Absent is the hiss and the market roar kicking off this fresh new year, with Kiwis cleaning up following wet and wild weather events and widespread uncertainty about where the economy moves next.
Despite predictions for a further dampening in demand, homeowners have had plenty of time to adapt to new market conditions as the Reserve Bank of New Zealand (RBNZ) continues its campaign to cool inflation and ease pressure across the economy.
Residential property prices are now back to their February 2021 levels, when pandemic stimulus and out-of-cycle gains saw homeowners net more than 20 percent capital gain on their assets.
Notwithstanding this regression, very few people are currently in a negative equity position. When coupled with strong employment prospects and financial system resilience, Kiwis are well-poised to manage coming economic change.
Housing activity is traditionally low over the December-January holiday period, so it will be some time before we can gauge the mood of the market.
However, early indications point to a further easing in residential values as supply and demand dynamics cool sales activity and economic activity subsides as dampening measures take effect.
Housing policy, in particular, is set up for high-profile debate ahead of the looming general election. It is worth noting that the RBNZ is also seeking to add debt-to-income (DTI) restrictions to its tool belt.
Despite this, the RBNZ has flagged that the earliest possible implementation date (should the Government agree to deploy DTI restrictions) is likely to be March 2024 – around the same time, the central bank predicts the economy will have cooled sufficiently to see mortgage lending rates start their descent.
Overall, 2023 could deliver some surprises for Kiwi homeowners.
The interest rate outlook will likely remain a dominant driver of housing momentum, which depends on pipeline core inflation pressures.
However, a potential bigger hit to household incomes than expected is something to keep an eye out for, which could dominate rate changes, at least for a short while.
Commentators also note that a net migration surprise, by way of higher-than-expected migration, could somewhat alter the magnitude of price changes but probably won’t turn the tide given other macroeconomic drivers of housing.
• The latest inflation figures for the December 2022 quarter show continued strength in consumer demand as headline inflation increased another 7.2 percent. Despite this, the measure has fallen short of the RBNZ’s own predictions, signalling measures to cool the economy are working, and a stark slowdown in economic activity is expected over the coming year. In its latest analysis, Westpac Bank expects that while further hikes to the Official Cash Rate (OCR) are still required, the extent of policy tightening may be more moderate - with economists now predicting a 50 basis point (bp) rise in February. This is slightly brighter news for Kiwis grappling with cost-of-living pressures.
• The economy remains front-and-centre for homeowners’ crystal ball gazing in 2023, with the ANZ Bank noting key themes to watch in its latest Property Focus report. These include the end of rate hikes and the outlook for core inflation. In addition to the relationship with housing policy, election inertia and net migration surprises. The bank notes that while further price declines are expected for the residential sales market to half-year, the current downturn has been well-flagged and Kiwis are in a strong position to manage household budgets. Despite this, disruption caused by the election could prolong uncertainty, meaning those considering entering the market could be advantaged by doing so in the first half of 2023.
• All eyes are on the RBNZ’s February Monetary Policy Statement (MPS), where the central bank will reveal the extent of recent economic change and how far further rate hikes will go. Despite this, it is undeniable that affordability constraints have kicked in, restricting Kiwis’ borrowing capacity, at least until rates stabilise and greater certainty enters the picture. Until then, research firm CoreLogic expects residential sales activity will remain consistent and growth below the 41 percent recorded in the 19 months between August 2020 and March 2021.
• • Recent sales data shows a regression in housing activity is far from uniform across the country, with house hunters still paying large sums for quality properties in areas of tight high-value supply, such as Canterbury. According to the Real Estate Institute of New Zealand’s (REINZ) Housing Price Index (HPI), in December 2022 price declines in the ‘Garden City’ come in around 6.3 percent, compared with other main centres like Auckland and Wellington where prices have declined 20 and 22 percent, respectively. Salespeople note this is primarily due to the top end of the market remaining resilient. In addition, buyers with equity in stable financial positions are less susceptible to market movements and continue transacting. This could underpin sales activity as the year progresses.
• Despite expectations for a traditional Christmas spending spike, retail spending was softer than predicted in December, adding to signs the domestic economy is starting to turn. This weakness could see the RBNZ scale back its intentions to hike the OCR by the signalled 125 bp throughout the first half of the year. Despite this, the central bank is likely to change course if it is more than confident inflation looks ready to settle within the one-to-three percent target range. Should this occur, an easing in the OCR is likely in 2024. However, continued weakness in spending activity and retail price inflation could see that timeframe move forward, bringing some relief to Kiwi consumers.
• There has been a rise in the frequency of mortgagee sales, according to figures from TradeMe, which show the number of properties listed as mortgagee sales was up 25 percent in December 2022 from the same time a year prior. While the RBNZ has predicted unemployment will rise to 5.7 percent by 2025 – increasing the likelihood of pressure on some Kiwi households – the attitude of financial institutions has changed, which avoid forcing sales to recoup costs where possible. In addition, recent figures suggest 45 percent of borrowers are ahead on their mortgage repayments, meaning Kiwis are in a relatively strong position to manage economic headwinds in 2023. This has created a buffer for the residential market and could see it less susceptible to an economic recession.
• Widely regarded as one of the country’s most affordable housing regions, Southland has just recorded its first residential sale of circa $2 million. The deal comes amid continued inter-region migration, as Kiwis make their move to New Zealand’s regions in search of a better balance between lifestyle and liveability. Areas such as Southland, where benchmark housing prices are comparatively low, stand to benefit most from value growth over the next 12 months.
• A list of the top 10 most expensive streets in New Zealand quotes Bayleys Ponsonby’s own residential sales expert Blair Haddow. In the excerpt, Blair notes that high prices are consistently achieved in areas where there are a high proportion of north-facing sections, properties gain views (particularly of the water), and feature good connectivity to amenities and transit routes. Streets with minimal turnover further add an air of rarity that sees buyers compete at higher levels for properties when they do finally come online, despite market movements.