1. Technical recession confirmed, but future news is better
Stats NZ data showed a minor 0.1% drop in GDP in the first three months of 2023, which confirmed a technical recession (after the fall of 0.7% in the previous quarter). Education, transport, manufacturing, and retail trade were contributors to the latest drop, although other sectors such as agriculture and construction still managed to expand.
Of course, these figures are now quite ‘old’ and what happens next is obviously more important. The lagged effects of previous increases in interest rates are yet to take their full toll on household finances, but encouragingly most analysts now expect the economy to be on a steady (but slow) growth path from here on. Employment isn’t expected to drop much either, if at all. In other words, the worst in terms of economic performance may now be in the rear view mirror.
2. Some suburbs are flattening out
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There’s no denying that property values have continued to fall in many parts of the country in recent months, but new CoreLogic figures nevertheless show that some pockets of resilience are starting to emerge.
Over the past year, 57 suburbs saw values rise, with 33 of them increasing by at least 2% - the majority of which were in the lower half of the South Island.
However, when you zoom into what's been happening recently, the data shows 128 suburbs increased in value in the past three months and of those 71 recorded an increase in median value of at least 0.5%.
Kaipara, in Northland, had the two top performing suburbs over the past quarter, with values in Maungaturoto and Kaiwaka up 4.7% and 3.5% respectively.
It’s early days, but turning points have got to start somewhere.
3. Migration eases in April but it’s still high
Meanwhile, last week Stats NZ reported that net migration softened a little in April, as overall arrivals dropped a bit and departures ticked higher. However, the net figure for the month was still pretty high (5,785), with the 12-month running total also buoyant, at more than 72,300. In a nutshell, this is a lot of extra people in the country, and is strongly boosting property demand.
CoreLogic chief economist Kelvin Davidson: "Some pockets of resilience are starting to emerge." Photo / Peter Meecham
4. Rental pressures start to re-emerge
Stemming from high migration, and as we’ve been predicting for a while now, there are also signs of rents starting to gather speed again. Stats NZ’s figures last week showed an acceleration from 2.8% growth in the year to April to 3.8% in May – the highest figure since July last year (4.0%). This will obviously be unwelcome for tenants, who are already facing significant strain on living costs.
5. The year of two halves
And just to finish off for this week, a quick big picture take on where the market currently stands. At the end of last year, I predicted that there’d probably be continued property weakness for the first half of 2023, but a more stable (or even gently rising) market later in the year – i.e. the year of two halves. As things have turned out, this prediction has proved to be fairly accurate (so far).
Indeed, give or take a few months – and allowing for the fact that house price indices have a natural lag to what’s happening (or already happened) in the real world – it does look increasingly likely that in general house prices have now found their floor, or are at least close enough to that trough. Whether that’s a good or bad thing will depend on your own perspective.
But why does the downturn seem to be coming to an end? Primarily, it’s down to five key factors: listings are dropping, mortgage rates have peaked, employment remains strong, migration is soaring, and credit conditions (e.g. LVRs) have eased.
All that said, just because the housing downturn is all but over, we’re also unlikely to suddenly see a sharp upturn either. For a start, mortgage rates are set to be higher for longer, keeping some pressure on housing affordability, which has only really improved slightly, and from a starting position that was already very stretched.
On top of that, caps for debt to income (DTI) ratios on mortgage lending remain firmly on the radar for the first half of 2024. To be fair, DTIs may not bind straightaway, because this risky lending has already fallen away quite sharply in the past year or so. But they’ll certainly be a handbrake on house prices and the size of property portfolios over the long run.
All in all, the second half of 2023 won’t be as subdued for the housing market as the first half. But there are also plenty of reasons why the recovery will be pretty slow and elongated into 2024 and 2025 – potentially with short bursts of growth/decline around a relatively flat trend.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
