Why bad GDP news this week might actually be good for homeowners

1. A tight call on GDP

The data highlight this week will be Thursday’s release of the GDP figures for Q1 from Stats NZ. As always, the data is a bit ‘old’ by the time it’s released, but even so, there’ll be a lot of headlines. My hunch is GDP has grown by about 0.2%, but other economics experts are picking a small decline. It’s a close call, and a rise in GDP would rightly be applauded. But it could also be argued that a drop would be better for the housing market, in that it might tame inflation even more quickly and bring forward interest rate cuts.

2. Fixing short but at a cost

For some, rate cuts can‘t come soon enough. Reserve Bank data released last week showed that 58% of new loans in April (by value) were fixed for a year or less. That‘s an increase from 57% in March, 56% in February, and well up from 36% in December. Given that the next significant moves in the Official Cash Rate and bank mortgage rates are likely to be down, it makes sense to go for a shorter fixed rate. But the problem is that those interest rate falls might be six to nine months away at least, and short-term rates are higher than longer ones.

3. Suburb-level data continues to show a patchy market

Last week CoreLogic published its three-monthly review of median property values across almost 940 suburbs, and it was a mixed bag. Around 220 areas had fallen by at least 1% since March, with areas such as Takapuna and Mataura (at opposite ends of the value spectrum) seeing fairly chunky drops of more than 5%. But a fair number of suburbs have also increased by similar amounts since March, so it’s pretty clear that “patchiness” remains a useful word at present. It’s probably still too early to conclude that a fresh downturn has arrived, but certainly, a lot of the momentum in house prices has petered out in recent months, reflecting high mortgage rates and plenty of choice for buyers (at least those that can get/afford the finance).

CoreLogic chief economist Kelvin Davidson: "Interest rate falls might be six to nine months away, and short-term rates are higher than longer ones." Photo / Peter Meecham

4. Migration has passed the peak

The latest Stats NZ figures showed a net migration total for the 12 months to April of 98,464 – still quite high (the average is 30-35,000), but well down from October’s peak of nearly 138,000. Clearly, migration is still boosting housing demand across NZ, but not as much was it was at the end of last year, and this slowdown is coinciding with rents also flattening out too. One really interesting (concerning) aspect of the migration data at present is that NZ citizens are departing in record numbers, whether you look at that in gross or net terms. These periods of ‘brain drain’ tend to impact the provinces more than the main centres, and could be problematic for regional economies in terms of maintaining their population bases of younger people.

5. Rental growth continues to slow

The Stats NZ flow measure of rent prices was only up by 3.8% in the year to May, the first time growth has been below 4% since June last year, and it’s also getting closer to the long-term average (3.3%). That’s not ideal news for investors, but certainly very welcome for tenants, and also an encouraging trend in terms of the wider slowdown for general inflation. Part of the slowdown has probably been less wage growth (limiting how much tenants can actually afford), but it’ll also be reflecting slightly softer demand and also a rising supply of available rental listings.

- Kelvin Davidson is chief economist at property insights firm CoreLogic