1. Reserve Bank steps up the pace
Clearly the main news item on the economic and property front last week was the 0.5% increase in the official cash rate, taking it up to 1.5%. I had leaned ever so slightly towards that outcome in advance, but a 0.25% rise could have been equally justified. inflation expectations concern the Reserve Bank of New Zealand most, and in the end it decided to take the well-worn Covid approach – go hard and go early. Mortgage rates have already risen in response, and there’s more to come too. The pace of increase from here may be slower and/or smaller than what we’ve seen to date (because future OCR increases have already been “priced in” to some extent), but a typical 1-2 year fixed rate may still push up to the 5.5%-6% range over the coming months, perhaps even a bit higher than that –a big challenge for the 50% of borrowers who roll off existing loans in the next year.
2. More weakness for volumes and values in March
Sales activity in March across agents and the private market combined was around 30% lower than a year ago, the 10th drop in a row. Meanwhile, all evidence points to property values continuing to drift lower, as mortgage rates rise, lending remains restricted, and those buyers who have managed to secure finance enjoy plenty of choice of listings, and hence a firm degree of pricing power. I suspect that growing numbers of “cheeky offers” are being accepted around various parts of the country.
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3. The brain drain seems to have already started
The latest migration data showed that we’ve lost NZ citizens, in net terms, in each of the past three months, adding up to a (seasonally adjusted) total of around 1200 people since November. Sure, the relaxed border restrictions may see more kiwis come home, but there are obviously many who will be keen to leave, and this will be a key trend to keep an eye on. Although I’m cautious about how much migration can really affect the housing market in the short term (e.g. credit availability and cost seem more important), population loss can only add to the challenges.
CoreLogic chief economist Kelvin Davidson: "All evidence points to property values continuing to drift lower." Photo / Peter Meecham
4. Watch for inflation this week
The highest-profile data release this week will be the Q1 CPI, at 10:45am on Thursday. The general level of prices looks to have risen by around 2% in Q1 alone and by 7-7.5% over the past year – the highest annual inflation rate in more than three decades. Of course, everybody already knows that inflation is high, so there won’t be too many surprises here, and importantly, the RBNZ is already on the hunt anyway, so the data won’t have too much impact on interest rates (which as noted above are already headed higher).
5. A word on the orange traffic light and NZ Activity Index
Later this week, Stats NZ will also publish the NZAC for March – the timely indicator for overall economic momentum – and after the growth slowdown we saw in February’s result, another soft reading for March couldn’t be ruled out. Of course, I can’t leave this week without mentioning the shift to the orange COVID traffic light, which could help stimulate April’s NZAC result (due mid-May), as hospitality just gets that much easier to operate.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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