential construction look set to continue shrinking through all of 2025.
Prospects for our biggest export destination of China look poor and have just got worse with the outcome of the US Presidential election and potential for 60% tariffs on Chinese goods. Extra cutbacks in government spending here look likely as the fiscal balance continues to surprise on the bad side, net migration flows have fallen away, and the negative economic effects of climate change can only grow from here.
Nonetheless, the housing market is improving, investors are showing more and more interest in buying, and first-home buyers seem as determined as they have been for the past two years to take advantage of good listings and secure a home before the price cycle truly gains strength again somewhere down the track. More price rises beckon.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
