Ever adaptable, New Zealand’s economy continues to roll with the pandemic punches, with February revealing itself as a short month full of change.
Having risen beyond manageable levels, infections resulting from the latest Omicron outbreak are causing mass disruption for businesses through increased absenteeism, reduced productivity and exacerbated supply chains. However, the global example tells of an economic interruption that will be widely felt, yet swiftly behind us.
Against this backdrop, the Reserve Bank of New Zealand (RBNZ) has continued its tightening cycle of monetary policy, raising the Official Cash Rate (OCR) 25 basis points to one percent.
Noting the economy’s robust performance in the face of disruption, in part buoyed by strong housing market activity and a humming residential construction sector, the central bank reiterated its commitment to staggered rate rises.
This is good news for existing and new homeowners who have been stress-tested by financial institutions at much higher mortgage lending rates (likely circa seven percent), and provides a buffer for Kiwis to cope with the rising cost of debt.
Internationally, the Russian invasion of Ukraine has tarnished the global outlook, with observers expecting resulting economic uncertainty to have an impact here. Sanctions and tensions continue to create volatility, likely to add local inflationary pressure to energy, oil and some food products.
While the everyday cost of living continues to rise for Kiwis across the country, some of our regional economies are performing remarkably well, underpinned by strong commodity prices, wage and job growth plus relocation of economic focus as workers switch permanently to more agile working environments.
This regional prosperity provides a strong case for ongoing resilience across housing markets, with the gradual reopening of the international border returning another (previously absent) element of demand.
Looking ahead, Bayleys expects autumn will yield an uptick in sales activity, with buyers, sellers and advisors now better positioned to manage bank requests as they pertain to the recently introduced yet no less disruptive Credit Contracts and Consumer Finance Act (CCCFA).
As we head toward what is typically the busiest time on the real estate calendar, we are keeping a close eye on recent sale results, especially across our auction rooms, for a measure of true market value.
• Research from CoreLogic in its latest ‘Pain and Gain Report’ has found the median capital gain for residential property owners across the country in quarter four 2021 was $420,000 – a figure that has almost doubled since the start of the pandemic. The researchers noted never in the data series’ 25-year history have they seen such a high, and sustained peak for profit-making sales, underpinned by the strong package of fiscal support rolled out to aid the economy following the initial shock of the pandemic.
• In its latest Property Focus report, ANZ Bank notes the burden of servicing debt will be the biggest determinant of demand for housing over the next few years. Researchers say the CCCFA along with tighter macroprudential restrictions has had a swift impact on household balance sheets, however, an extremely strong labour market underpins ongoing activity. Bank stress testing at borrowing rates circa seven percent have prepared buyers for higher interest rates, and the Bank notes that while it expects a slowing of value growth, the impact will be manageable.
• In its latest Monetary Policy Statement (MPS), the central bank met market expectations by raising the OCR 25 basis points to 1%. While this movement has been all-but priced into the latest mortgage offerings, the RBNZ extended its OCR track to peak at 3.4% in 2024. This rather large lift (up from 2.6% in the November review) is likely to support a lift in longer-term offerings, with some 70 percent of Kiwi mortgage holders expected to refix their loans over the next 12 months.
• Residential building projects are under increasing pressure with news building giant Fletcher’s, who controls at least 94 percent of the domestic market for plasterboard, is set to begin rationing its products following a backlog of orders. The announcement is just another hurdle for an already stretched building and construction sector, with projects facing significant time delays and rising costs. While last year noted a record for new building consent issuance, significant challenges like this mean the number of finished homes coming online over the next five years will likely be far fewer than approved consent numbers reflect.
• Infometrics data about the pandemic’s effects on regional economies showed those with a strong primary sector focus performed strongly across the country, supported by strong commodity prices and rising demand for exports. The data illustrated the strong impact domestic movement and the shift to working from home had on regional areas, with population growth gaining from the relocation of economic focus in locations such as the Kapiti Coast, Waimakariri and Kaipara Districts.
• Strong job prospects and record low unemployment driven by closed borders and stagnating population growth continue to buoy confidence in the property sector. However, a report from ABC news warns the dynamics could change once international borders reopen and business owners can cast a wider net for workers. For New Zealand, productivity has been challenged by the lack of skilled/unskilled workers across a variety of sectors, and while the unemployment rate may rise from historically low levels once migrant workers become available, we expect the gradual reopening of our borders will support economic growth, rather than stifle it.
• In a panel discussion with Stuff, Westpac economists say it will take several years of value declines across the residential property market to get prices back to where they were at the start of 2021. While tightening credit controls have had an impact on consumer behaviour recently, observers note market fundamentals are largely positive, with a strong labour market and a gradual reopening of New Zealand’s borders providing ongoing support for housing market activity.
• As residential salespeople across the country prepare for what is traditionally the busiest period of the real estate calendar, Greg Ninness of Interest notes variable market fundamentals mean strong negotiation skills are a more valuable professional asset. In auction rooms, tightening credit conditions have impacted buyers’ ability to pay inflated prices, meaning preparation and current knowledge of recent local comparable sales is key for sellers when setting achievable reserve values.