In this week’s lead article I take a look at how the world is looking like a less dangerous place at the moment. But because money printing is playing a role in the rise in sentiment it would be wrong to conclude that there is a normal cyclical upturn underway. In fact as this year progresses talk will increasingly turn to how to withdraw the huge monetary injections undertaken by central banks. But for now a positive ball is rolling in some parts of the world – which brings one to New Zealand’s rolling investment ball – housing.
Average NZ house prices rose 6.7% last year with Auckland prices ahead 8.6%. In late-2008 I noted that supply issues and plummeting interest rates would limit NZ house price falls to 10% – 15%. They fell 11%. I then went on to note that awareness of the shortage would eventually rise and the buyers would come out to find an absence of listings. That happened exactly a year ago. Now we move to the next stage where investors are worried they may miss out on easy profit so will be scrambling to buy what they can. The result will be that this year prices are likely to rise by more than they did over 2012 and the Auckland rise will spread to other centres.
In the Interest Rates section we note that although a monetary policy tightening in NZ still looks unlikely until early next year, there is upward pressure developing on fixed interest rates which is worth watching – even though there is nothing to suggest that predictability of interest rates is any better now that at any stage over the past four years. So I repeat my three year comment – you are a fool if you base your interest rate risk management decisions on a particular set of interest rate forecasts.
On the economic data front in the past five weeks we have learnt that migration net outflows are easing (watch for what the turning to positive annual flows will do to the housing market), that retail spending growth was only mild in the December quarter with Christmas frankly mediocre, and the economy grew only 0.2% in the September quarter but 2.5% for the year.