Loosened LVRs help investors

Ever wondered how the easing of LVR rules has affected the investor landscape? We dig into this, discussing how this change has tipped the scales, encouraging investors to lean towards new builds. The conversation gets even more interesting as we scrutinise the loss of interest-deductibility and its sway on investor involvement. Delving further, we'll face head-on, the challenges and opportunities of investing in a market with low rental yields and interest rates. We discuss the large gap between rental yields and mortgage rates and the potential long-term impacts they might have on the retirement scene. 

Shifting gears, we'll delve deeper into the economic matters that impact the property market. We'll review the New Zealand Activity Index for June, and the forecasts from bank economists. With an unflinching look at the possibility of a looming double-dip recession, we'll discuss its potential implications on the official cash rate, housing market, and labour force. We promise insightful, nuanced, and engaging dialogue that will leave you more informed and equipped to make decisions in the property investment universe. So, join us for this enriching and enlightening conversation.

Sign up for news and insights or contact on LinkedIn, Twitter @NickGoodall_CL or @KDavidson_CL and email nick.goodall@cotality.co.nz or kelvin.davidson@cotality.co.nz

Chapters

• 0:16 Mortgage Lending Figures and Investor Activity
• 6:24 LVR Rule Changes and Investor Lending
• 11:30 Real Estate Market Challenges and Uncertainties
• 19:11 Challenges and Opportunities in Property Investment
• 23:34 New Zealand Economy and Outlook Discussion
• 31:36 Unemployment and House Prices
• 36:30 Economic Indicators and Property Investment Analysis
• 44:59 New Zealand Property Market Podcast Discussion

Transcript

Nick: 0:16

Welcome to the New Zealand Property Market Podcast brought to you by CoreLogic, produced by Agents TV for the 31st of July 2023. I'm head of research Nick Goodall and I'm joined by our Chief Economist , Kelvin Davidson. Kelvin, how are you, mate? How was your weekend? Plenty of sport watching, I'm guessing.

Kelvin: 0:32

Yeah, that was pretty much it. There wasn't too much to report on the sort of personal family front, but certainly lots of sport watching, and particularly of course the All Blacks. So, yeah, give us the World Cup pretty much the verdict, I think. Well, yeah, yeah, maybe not quite yet.

Nick: 0:49

It does feel a bit like that, but there's no doubt that they were you know the All Blacks once again very impressive Saturday night and did feel a bit extra spicy there, with Eddie Jones sort of talking things up and doing his usual best to kind of distract from things and amazing how bad they've been and how good the All Blacks had been. We still felt nervous that the Aussies could spring something on us, and that was an Eddie Jones special really. But yeah, the All Blacks pretty much made a mockery of that. Despite it being quite close, the Aussies never felt like truly threatening but the All Blacks certainly found it hard to break them down but it eventually came and so yeah, that was, that was a nice and sweet one.

Nick: 1:22

I certainly felt myself with a few big fist pumps as the All Blacks scored a couple of awesome tries in that second half. So, yeah, a little bit of extra spice to it. That was good. I mean and of course you know, while that was great, the disappointment of the Football Ferns yesterday just not quite being able to score that goal against Switzerland and to not going through to the round of 16 at the women's World Cup. But yeah, I mean hard to say, you know, disappointing of course, but they have always struggled to score goals. Certainly recently, despite that opening game, which was a very high, the last couple of games while they've been, you know, they actually played quite well they haven't managed to score that goal and unfortunately that's, that's their undoing. So, yeah, tough one, but I certainly been enjoying the tournament and looking to go to another game this Wednesday before the playoffs kick off and just over a week or 10 days time back in Wellington. So, yeah, plenty of games kids have been enjoying at big, big, full stadiums. There's a lot to like anyway.

Kelvin: 2:16

Yeah, sure yeah, and I haven't taken too much interest of sort of a or too much interest in the global eyes on New Zealand, but presumably it's. You know, it's the biggest sport in the world, presumably there's a lot of eyes on New Zealand. Great for a, great for our economy. Maybe in that broader sense, get some tourism in and so yeah, quite apart from sport, there's that wider benefit to love Always got your economics hat on.

Nick: 2:39

But yeah, I think the USA Netherlands game which I went to last week it was called the 1pm game last Thursday, so that's obviously, you know, tailored for the American audience, but apparently it was like the largest American sporting or women's sporting in America TV audience. So you know it was a New Zealand game, Wellington with our big cake tin. So yeah, like I say, definitely some other positives. That's the reason you host these big things. So that's also very cool and definitely it seems that the public have, you know, embraced it, which is, which is great, and know how to help by that first win over Norway, and that first came from a football ferns too. So a lot to like, some disappointments and frustrations, but some tournament still going and there's some pretty decent football being played too. So, yeah, certainly been enjoying that one. But let's get into things, mate.

Nick: 3:21

Obviously there's a bit to talk about from the last week in the property market. The first one I thought we'd start off with is around the mortgage lending figures for June. Now I know that, you know we're kind of getting decent feel for who's active in the market in terms of first home buyers getting mortgages or investors. But that's the key thing that you've been paying attention to is the high LBR lending. We know last month and this is the data we're looking at now is the month where it first changed for the deposit requirements, so a higher speed limit for an occupiers and a lower deposit requirement for investors and in general I'd say the lending was still relatively constrained. But of course, we did see that difference in investors taking up that kind of gap between 35 to 40% deposit, 60 to 65% LVR. You want to take us through the details with that one mate, and then I'm sure there'll be a bit of conversation stemming from this, just in terms of potential insights and investor activity in particular.

Kelvin: 4:21

Yeah, I sort of should have written this down in a logical order. There's quite a few bits of data here to pick out. I mean, like you say, the overall total was still pretty low. And keep in mind that these numbers cover new lending, top ups and bank switching. So the fact that we've seen property sales activities start to pick up, yet mortgage lending is still a bit quiet, kind of suggests to me that maybe it's that top up and switching activity that's kind of holding down the overall total, which for me sort of makes sense. I mean, there's probably still some bank switching going on, but those cashbacks don't seem to be as high profile as they were, so perhaps the incentive isn't quite there as it used to be.

Kelvin: 5:02

And also, topping up maybe not as popular. I mean interest rates are high, maybe on paper at least. Your LVR has got a bit worse, so you might not have as much scope to top up anyway. So that sort of stands to reason. We don't get breakdown across those three types of lending so we can't really see, but it feels like it could be. Top ups and switching is holding it down. But yeah, within that overall total it was still pretty low. The breakdown really really interesting for you alluded to those speed limits. The owner occupiers, even though there's a speed limit of 15% that can get in with a low deposit, that number in actual fact was only running about 6%. So there's still a big buffer between what they could do and what they're actually doing, and it's probably caution on the part of the banks. Serviceability tests are a big factor. Interest rates themselves are a big factor caution on the part of borrowers.

Kelvin: 5:52

Do you really want to be taken out that sort of extra large mortgage when interest rates are high? So still a bit of a buffer for owner occupiers, investors, at the new speed limit still still really tight. So at that, that, that or that new deposit requirement, I should say, if you don't have that required 35% deposit, still very difficult. The speed limit is 5%. Actually the actual number is running at sort of less than 1%. So there's, if you don't have 35%, that new requirement. That's still pretty tough. But we saw a big rise in the share of lending.

Kelvin: 6:27

So even if the overall investor lending total was still quite low within that low total big rise in the share of that finance going out with between a 35% and 40% deposit. So let's say you hit 37% under the old rules. Up to the 1st of June you were excluded. Now deposit requirements gone down. That's below. That's below your 37%, so you can get it and we saw a big rise in that share.

Kelvin: 6:51

So the share of investor lending in June going out with between a 35% and a 40% deposit, went from sort of 1% to 18%. So a big jump in that proportion. So pretty much some people previously locked out If they had, let's say, 37%. Now under the new rules they can get in. So we saw a big rise in that, hasn't sort of translated into clear market impacts year or anything like that. And, as I say, the overall investor total was still quite low, but yeah just some signs of that sort, of starting these up a little bit.

Kelvin: 7:24

If you had 37% you can now get in. It could be maybe and it's not new lending necessarily it could be that people were popping up, sort of taking some cash out of existing portfolios and using it for front things. Whatever that might be. But yeah, some interesting overall numbers and I guess we'll chat about the implications of all of this, but nothing major yet. But certainly you can see that the change in the LVR rules is having an impact mostly for investors at the start.

Nick: 7:52

Yeah, I think it's something we've said in the past, right Like when the LVRs were temporarily removed through COVID, we saw a huge increase in the number of investors and the proportion of investors out there buying without the required deposit of 40% anymore, and I think what it does show is that those LVRs are quite restraining. They do limit the amount of investors out there as soon as they're loosened. There are definitely investors out there who make the use of that change, and that jump to 18%, like you say, is pretty significant and it does to me show that investors are still keen to get that lending when they can and equally, banks are willing to lend to them if they can actually do it according to the limits that are put on them. And it does make me think, you know, there's a bit of a clear illustration there that while the loss of interest-deductability no doubt reduces profitability for investors, it's not keeping all investors out of the market. And it's something you and I have talked about, made the point on LinkedIn over the weekend as well, at the back of an article I think you've spoken to.

Nick: 8:53

One of the journals that you know I've been pointing out recently is that one in five sales is still going to investors with a mortgage, and that's despite all the challenges that are out there. And it does make me think that, yeah, of course the interest-deductability you can say is unfair, it's not right, it's not global, all these things like it's an odd one to punish them for. Or the way to do it, the way to go about it is maybe not the right way, but there's no doubt it's created a change in the market, but it hasn't limited all investors out there and those that are willing, able, have the funding, have the serviceability available. They're still out there buying property and no doubt they've got a long-term view on the market, you know, and even if in the short term, or maybe short to medium term, even if they haven't had top-day money or top-day you know more good job, you know, because the red doesn't cover all the costs I've got on things, they're still willing to take that on. And so I just wonder about you know the implications of that in terms of you know, does that provide some evidence that you know for the National Party? You know the election coming up this year.

Nick: 9:55

Of course they have talked in some forums about reinstating industrial deductibility, but whether it's actually necessary or, you know neat or neat would need to happen essentially if they do win that. So, yeah, it's just an interesting one there when you do look at it from a slightly perspective and say investors are still relatively active. You know lower, yes, sure, but when they can, they're still willing to take on that debt, even knowing that that debt, that there's a just cost they're not going to be able to deduct from their taxes. They still see value in the market and it just makes me think that you know the changes that were made, and especially in forcing people to, you know, investors, if you can, to go and build by new, and we saw that also a big diversion from, you know, march 2021, when the rule was announced, we saw the proportion of new builds go to investors increase, portion of existing properties go to investors drop.

Nick: 10:47

And if you said that was an intended consequence, then maybe it's not the worst thing either that we're starting to get more investors go towards that. Add to our stock levels which, as we've talked about, you know we still fill up around the supply. You know, if it's trying to encourage that type of behavior, then maybe it's not the worst thing in the world, despite many flaws, many moral reasons it's wrong. If it's given the desired behavior, then maybe it's just something you'd leave alone. So, yeah, certainly brings into question that and no doubt will force plenty more debate as we move through this election cycle as well. But yeah, just provide some some evidence along those lines anyway, which I find really interesting.

Kelvin: 11:26

Yeah, yeah, it's a really good point, and so Maria. Bell, it's stuff that an article over the weekend about how things are currently looking for rental yields and for interest rates and where they all sit in relation to other assets as well and yeah, I mean part. The one thing. I saw her and I had a long chat last week and one thing I kind of said to her that didn't feature in the article was simply what you just said about you know, one in every five purchases, basically, are still going to more investor investors.

Kelvin: 11:56

So there's still yeah, there's heaps of challenges, but, you know, a lot of people are still making it work, and I think part of it. Like you say, though, they'll definitely be looking to the long term. That's kind of always been the model, isn't it? You've got to be in for the long run. I wonder also, maybe if there's some people going to bring in DTIs next year.

Kelvin: 12:14

I've got no chance, so I better buy in advance of that. You know, I'm not sure that would always be the case, because my general perception and the awareness about DTIs is that it's not that high.

Kelvin: 12:25

People maybe have got their eye on the election and they'll worry about DTIs later, or they haven't even heard of it, maybe in the first place. So I wonder how strong that effect can be. But maybe some are thinking that along those lines. But yeah, around the whole numbers. It's going to be different for each individual deal but it's not that hard to run some numbers on at least at face value what an investment right now looks like.

Kelvin: 12:47

You can see what people are paying. You put in an assured yield and you know what the rents are, as you can factor in some costs and yes our yields, that we provide that look at average rents and average property values are indicative In the real world people will.

Kelvin: 13:05

they might invest in mine, not buy the average property. They might try and get an above average rent so the yield will look better. So it's all kind of indicative but you've got to start somewhere and it's not that hard to run some pretty central scenario numbers that in average top up. Right now real cash each week a new investor would have to put in is $300 or $400 a week and I suppose topping up with property has always been the model. You sort of put some cash in and you get some capital gain later.

Kelvin: 13:34

But, yeah, it's just. It's a big challenge at the moment you think that's real cash every week that you haven't put into top this thing, up for the possible capital gain down the track, which might be less than it's been in the future, so yeah, there's definitely some hard decisions being made, I guess.

Kelvin: 13:53

And yes, one every five still purchasing or those deals are going to an investor. But yeah, those numbers are pretty challenging. And yes, if you buy a new build, you know to top up, at least when you factor in your annual tax bills, which are not coming through every week. But you know, if you spread it out over the year you're still thinking about tax. And you know if you buy a new build, that tax bill wasn't a bit more favorable. But it doesn't change the game whether you can claim deductibility, whether you can't, you're still looking at a big top up. It's not like the deductibility switches it from a top up to a to a profit, you know, on an average number.

Kelvin: 14:27

So so whether you've got deductibility or not, you're still looking at $300 or $400 in top up per week.

Nick: 14:33

So I think, that's.

Kelvin: 14:34

That's pretty important and yeah, it could be a game changer. When people you talk to on the ground, I really hang out for deductibility coming back, like, yeah, we kind of hope national ones and we get that deductibility back. But yeah, when you look at the numbers, I'm not sure necessarily like that doesn't tip it from loss to profit. That there's still. There's still going to be some top ups there. Of course that's applying to if you buy a property. Now, you know doesn't apply really to people who've been in the game 10 to 15 years and I've seen some rental growth, paid the mortgage down. They paid a lower price for a start. So this is only really relating to new deals happening now. So you know, keep that distinction as well. But yeah, so there's lots to think about there.

Kelvin: 15:19

Just another thing I've had a few discussions with journalists and they said, well, they've put the question to the National Party. Fine, okay, you know you've got to win the election first and you've said you're going to bring that back to deductibility. But they've been asking the question of the National Party. Well, when you know, is this a straight away thing? Is it a year down the track? You know what's the timing for this, and at least those journalists I spoke to haven't had a reply yet. So there is that question of, well, I've got to win first, and then I've got to actually commit to that policy, and then after that they've got to put a timing on it. So there's still, yeah, still a lot of uncertainty about that, and wouldn't be the first time, I guess, a politician's changed in line. So, yeah, we've got to see. But, yeah, I think it's an important distinction. If you run those numbers, you look at them whether you have deductibility or not.

Kelvin: 16:12

I think you're still in that first instance on average, looking at a pretty chunky top up. So who knows, it may not necessarily change the game.

Nick: 16:22

Yeah, and from a National Party perspective as well, they had to replace that tax revenue. I suppose you know that's on the on the good side of the books, and if you suddenly you know paying that out or we get that revenue, then you're going to have to fill down something else for the things that you want to spend on too. So I suppose they probably want to have an answer for that before they come out with any timing, and maybe that's why they're reluctant to talk about it in too much detail yet. And so I suppose the only thing there is to wait and see how this campaigning goes. And you know, how do they have the costing model? Look, if you're going to reinstate that, that means this money in the coffers. How are you going to replace that? Or how are you going to reduce your cost to influence that too? So another one to watch out for, to see maybe how realistic or or you know, real that one is. And the other thing I think you know maybe there's just, you know, running those figures on, on. You know what the difference between deductibility or not is as well.

Nick: 17:10

I'm getting a better feel for that one, and I suppose in the short term too, maybe you know, we are seeing a little bit more keenness for invest, to jump in the idea of being at the bottom of the market. It's the expectation on capital growth, even if it is less capital growth. But I wonder how sustainable that is if we do go into a period where we don't see the same capital growth and an expectation to start to change around. Longer term, what are you expecting to see? As you said, you're less willing to top up a mortgage and your payment on your property if that capital gain isn't likely to be as strong as it was in the past as well. So again, and I think we also need to distinguish between activity of buying and activity of selling too, because it's all one thing to say you know fewer investors or fewer purchases to investors at the moment, but you know, on the flip side, we see investors get out of the market and so far we haven't really seen any evidence of that either.

Nick: 18:02

And that's like you said, because many of them that have been in the game for a long period of time, their debts been reduced over time. The property value has increased, even if it's got some short term pain, because I've seen those values decrease since, you know, november 2021, they didn't pay that price. They paid a price five or 10 years ago and so they're still in a pretty favorable position. It's if they have to remortgage or add an extra property to that, and that's, I suppose, also something you mentioned around the debt levels, you know they could, because we've been seeing them rejig their figures, you know, and they might not have had that level of equity topped up their mortgage to get to that 37%, as you say, the positive level, and that's kind of the thing that's been playing with those figures from a reserve back lending perspective as well.

Nick: 18:44

So there's a number of things in there that do you know, probably express caution with getting too carried away with the figures, but definitely some trends, or some starts of trends, that we're very keen to watch, how they play out throughout the rest of this year and what that might mean, both from a political perspective and flowing on to that property market as well. So, yeah, plenty in that one and don't profess to have all the answers, I suppose, but lots to watch for and track what's going on for the rest of the year. Anyway, anything else you want to touch on just before we move on to some economic releases this week Calvin yeah, there's a few more notes I had that I brushed over in my first little spear.

Kelvin: 19:21

I mean, the big thing when you run those numbers is simply the spread, the negative spread at the moment, between rental yields and mortgage rates. I mean that's the big thing. And currently if you think our rental yields about 3% okay, we're looking at averages here, it's not going to apply to individual deals necessarily, but if you look at something a rental yield, your income versus your biggest cost, pretty much your mortgage rate, that's at 7%. So that negative gap, 4%, is the biggest it's been since 2008. So simply looking at that real headline number, you're looking at a negative cash flow just straight off the bat. So there is I think that's a really key metric. You can talk about healthy homes and adaptability and all of these things, but really that's the thing, what's your income versus your costs, and that spreads pretty negative. So that's a big hurdle for me.

Kelvin: 20:15

Now, like we just talked about, why don't we have deals still going to an investor? People are making these things work, but that's definitely a challenge. I suppose if one thing around deductibility okay on average, it might not necessarily turn a running loss into a running profit if it was bought back. But it might change the mindset a little bit, might get a few more people into the market. Then might drive a bit more capital gain. I could bring that forward. So I suppose that's a little bit of a trade-off there. One thing to point out, and then also just generally. I suppose we're not going to wait until the politics of it, which policies are better or which party might win, or anything like that.

Nick: 20:53

But we do.

Kelvin: 20:54

I think everybody accepts we need property investors, we need rental properties to keep coming forward. We've got population growth, we've got migration. We need rental properties. There's always going to be a share of the population that rent. So it's not like we're sort of banging investors or anything. There needs to be the stock of property always coming forward to be rented out. But yeah, I guess, just pointing out some of the numbers, what's happening in reality, what some of those sums might look like.

Nick: 21:23

So yeah, big discussion. Yeah, well, pointed out too. I suppose the other thing around the numbers too, when you talk about the gap between yield and interest rates, it is to also point out the opportunity cost. What if you put that money somewhere else? And that's where the simplest things like term deposits are paying off 5.5% right now, so they are pretty attractive. Now again, they're very different, and someone looking at term deposit or looking at going to the share market or whatever there's a whole bunch of mentality things and there's mindsets that are very different to people like buying property because of the physical asset you can go and visit that rather than something which is just in a bank or invested in different companies. There's some big changes and differences there as well, and maybe that's why property investment will always be there and be attractive. It's still seen as the best way to have a good retirement in terms of some sort of passive income. Hopefully your own house is mortgage free, so you don't have those regular costs going out for your housing and retirement. So I think that's a key one set and probably Australian as well that still exists.

Nick: 22:37

There's been this chatter in the past about newer generations who say they're never going to own a property and what are they looking to invest in as well, and I suppose that's where the question of where are property investors in the future come from as well. So you're absolutely mindful that we still need a decent proportion of properties that will be rented out. I don't think anyone really expects that the private sector can provide all those rentals either, so we do need sorry, the public sector can provide all those who need the private sector as well, and so that's the interesting balance here. Right is that making sure that it is still attractive for the right reasons and that everything is affordable from both the investment perspective, from a rental perspective and from an ownership perspective. And I think the key problem right now is many of those figures are all completely out of whack, so anything that helps those to look better tends to be looked upon fondly, and that's going to be an interesting political debate that will now thrive throughout the rest of this year as well. So, yeah, plenty there.

Nick: 23:34

We do have to move on, but good to tease out some of the detail that can stem from literally one month of Reserve Bank lending data, and we could have a conversation that can come on many different ways and consider all the different implications of that too. So that's why we do it, that's what we love about it, and no doubt we'll have another one very similar either shortly or next week. But we will have a look at some of the other economic releases that came out. Of course, one of my favourites and now we can use this to get a feel for what might happen with GDP so you know what's happening in our economy is the New Zealand Activity Index for June. So close us out that quarter. Take us through your calculations, kelvin and early days, I know, but what are you thinking for Q2? Do you think we were probably coming out of that recession, and can you tell us those details?

Kelvin: 24:22

Yes, it does look that way. It does look like that recession we had over Q4 last year and Q1 this year, pretty minor as it was, but it was a technical recession. However, it looks like that did end in Q2 this year. So when you map the annual change of the NZAC on to a quarterly change in GDP the implications from the NZAC, which grew about 0.7.8% over April, may, june when you translate that into a quarterly GDP number, you get that's not exact science, but you get sort of 0.3% up, 0.5% up somewhere in that kind of range.

Kelvin: 24:59

So yeah, it does look like Q2 was a bit of a bounce back and that's consistent. I went and checked that against some of the actual forecasts from the bank economists and that's sort of sitting in that range as well. So yeah, the NZAC is backing up those views that we will have pulled out of recession. We won't know for sure until the 21st of September in terms of those stats, new Zealand official figures but it does look like that recession has ended. However, we've then got this sort of fear out there that there will be a lurch back into recession and perhaps the third quarter of the year which we're in now, and in Q4 too. So yeah, there's sort of six one-half days on the other. Good that we came out of recession, but it might not last and I suppose that's a lingering risk to the labour market, the jobs growth, perhaps some unemployment coming through and also the housing market and I suppose we've had this cautious view about the strength of any upturn.

Kelvin: 25:57

That's for many reasons, but a lingering recession and perhaps risk to the labour market is another factor there. So yeah, for me it's probably two things. Recession might have ended, but a lurch back into recession will keep a bit of the land on the housing market. So yeah, we'll see how it goes.

Nick: 26:16

And I think even further implications are, of course, what does another recession mean for the official cash rate Something I think we spoke about last week or week before when we talked about that potential for the Reserve Bank to be in a situation of inflation stays high, but the recession comes back and is worse. Then they're in that point. With that to the side, what's most important and again, especially if employment starts to increase, if unemployment sorry unemployment starts to increase, if a labour market stays really strong and unemployment stays low, then again that's another reason why they might have to lift the OCR. So it's all these kind of, it's those sort of three key strings, I suppose inflation, employment, economy where do they go for what happens next with the OCR? And that's why I suppose there is still that debate about what's going to happen with the OCR, because those three things it's not a clear path as to how they're going to play out the rest of this year, but they'll be the distinguishing factors for what happens next with the OCR. So that's why it's important, I think, and kind of like saying nice, to note that we've probably come at a recession but really it's going to be a longer term thing. We know we're not going straight into a really strong economy. We know the squeeze on household incomes with the amount of cost that they're dealing with increasing interest rates alongside the cost of living at the moment so that's going to be a continual squeeze for the rest of the year and that's probably the driving factor behind expectations of a recession. And then the key is what that flows through to from a business perspective and then, if they haven't been able to actually create or lose some jobs, create some higher unemployment and then, of course, flows through to more difficulties for more people and probably the property market not being as strong as well. So those are the key things to watch for. I think, and that's why we pay so much attention to that.

Nick: 27:54

Nzac, as you say, aligns pretty well with bank economists' expectations, looks to map pretty well with GDP and I think it's like the ANZ truckometer, which measures the amount of trucks travelling around the country as well. I think it's actually one of the things that feeds into the NZAC that came out last week as well, and their point off the back of that was that it's suggested low but positive growth in Q2, so again, along with 0.3% mark. So I think it's building, even it's building for that coming out of recession. But your point is probably the key one that if we drop back in then it doesn't really matter. So, yeah, interesting one. And I guess the overall point is there's still a remaining feeling of weakness out there and certainly not no strong bounce back has come and it's likely to come throughout the rest of this year either. Yep, sure, cool.

Nick: 28:43

So the other couple of economic things which again are all pretty tied to the things we've been talking about anyway consumer confidence for July actually a little bit underwhelming, not just that overall confidence, but importantly, inflation expectations rose a little bit too. So that's not great for expectations around what could happen next with the OCR filled jobs for June. So that early indicator for the jobs market did continue to grow just as resilient as there, and I don't want to put this word on it, but pushing marks around is indestructible. You know that our labour market just seems to be holding up so well and I know we're getting Q2, the official labour market data this week as well around unemployment. So maybe we can use this as a bit of a view to what's coming ahead around potential problems in the market too.

Nick: 29:29

I did see CETRIX, the credit agency provided their report for July as well and from my quick skim over, essentially I'd say there's nothing in there for major concern, like in terms of delinquencies or arrears all relatively in check.

Nick: 29:43

You know there's still some figures out there in terms of, you know, 30 odd percent increase on the bottom and whatnot, but generally still below pre-COVID.

Nick: 29:51

So again one to watch, but we still don't see major problems out there People keeping up with their mortgage payments. And the only other one to touch on before we look ahead to the rest of this week was the foreign buyer data for Q2, again very small, just showing that the foreign buyer activity in the New Zealand market is tiny really, and in fact there's actually more people selling. More foreign is selling than buying. So we're in a negative situation there. So we're going hardly much to talk about that one. And even prior to the foreign buyer ban coming in it was also relatively small. So a bit in that one, kelvin, maybe. I suppose the main focus there should be on what's happening in that economy, the jobs market, maybe your expectations around the official labor market data this week. But feel free to touch on anything else that I mentioned there and then we can look ahead to what's coming this week, particularly around the house price index.

Kelvin: 30:40

Yeah, it's probably the labour market stuff really, and we saw we had failed jobs last week for June at up 0.4%. So that's the the 13th rise in the past 14 months. So still, you know, despite the fact that we've sort of potentially been and maybe we're coming out of recession now, but you know there was a six month period there where we'd been in recession but there was still job creation. So so you know, still pretty solid numbers. Nothing can grow forever. You know you eventually sort of hit a cat and so this growth may well piece her out. You know we'll just talked about a recession risk in the second half of the year.

Kelvin: 31:15

So you know it may not continue on forever, but for now, yep, people still in work, people, jobs being created, supports and gums supports the ability to pay the mortgage.

Kelvin: 31:25

So these numbers all sort of fit with that idea that the housing market is turning around. Of course, the official numbers on Wednesday, so we'll get the, the big benchmark quarterly data. What's happened to jobs growth, what's happened to the unemployment rate, the size of the labour force, that's probably, you know. If anything, the biggest area of interest in this release is that. Okay, we know, we know from those partial filled jobs numbers, for example, that the jobs have still been created, employment's gone up. But what matters for the unemployment rate is how big labour force is as well, and and that balance between those two things and and with migration really high, that the labour force will have gone up.

Kelvin: 32:05

So then it's, it's how those two things are set against each other as it stands people thinking that they might have been roughly in balance. Yes, we've created lots more jobs or we've had lots more people come into the labour force. So it could be that the unemployment rate Overall stays kind of pretty much the same and the bank economists are anticipating at a small rise. But it started from such low level in 3.4% and I got to 3.5, so you know neither here nor there really.

Kelvin: 32:32

So that's why we're looking out for on Wednesday in terms of what it means more generally. Well, kind of it might be sort of pretty middling. I mean, if the unemployment rate hasn't really changed, you know it doesn't it doesn't necessarily mean that that the reserve bank will bring forward any OCR increases, for example. They've kind of been anticipating this anyway.

Kelvin: 32:52

But, also, it does support the idea that I'm going to be counting any time soon either, because, you know this, this labor market is probably still still running a little bit too hot for the liking and spilling over into those wider inflation pressures. So yeah, I think you know, if we do see the unemployment rate stay pretty much the same, it's it probably means not not too much from monetary policy. They'll still be concerned about it, but they were kind of anticipating anyway and supports the idea that we won't be seeing any OCR cuts, at least in the near term. So yeah, it's a big release, no doubt. I mean it's. You know, it's the. I've got a two strand monetary policy. It's about inflation and it's about maximum sustainable employment that they talk about. So yeah, these, these labor market figures are definitely right into that.

Kelvin: 33:34

So big release Wednesday.

Nick: 33:36

It's a funny one to think about a like it's a bit morbid to go Low. Unemployment is bad. I get that. It feeds into high inflation, so it makes sense, you know. But it doesn't sound right that they essentially you know that's all about engineering or recession and essentially expecting, you know, if not hoping for, an increase in unemployment. It's just it just sounds so wrong if you want to have a strong economy is to expect people to lose their jobs. So I'm. That's why people struggle with it as well. I get it in terms of why, why it matters. It really is about that effect on the inflation, right? So I suppose you know it is what it is. But it just feels a bit odd to almost want to see a higher lift in unemployment this week to provide better news for the broader economy and broader Just rate situation. It's a strange one. Yeah, I definitely is. Yeah, and it's relatively recent. Of course, keeping mine too.

Kelvin: 34:23

I mean, is it within this this government's term that they introduced it? I can't quite remember. It's been in for a couple of years at least, in terms of this dual mandate. So it hasn't always been this way. I mean, you know, up until a few years ago. It's just all about simply targeting inflation.

Kelvin: 34:38

That's your number one objective, and I suppose there was loose Objectives to you know let's not completely scuffle the economy while you're doing it, but at least you know it was a single mandate about, about inflation. Then you know this dual thing came in and they're often in conflict with each other. Very hard to balance those two things out, like what you just said. So, yeah, and I think that's a good point. So, um, yeah, it's the messaging or the optics. You know whatever the buzzword is now is pretty tricky and you know, I guess the communications people are. There is, I think.

Kelvin: 35:10

Yes, been a fair bit of time trying to think about how they went there, because it's not the best. Look to say we, we, we want to create some unemployment to to get inflation down. I mean it's yeah not easy.

Nick: 35:20

That's for sure. Yeah, they certainly earn their early money, that's for sure. I'm getting that, getting that pitch right. Um, oh good mate.

Nick: 35:27

Well, let's have a look ahead then, and the key one for us this week, of course, is the Core Logic House price index for July. I expect not long after we get off this call We'll have the data with us. I guess, in general, we're expecting that house price index to track down for the month of july, but of course we do need to remind people that it's a three month rolling measure, so it's not going to be as reactive to those recent market movements. And while many people now expect we've hit that bottom and things are at least kind of flat now, if not grow a little bit, um, you know, the L index won't quite show that, probably because it's still going to have some of those May and June sales Influencing that overall figure. I suppose the the effort then, from our perspective, will be to focus on some of those regional differences, not the actual figures themselves. Maybe the changes in trend that we're seeing, the slowdown, the rate of falls or what we want to see in some of the turnaround, already occur in some areas. Um, so, yeah, I suppose that's one thing that we'll we'll put a bit of time in focusing on and I suppose it's a good reminder They'll also to be careful with the volatility of the real estate institutes, hpi, which is the other one that we closely track.

Nick: 36:30

For that more reactive measure, the nationwide index does look to a bottom down. But I look into the detail of, say, the wellington city Measure from the ryan's house price index and there was such volatility in it that you could say, oh, last month there was three month, three percent increase, for the month prior to that it was a three percent fall, the month prior to that it was a one percent increase and the month prior to that it was a two point something percent fall. So I had this sort of bouncing around nature and so while it's nice to have a one month index that you know hopefully catches trends sooner, when you get it jumping around like that, you start to lose a bit of you know you can't really put too much faith in that one month measure anyway. So you then require two months of that that change to really jump behind the trend as well. So I suppose, in the same breath of saying it's great to have the reactive index and look where things are changing.

Nick: 37:14

The nationwide one's obviously pretty good because it doesn't bounce around as much as those singular cities or singular ta's, but certainly below that level Could be really cautious around reading too much into those ones. And that's where I suppose the robustness of a three month Rolling measure gives you real faith in the figures. But it is a bit slow to react to recent stuff. So if you want to know what's happening right now, it doesn't give you that. But you can be more confident that once you see a turnaround, that index, that it's probably very real and I suppose that's the thing we're always trying to make sure we get through with it to our conversations or our writing or our media chats. That's always a key one for me. Otherwise, I know we've got business confidence this week for July and building consents for June, your plan this week, your sort of expectations around the house process index or any further detail you want to add to that or any other, you know, tracking for the week for an economic perspective.

Kelvin: 38:08

Not a lot. I mean, yeah, the index, I suppose with a wee bit of art and getting that messaging across, and the two because people are going. Well, let's always talk about the market bottoming out and you're still saying that the prices are falling further. So we've got a messaging there that, just having talked about the Reserve Bank comms people watch to make sure ours are on board too, and so, yeah, we'll get into that, hopefully pretty soon after this.

Kelvin: 38:32

And the other economic indicators, yeah, I mean this probably should be too many surprises. I mean business confidence lately confidence been going up a bit, inflation expectations coming down. This is the business one that we've just talked about, the consumer one, that sort of buck, that trend a little bit. So so, who knows, if we saw that come through in the business indicator, you maybe start to have a few questions. But yeah, again, you probably need a month or two to read the trend anyway. And yeah, building consents that's out for June.

Kelvin: 39:02

on Tuesday Get down with string obviously well established now that the industry is slowing down, so expect to see more of the same in the air. Now. I suppose some people are saying a drop off in building consents is a reason to think that the house price is turning around.

Nick: 39:18

I mean there's big lags there.

Kelvin: 39:21

I think that linkage probably isn't quite right at this point. I mean, yes, we've seen building consents tail off, but there's still a lot of building, actual houses being built, working through the previous pipeline. So yeah, I'm not sure the timing quite works there to say, well, look, consents are tailing off. That's a support for the house prices. Maybe the long run give a year or two down the track, but but you're not necessarily right now.

Kelvin: 39:44

So so yeah watch out for that too. But I suppose most, most focus is on the air index and in those late market figures.

Nick: 39:51

Yeah, absolutely yeah, no doubt All good mate. Well, the other thing I was going to mention was I want to give a quick shout out to someone who got on touch with us, ben. He got on touch about his property investment experience, particularly a recent difficult settlement that he had, but also sort of mentioned plans to get more involved in the broader industry. So not just you know, investing in more property, but we're getting involved in a broader sense. Didn't have a specific question, but one of the things I suggested to him, you know, was to join the local investor association where he was based to meet other like minded investors, and I think it's worth considering for anyone that's also on a similar pathway. You know we present to those groups quite regularly. You do find quite a mix of different people, a lot of people that have been involved for a number of years and their experience and connections that I've got with people in the industry, whether it's around renovators or advisors and, you know, pretty close with real estate agents as well. You know there's people who are well hooked up and will know lots about what's going on the broader industry, whether you want to get into, you know, valuation or data or anything along those lines. I think it's well worth getting involved with those associations. So that's probably the main main I take.

Nick: 40:55

I take from that that email that Ben sent through which was to say thanks for much for getting in touch and always great to hear about those specific examples about what's going on there and, as I said, a difficult recent settlement around buying a new building. See how much it was worth at the end of talking to the bank and had to go to another lender to get that money to make sure that settlement went through. So he still felt comfortable and was in an okay position to see that one through, but no doubt that the figures changed now that we originally, you know, agreed to go into that, that buying that property as well. So just another one about the challenges out there, I suppose, especially around that new build sort of things which there's been a bit more coverage of recently, and some of the risks that are involved in that area too. And certainly, you know, pays pays to do your, do your research into everything involved.

Nick: 41:41

You know, if you're going into a big purchase like that, understanding the builders, understanding the clauses in your lending, all those things and talking to advisors there's plenty of people out there. You know both friendly professionals but also those that are just experienced in the industry as well. That's worthwhile talking to. But again, thanks for getting in touch and love to hear from anyone else that's going through a similar situation. But I know you get involved with those investor associations too. But anything else that you'd sort of suggest for anyone going through those types of experiences starting off on their property investment journey?

Kelvin: 42:13

Oh, just to reiterate what you've said, there's a broad range of people. I mean I don't know the exact fee, but it's relatively inexpensive to join and you might not even be planning to buy in the short term or anything, just building that education. I guess lots of different. I mean they get some pretty good speakers from time to time hopefully us included on their list and yeah so I guess it's about education on that first instance, and hopefully this podcast is helping with that too. So, yeah, that's all about education.

Nick: 42:44

Yeah, I know the Auckland Property Investors Association obviously very active, largest city. They had what seemed like a really successful, essentially a debate. You know they hosted four must be the four main parties and talked about what was happening around property investment from their perspective investing in infrastructure and new builds and green builds and all these things and it seemed like it was a really successful night. Unfortunately I couldn't make it. I was invited just to be a guest, just to go and listen and, of course, to hear what was going on in that space. So I know they do have some great events as well. So you're definitely worthwhile looking into and seeing if it's something that you can afford and including your costs of running an investment property is also being part of this association, so well worth looking into anyway. So I'm not going to get cut and I don't have any affiliation or anything with them, but definitely worthwhile to talk to people experienced and that sort of things. But that's pretty much it for the week.

Nick: 43:38

Calvin, I think I was going to mention was, of course I am on a joint joint to Hamilton Island next week, so I'm quite looking forward to that's technically a work thing, but I don't have to do any presentations or anything. So I'm certainly not going to be complaining about that one. I will be there. I'll leave on Sunday morning, so I'll be there Monday morning, but I think, given the timing difference and the conference starting a little bit later, I think I'll still be able to do the podcast. So we'll still be able to dial in. But I'll be in a single and shorts, no doubts, and you'll be wrapped up down there in Christchurch. So I will still be on next week, but certainly been a bit more of a holiday feel. I'm sure we'll get to work involved in between. So, yeah, a bit of a Skype from my perspective, but certainly still keen to do the podcast. So we'll be back on board next week, but anything else for you this week, mate.

Kelvin: 44:21

Before I close us out, oh, just to say that networking and drinks and dinners and all that has worked too, so enjoy.

Nick: 44:30

That's right. Yeah, it's the Loak Market at NZFST Conference Australia and New Zealand attendees. So, yeah, plenty of people I've seen before. I'm sure there'll be plenty of new people as well and be interesting just to hear, like I say, from the front along the ground what's, what's actually going on, how people are feeling here in Australia and give us expectations and some cool speakers to listen to as well about what's their motivational or otherwise, and I'm sure it'll be a good couple of days and then I'm back midweek. So, yeah, looking forward to that, mate, and hopefully, as I say, the weather's nice and a good little winter break for me, but some close us out then, mate. But thanks, as per usual, for your thoughts, calvin, good chat today and thanks so much for listening. Please do make sure you subscribe, follow the show and give them a touch as well, just like Ben does. Let me say thanks again. My name is Nick. He's Calvin. You've been listening to the New Zealand Property Market Podcast. What's for today?