The full pdf version of the Weekly Overview is contained here.
Weekly Overview June 23 2016
Thursday June 23rd 2016
As we all bide time waiting for the Brexit referendum result, this week we take a quick run-through of NZ economic data reinforcing our view that current NZ growth is good and reasonable prospects lie ahead.
This week I am at Fieldays so start the Overview with a few observations on the mood at Australasia’s biggest agricultural gathering. I also take a look again at the housing market, focussing in on two things. Firstly a list of structural changes helping to explain the apparent downward trend in home ownership. Second the data suggesting near 40% of house sales in our three biggest cities are to investors.
As was expected the Reserve Bank left its cash rate unchanged at 2.25% this morning and retained a warning that a further reduction may be needed. They in fact have one pencilled in which we think will arrive in August, and forecast no rate rise until beyond the end of their forecast horison which is the middle of 2019. This ongoing good environment for borrowers can do nothing other than provide continued support to a housing market replete with more and more people seeking accommodation but restricted by some existing shortages and less than optimal construction growth.
This week the data releases have been on the positive side, so it is easy to understand why the Kiwi dollar remains firm. In the housing market data show strong price rises and listings shortages. We take a look at the many factors driving house prices higher and the results of our special question in last week’s BNZ Confidence Survey regarding whether people are Happy or Unhappy that house prices are rising. The outcome helps explain why stops will not be pulled out to cause price declines.
As promised by the Finance Minister there were no big surprises in today’s Budget, the numbers look good with small though growing fiscal surpluses projected, growth averaging near 3%, unemployment falling to 4.6%, and interest rates not rising until 2018/19. The Budget Speech referenced an upcoming National Policy Statement on Urban Development which will direct councils to allow more housing and measure the impact on house prices of their decisions.
This week I have been on the road so the Overview is on the short side. We take a look at how the Reserve Bank is under-counting the migration boost to Auckland’s population thus under-estimating the rate at which the housing shortage is getting worse and applying upward pressure on prices. Plus we look at how much house prices are rising in Ireland where banks can only lend 3.5 times the borrower’s income.
I am on leave this week and next but forgot to warn of such last week so am sending the Overview out to say that – and to make a few quick comments on the state of the economy and as usual the housing market. There is nothing much new there so give it a miss if you have something better to do.
There is widespread awareness now of the way regional housing markets are rising strongly, and that Auckland has not finished its push higher. With the Reserve Bank expected to cut interest rates later this month and again in June there will clearly be more property demand coming soon from investors – maybe less so first home buyers for whom the problem is not really the interest rate but the property cost and getting a deposit together.
Although some people are optimistic that international dairy prices will rise soon, plenty of forecasters offshore predict still rising supply bringing price restraint, including the US Department of Agriculture which sees no improvement before 2019. Forecasts of rising demand over the long-term remain as robust as ever – but forecasts of supply changing are also as lacking as ever and if you don’t forecast both you can’t reasonably forecast prices.