1. GDP falls, but the economy better than the Reserve Bank expected
GDP, the common, trusted method of economic activity, fell by 0.2% in the June quarter, slightly better than the Reserve Bank expected (-0.5%). Revisions of previous quarterly activity also means we technically weren’t in recession at the end of last year anymore. However, in truth, the technical definition of a recession (two quarters of negative GDP in a row) means very little when it comes to how businesses and consumers are feeling and experiencing the economic environment.
This is particularly true when you account for our increasing population which shows our GDP per capita actually fell by 0.5% over the quarter and 2.7% over the last year. More people, spending less, effectively translates to households doing it tougher than businesses.
Ultimately the economy is struggling and still requires assistance via looser monetary policy (lower OCR) and the backward-looking GDP release hasn’t changed that. Perhaps you could argue a 25 basis point cut is more likely than a 50 basis point cut on October 9 though, seeing as it’s not as bad as the RBNZ thought it was.
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2. A small improvement in the timely economic indicators?
Perhaps more importantly when it comes to our economy though, both due to its timeliness and the Reserve Bank’s increased focus on higher frequency indicators, we look forward to this week’s release of the NZ Activity Index (NZAC) for August, which is out on Tuesday. ANZ’s September consumer confidence measure will also be released this week (Friday).
There seems a reasonable chance that both of these up-to-date indicators will have improved to some degree, which would be great news. To be fair, an eventual full-blown economic recovery would slow or stop the OCR cuts, but that’s a long way away yet.
3. More bank switching?
Also, on Wednesday this week the Reserve Bank will publish the August mortgage lending stats. I suspect the gradual upwards trend for mortgage activity is likely to have continued, partly driven by the easing in the LVR rules from July 1. There’s also been a lift in bank switching activity lately – as people look to secure the best mortgage rates and possibly a cashback too – so that breakdown of the figures will also be intriguing.
CoreLogic chief economist Kelvin Davidson: "If you can afford and secure the finance, it seems to be a pretty favourable time to be a buyer." Photo / Peter Meecham
4. Sales activity is rising, but from a low base
Across estate agents and private deals, we measured a total of 6320 property transactions in August, up by 1.6% from the same month last year, and the 15th rise in the past 16 months – a run of growth only broken by the Matariki-affected June 2024 (the public holiday falling in June this year rather than July dampened the figure). However, the starting point was very low – sales as percentage of existing stock in both 2022 and 2023 were the lowest on record (less than 4%) – so even after the recent growth, activity remains well below normal. Indeed, August’s figure for example was about 15% less than what we’d typically expect for that month of the year.
In other words, it’s still pretty quiet out there as we head into the spring selling season, and with a steady flow of new listings still coming onto the market, total stock levels remain elevated. If you can afford and secure the finance, it seems to be a pretty favourable time to be a buyer.
5. First-home buyers remain a strong presence
On that note, the latest CoreLogic Buyer Classification figures certainly showed that first-home buyers (FHBs) continue to make the most of these conditions. In August, their share of property purchases remained at around 27%, a record high, and the number of FHB deals is also pretty solid too. Access to KiwiSaver for at least part of the deposit remains a key support for FHBs, as is their monopoly on the low equity lending allowances at the banks. In addition, lower house prices and less competition from other buyer groups are useful benefits too.
That said, there have been hints in the latest data that FHBs might not have it all their own way as we get into 2025. Indeed, over the past couple of months, there have been signs that smaller mortgaged investors have made an early return to the market. It’s nothing major yet, and it’s still not easy for mum and dad buyers to make the sums work on a typical rental purchase with mortgage rates where they are. But as rates continue to fall – and also given 80% interest deductibility (100% from April 1 next year) and an easing in the LVR rules – investors will be a group to watch over the next 12-18 months.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
