1. Reserve Bank of Australia hikes by 0.5 points - sound familiar?
A quick diversion across The Ditch to start with, and it’s worth noting that last week the RBA raised their cash rate by a larger-than-expected 0.5 percentage points to 0.85% - Australia's biggest rate hike in 22 years - in order to curb inflation. It will also have knock-on effects for mortgage rates and the housing market, which has already been weakening (prices down in Sydney and Melbourne) even in advance of monetary policy being tightened. This all sounds very familiar from back here in NZ (although a 0.85% cash rate is lower than NZ's rate of 2%). One big difference, however, is that many Australians borrow on floating not fixed rates, meaning that any changes in mortgage rates will tend to have their effect more quickly than they do here.
2. Investor landscape could prove challenging
In a short article last week, we looked at some big-picture factors that might currently be occupying the minds of property investors, and in lieu of capital gains, looked at some area/property type combinations that might still be appealing on a gross yield basis. Clearly, some investors will still pick up ‘bargains’ and make capital gains in almost any market conditions. But others may need to focus on the nuts and bolts of cost control and rents/yields over the next few years, with yields >4% still achievable in parts of Auckland and Wellington (apartments), Christchurch, Dunedin, Gisborne, and Whanganui – although of course, an investor’s risk appetite matters too.
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3. Lending environment looser and tighter at the same time?
Last week, the Government confirmed the well-signalled relaxation of some aspects of the CCCFA legislation (from July 7), which at face value should help a few more people to get a mortgage a bit more easily – e.g. because they no longer have to be so squeaky clean in advance of the loan, with the bank able to make the reasonable assumption they’ll curb other expenditure to service their debt after they’ve secured the property/mortgage. But on the other hand, the Reserve Bank has also announced the managed reversal of the Large Scale Asset Programme to start in July (“quantitative tightening”). This isn’t expected to cause major upheaval, but it’s never been done before, and given that quantitative easing caused interest rates to drop, you’d have to wonder if quantitative tightening might add a bit of upwards pressure to wholesale rates and hence longer term fixed mortgage rates.
CoreLogic chief economist Kelvin Davidson: “Investors may need to focus on the nuts and bolts of cost control and rents/yields over the next few years.” Photo / Peter Meecham
4. Is net migration about to get interesting again?
So far in this post-Covid environment there hasn’t been a huge amount of attention given to the net migration figures, which isn’t surprising given closed borders. But we’re now hearing a lot of anecdotes about young Kiwis heading off overseas (or at least intending to do so) and the full reopening of the border will presumably prompt some inflows of new migrants to NZ. Of course, it’s the balance that really matters for the housing market, and we doubt that net migration will return to anything like the figures we saw pre-Covid (almost 92,000 in the year to March 2020). Anyway, Stats NZ will publish the latest set of figures for April this week.
5. Q1’s GDP data may come and go quite quickly
Also this week there’ll be a lot of focus on the Q1 GDP figures due from Stats NZ on Thursday, with a reasonably common expectation that we’ll see a modest rise of perhaps 0.3% from Q4 last year – not amazing, but better than a fall! Of course, this indicator is always a bit out of date, and we know from the NZ Activity Index (and business/consumer confidence indicators) that the economy has been creaking a little so far in Q2. Upshot – even if GDP data for Q1 is stronger than expected, recession risks still linger. That would be another challenge for the property market.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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