The NZ Property Market Podcast
Brought to you by cotality, formerly CoreLogic. Each week co-hosts Nick Goodall and Kelvin Davidson will bring you all the latest news, stats and insight to keep you up to date with everything to do with the NZ residential property market. Including sales volumes, house price indices, buyer activity, interest rates, loan-to-value ratio restrictions and all of the macro economic factors that influence our largest asset class. Contact us on twitter @NickGoodall_CL or @KDavidson_CL
The NZ Property Market Podcast
Higher unemployment rate probably still keeps Reserve Bank in 'wait and see mode'
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Ever wondered why both employment and unemployment rates can rise at the same time? Or how high wage growth impacts inflation and the Official Cash Rate (OCR)? Join us, along with our guest, Chief Economist Kelvin Davidson, as we decipher the latest labour market data. Prepare for an enlightening discussion on the OCR's future and the pressures that could sway its course.
Now, imagine if you could decode the perplexing world of the housing market. On this episode, we navigate through the House Price Index for July, provide insights into the current market situation, and foresee the potential of further market pain. From properties being resold at a loss to the increasing rental prices and lower vacancy rates, we ensure you're up-to-date with the latest trends. Buckle up as we journey through the intricacies of labour and housing market dynamics, equipping you with the knowledge that makes a difference.
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
Kia ora and welcome to New Zealand Property Market Podcast brought to you by CoreLogic Produce for Agents TV on 7 August 2023. I'm here researching at Goodall and I'm joined by our Chief Economist, calvin Davidson. Calvin, how you going, mate? I'm coming to you from Hamilton Island. How are things in CoreLogic, christchurch?
Speaker 2:Yeah, yeah, chilly, foggy and very chilly this morning, on this Monday morning. So, yeah, we're creeping back into it here, but not quite the same surroundings as yourself.
Speaker 1:No, that's right, the connoiter putting the old single on this morning for the record. Not that the listeners will be able to see that, but it's not actually that warm, but certainly in the high teens early morning. So yeah, pretty nice, mate. A lot of it is a little bit windy at the moment, but you're all set for this conference next couple of days, so looking forward to that and just nice to have a good couple of days off really. But how was the weekend? Did you catch the Orblacks? So they did the job in the end, and maybe no surprise about the lack of control in that first half, given all the changes they had. But you've got to take the positive of the comeback, I guess, and the control they had to come back in that second half and get the win and ensure that the Wallabies didn't get one over them before the World Cup.
Speaker 2:Yeah for sure. Yeah, I'm feeling a bit swampless for the moment. I've got to be honest. Nrl and MPC and the Orblacks and football and netball, it's all a bit too much. Not my first world problems, of course. But yeah, the Orblacks, it's going to have a contest. I just like contests and a tight finish. That made it pretty exciting and, yeah, some standout performances, I guess. And your man Wilts, autumn was pretty good again. You know Mo Anga, coming on and sealing the deal, thought the FINALE looked pretty good. You know it could be that starting glon. So I say, come next year. So yeah, I guess that's a chance for some of those newer players to step up. And some of the experienced guys made a difference too when they came on. So, yeah, I mean to have it, isn't it? You find a way to win and so it's well. We've still got to play Ireland in France, but we'll maybe play Ireland, depending on how the results go. I suppose we'll meet them at some stage. But yeah, bring on the World Cup.
Speaker 1:Yeah, exactly, and I know that maybe some players not quite played themselves out of the squad, but the spot for the World Cup gets named today, so I suppose we'll wait and see how that one goes. But yeah, some good performances, certainly challenging for places and a couple of others that maybe said you wouldn't trust them in a big game either. So you're pretty revealing in that sense, I guess. But it was pretty tough on those that did start. Because you have so many changes that's going to be a little bit all over the show. So that's what it is. But let's get into things, mate. I've got to get to this conference shortly, so we better get through the stuff.
Speaker 1:For the last week and the first thing I thought we talked about was the labour market statistics. Obviously, that little left and unemployment, which was generally as we expected, but also, as we've talked about, mostly due to that larger workforce coming in looking for work. Not necessarily a significant loss in jobs, although of course there are a few more people out there losing their jobs as well. But to me, the key thing I picked up in the release was there seems to be more concern about high wage growth, which is the likelihood of that flowing through to holding up inflation as well and maybe flowing through to that rise of the OCR coming later in the year. But your take on the unemployment stats or the labour market stats and the detail behind that one mate.
Speaker 2:Yeah, so we had both employment and unemployment rising. So I had a question from one of our colleagues this morning about how that works and this is basically a query of labor market figures that we did have more employment in the second quarter of the year, but the labor force the number of people who are either in work or looking for work rose faster than that rise in employment. So we actually had we had a rise in jobs, but we also had a big rise in labor force for those people available for work.
Speaker 2:But hadn't quite found work yet, and so the unemployment rate actually went up a little bit as well.
Speaker 2:So those two things rose alongside each other, which might seem a little strange, but it's a quick. Of the figures, the key one, the unemployment rate, rose from 3.4% 3.6%, reflecting that, you know that, big a rise in labor force net migration. A big driver there, more people available to work. And also, I think there's probably been some people attracted back to work by, or at least back to the labor force by, wages. You know they might have been on a career break, or you know they've graduated, raising kids, whatever it is anything Gee, I'll have some of that. So so they come back into the labor force. So that got bigger. I guess the yeah, the good, from the point of view that we all want employment to be rising. You know more jobs were created. You wouldn't say that the rise in the unemployment rate was that significant. I mean it was perhaps slightly bigger than what people were anticipating, but it's still pretty small and the unemployment rate is still low. 3.6% is super low. So, yeah, there's still that pressure on and wage growth still rising pretty strongly.
Speaker 2:There's lots of different measures, but I suppose the sort of headline measure for me is 4.3%. I think that's the kind of benchmark wage growth figure. Now there's other measures out there that are rising quicker than that, a lot quicker than that. But I think those measures are picking up on where people are simply shifting jobs and so they're moving from one salary to another, and that gets picked up in that higher measure of wage growth. So once you sort of account for that, I think we're left with a core measure of that 4.3% Now still pretty strong Longer and average is, I think, closer to 3%. So yeah, there's still a bit of wage pressure there. Some senses that it might have peaked at least. So still pretty high, but a sense that maybe, if unemployment starts to rise a bit more, that sounds strange to say that's as bad as it gets for wage growth, but from that inflationary perspective it might at least start to slow down in the coming quarters. So yeah, I suppose a bit mixed in terms of what the Reserve Bank might take from all this.
Speaker 2:I don't think it necessarily changes their view too much. I think they're probably still in wait-and-see mode. But there certainly is mixed views out there about what happens next for the OCR some economists predicting another increase to come and some thinking that they're done and that the next move will be down, even if it's not for a while yet. So yeah, I don't think this latest release necessarily press-clarified any of that will change people's views too much For me. I've got to say let's put a positive spin on it. Let's say the OCR has peaked.
Speaker 2:I just think, with those lagged impacts still to come through of previous tightening, I just find it hard to see how they'd be able to push through another one once they've had this wait-and-see approach and we perhaps see some of these economic stats slow down a bit more. So, yeah, I'll be a positive economist for once, I guess, and let's go for that. But yeah, overall, the labour market figures probably. Yeah, sort of neither here nor there. There was a bit for everybody and I guess we'll just have to probably wait for the next quarter to get the next inflation number and the next labour market figures.
Speaker 2:So for now it's taking a long, I guess.
Speaker 1:Yeah, and it's all about that inflation figure right, and I suppose that's why the consideration for wage growth is there, because as long as wages continue to grow, that's because of the spin more and that holds inflation up as well. So I suppose that's the key thing. We will still inflation seems to be the number one thing to watch. And then there's these ones on the side, especially including the labour market, and it's nice to see a strong economy. But, yeah, a strong economy means more pressure on prices and I suppose that's the concern that'll come from the Reserve Bank. And when you add in, there was a business confidence data this week as well, and pretty encouraging data there and not still quite low. But the fact that the business still seems to be okay probably meant the Reserve Bank will take that comfort in that latency approach that you mentioned. Do you think that's fair? And you want to talk about the business confidence data? We've always been much in that for reviewing.
Speaker 2:Yeah, probably just more of the same.
Speaker 2:We saw business confidence improve and inflation expectations ease off a little bit. So probably from the perspective of just people's general feelings and feelings about positivity and economy, it's probably pretty good. That's what we all want to see is that the businesses are feeling relatively optimistic and inflation expectations coming down, which would make things easier for the Reserve Bank. I say relatively optimistic because actually, even if business confidence did improve, it's still negative. So there is this overall feeling of negativity out there. It's just that it's less negative than it used to be. So probably more of the same.
Speaker 2:And I guess one thing that could be helping the way businesses are feeling is simply that rising the labour force, they're finding it easier to fill jobs now and so that's probably making them feel a bit more optimistic and they're able to fill those roles and so we're getting employment rising, which was coming through in the official labor market stats. So yeah, that's going to be good. I mean, we'll have to wait and see what happens when they have felt those jobs and sort of slow down that hiring activity. I guess that's where we'll see bigger rises the unemployment rate, because people will keep coming into the labour force but in the meantime hiring activity slows down and so that unemployment rate goes up. But so it's probably, from a monetary policy perspective, that's probably what they, what they.
Speaker 2:I guess the perfect scenario is that you do get a bit more slack in the labour market, a bit more unemployment, but it's not through job losses. Yeah, that's almost the best scenario we can hope for. So so yeah, it's all sort of all up for grabs. But I know we just talked about I've got to wait, I guess, for the next set of data. It always feels that way.
Speaker 1:But but yeah, that's some good news and I guess some less good news, like you said, yeah, the consideration from bank, from businesses, sorry, around their hiring intentions and how they're going with staff. I suppose that's the that's the one to look for in that business business confidence data. So, yeah, good to delve into that, oh good. But what about the? Of course we did have the House price index came out last week too. We had our House price index for July.
Speaker 1:That came out, as we noted last week, values are still falling at that national level, but a few key markets did see an increase, including Wellington and certain parts of Auckland. Do you think it's probably fair to say that? That you know, given that data, I'm pretty confident to say the downturn is over for those main centres and, given the nation, the nature of our index that smooth, that smooths out those recent trends, we can be pretty confident that that shift is real. Is that probably fair? And do you want to delve into any of the details around the House price index and your release last week and what got picked up on?
Speaker 2:Yeah, so national level, we saw the average property value 4.4%. So people might look at that and say yeah, what are you?
Speaker 2:talking about the market's bottoming out. You're talking about further falls and part of it is to do with, like I just said, the rolling three-month number on our index, but also it's reflecting that patchiness that there's still some markets falling for sure. But, like I just said, there's some really key markets actually increased in July and you know the national average is sort of just aggregating up all of those little sub markets. So I think I probably start to pay definitely more attention to those areas that are starting to increase. Big parts of Auckland, you know, pepa Kera was out in Manukau and all sure. We saw Wellington City increase, we saw upper heart increase. So you know, some of these markets that have fallen pretty sharply maybe fell first and have fallen the most, just showing those signs of turning around which I guess was always on the cards. You know, if they fell first it fell the most. They could also sort of turn around first.
Speaker 2:So I think those are pretty key markets to keep an eye on. You know, there's scope for this to remain fairly patchy. Some markets keep falling for a few months yet, but those other ones are showing signs of turning around, and around the other main centres as well. All of it, you know, Hamilton was pretty flat really.
Speaker 2:Christchurch to me then, were pretty flat, so I think you can definitely say we're in the firing stages of the downturn. It might just be, you know, a month or two until it shows through really clearly on our sort of three months moving index, but certainly feels like we're there. Yeah, the questions I had were well, we probably I have a spare look prepared, so I sort of just rushed through it at the start and then most journalists are like oh, we answered all my questions when I'm going to. So it was pretty much. It's pretty much. Those were the key things I talked about. I guess just keep in mind that the next phase might not necessarily be strong or sustainable, widespread, you know, just because that patchiness is in the day to day, which is just a bit of a struggle. We've still got high mortgage rates. We've still got some challenges there. Affordability is still an issue.
Speaker 2:So so it's that same old story of, even if we have reached the floor, which which does look pretty likely, that might not necessarily be the sharp up to and either. So, yeah, probably probably more of the same in some senses, and we'll just have to give it a few months for it to come through really clearly.
Speaker 1:Yeah, I think it's alongside of the discussions that we've been having and I had a dinner last night and come up again that you're gonna get this patchiness, as you mentioned. You know you're gonna see, you know a bit of volatility as we move through the end of this downturn and I suppose the national figure, still dropping 0.4%, reflects the fact that you know we're not, we're not one market. There's a number of markets that'll probably take longer. I mean, back in the GFC, you know, there were some markets that, even though we clearly reached the bottom and many markets have increased, took a long time for many markets to find sort of find their floor. And that could be the case too, and that'll continue to drag that nationwide index down, as some of the regional places probably, you know, continue to struggle for a little bit longer.
Speaker 1:That's our most main centers certainly looking to at the very least flatten out and in some cases, increase. So, yeah, probably no surprise there and and good to good to be able to back that up with the real data and then we'll start to see, you know, what happens next and the growth rate that might occur next, I suppose would be that the key thing to watch for next month. We're expecting it to be strong, but we might see some sort of growth and then those main centers in those core areas Cool with. The other other thing that came out last week to take note of was building consents for June Also fell away, as we expected, and you noted a particular weakness in Auckland as well. Do you want to talk to me to any detail about what was going on there?
Speaker 2:Yeah, the. So the national total this is for June national total was 16 percent lower than last June. I think from memory is it's about that night for the row. So so we definitely in that down to it. I think, for memory took a while to get going, but but now we're, we're fairly there and I suppose there was that there is that potential blip in the numbers where you know that new insulation standard was brought in from the first of May and there was this idea that some concerns would have been pushed forward to big that deadline, creating a hole later basically. And so you know there's it's hard to know because you never know the camera fact. Sure, I can't be sure if they happen, but think anecdotally probably did. So we're now into that period. I guess. Now we're where the June numbers. We've had them and they could be weaker than they otherwise would have been if consents have been sort of on a smoother path. But by the way, they're still pretty soft.
Speaker 2:And yeah, auckland, auckland was part of that and in particular those smaller dwellings. So the townhouses were down pretty sharply in Auckland and that's been a segment that they really boomed during the upswim. So of course you tend to see if it's, if it's going up faster than anything else, it may well come down faster as well. So so it certainly seems like those townhouse developments, or at least applications for new townhouse developments in Auckland are definitely slowing down, and that fits with what you, what you see in here as well. It's hard to get the economics to stack up when prices are down, finance and costs are up. You know, building costs are up. It's hard to get those to work. So so probably no surprises there.
Speaker 2:I just feel a little bit cautious of the views out there saying that this fall away and dwelling consents will will be a reason to sort of get more upbeat about house prices. Because there's, you know there's lags there and even if dwelling consents are slowing down, builders will still be working through that previous pipeline and yet some of those previous consents might not get built and all of that. But the lags probably a bit longer and it's a bit, it's a bit too short term to say just because dwelling consents are falling now, right now, you know, suddenly house prices are going to start increasing right now, because we never choose supply. I think that's that. I don't think that's quite reflecting the real world. But yeah, in the long term.
Speaker 2:You know we definitely don't want consents to fall too far, because then you do run the risk of I'm sure it is low. We saw after the GFC. So so, yeah, still the down the stream for now. It's probably going to continue for a while yet, but you know, it's the thing we've talked about before. We just have to hope that it doesn't get too deep and certainly not as deep as as well as saw after the GFC.
Speaker 2:Yeah, exactly, and I think your main point- there has to be the fact that it all works on a lag right.
Speaker 1:So it's consents now that we built and 12, 18 months time, whatever it would be that I'd be completed.
Speaker 1:But there was, like I say, quite a bit of commentary out there about it being hard for a developer or the construction industry to stack up the value to build those townhouses, to build multi developments at the moment.
Speaker 1:But I think I guess that the problem with that is it's going to lead to a further and perhaps more drawn out slow down, and that'll be something the government's very considerate of because, as you mentioned, you know they don't want to see what happened in the GFC, where consents just really fell off a cliff. It took a long time to ramp back up. So they've been conscious of that. But they've built a really good development pathway as well to ensure that, hopefully, developers and builders have the confidence and certainty to continue to build so they know they're going to buy at the end of it. And I suppose that's the thing that continues to ring around really is that you're not sure if you can get an end buyer. Then why would you build a property when you know that it's tough for people to get finance and you know values are quite high?
Speaker 1:it still costs quite a bit to build all those things are really starting to play on the mind of those developers and builders to see where things go. So I think that is the one thing to be really mindful of is that you know we don't want this weakness to continue to get worse not panic stations, of course, but certainly some indicators there to be wary of, and maybe that's going to lead to what happens through the election as well, and you know what is the new government or the existing government, if they stay in as well, what's their sort of view on what happened in that construction industry as well? How might the construction industry be impacted by labour force and the people leaving the country, and that sort of thing too, to build these houses? So there's a number of things that are important here, but you're right that you know not much of it really tells us much about what's happening in the immediate future. It's more about something down the line, and so I suppose that's why it's key to understand what's going to happen later but may not have a significant influence right now, and so I suppose that's the key thing to really note about it, but why we pay so much attention to it in the short term.
Speaker 1:Anyway, yeah sure, cool man. I think that's pretty much it for last week In terms of what's coming up. There's a few big releases coming this week. Number one from ourselves is our Payment and Gain report for Q2. How do those high-level results look? I suppose you want to sort of pre-brief near those before they go public later on this week.
Speaker 2:Yeah, yeah. So people will see this later in the week if we can get it turned around and out the door, which we should do A bit more pain in the market. So a few more properties and relative terms being resold at a loss or a selling price lower than what they originally paid. So a bit more pain coming through. I don't think that's necessarily inconsistent with the side here that the market is troughing, because the pain numbers will be leading to some extent, because it reflects the price you paid a year ago, two years ago, three years ago, and we know that anybody who bought and sold within a two-year window has probably paid top dollar and now selling into a changed market won't be getting as high a price. So these Payment and Gain numbers do tend to lag behind prices a little bit.
Speaker 2:Because of that whole period effect. We could actually see a bit more pain coming through for two or three quarters yet, even if house prices themselves flatten out and start to sort of creep higher. So, yeah, a bit more pain coming through. I mean apartments still looking a bit soft, a bit of weakness in Auckland. Hamilton looks a bit soft in the numbers. So yeah, we'll put their report out later in the week, but there shouldn't be too many surprises that we're seeing that the pain numbers go up. Anybody reselling now will be fully aware that it's a changed market than it was kind of two years ago. So whole period is definitely a key factor here and that's why we could see a bit more pain for a few more quarters yet.
Speaker 1:So you look out for that one. No doubt you have a few questions from journalists on to which were the properties that saw the greatest loss, and you have that digging to some of that detail too, so I'm sure that'll come out of the wash as well.
Speaker 2:Yep, yeah. Well, I was going to troll through individual sales. People love the poor old rich person who's made a big loss on their sale, like seeing how much they lost for some reason. So yeah, we'll be asked to dig into that, no doubt.
Speaker 1:Much like in the good times, I suppose, when they look at the ones that have massive gain over a short period of time too. But I think you're right, during that whole period many of the losses will be did by the peak and they will show us where there might be some of those pain happening in the market. And I think, again, the key thing to look into is often some of those regional differences or differences by biotype or sellotype and property type as well. So, yeah, there's pretty detail on that that'll be out later in the week. So we'll be sure to chat a little bit more about that next week. But yeah, otherwise this week looking for lending data from Reserve Bank. But it's the lending data that talks about what terms people are choosing. So I'm sure have a look at that one to see what people are thinking about in terms of where interest rates might go because of the term they're choosing. Anything on that or any sort of pre-brief you want to give on that lending data? I know you've been looking at that one quite detailed lately.
Speaker 2:Yeah, just lately what we've been seeing is that people are fixing up to two years. That's still the dominant trend. You take one year fix or two year fix, just in the latest numbers that the previous month, there was a bit of a shift towards those slightly longer terms and of course, if you look at interest rates say, the three year fix is now quite a bit lower than a one year fix.
Speaker 2:So I guess people are still that idea that people tend to take the lowest rate on offer. There is a point of error at the moment that says well, be careful, because if interest rates do come down over to a three year horizon, you might find yourself paying more than you otherwise would have. So, yeah, it's a tricky decision just at this moment where interest rates could be at a peak. How long do you fix forward depends on what you think you have been to rates, but also what's on offer now, and so we still are seeing those one and two year fixes the most popular, but wouldn't be surprised to maybe see a few more people sneaking out to three years. So, yeah, wait and see Interesting.
Speaker 1:Yeah, okay, we'll look up for that one later in the week, maybe we might get the real estate institutes, the statistics as well, expecting volumes to hold up really. And then, from an index perspective, I'll say it again, just watch for some of that volatility at the index, for the index at the city level I mentioned recently. I think you know the ones in city want to be, so we're jumping, you know, up 1%, down to percent, up 3%, down 3%. So just be careful reading some of those ones when they are quite a volatile, reactive one month measure, but certainly be interested to see what their volume say. The national index, I reckon, probably will increase this month. So those are the couple of things to watch out for there. Rental price data is also coming from Stats, new Zealand, so I think we've seen strong rental growth lately and you've also been looking more into understanding vacancy rates. Do you want to take us through, maybe high level of that data, kelvin?
Speaker 2:Yeah, so well on the rent figures, we've got those figures from Statue New Zealand for July coming out on Friday Growth it was a bit softer in the previous month, in June's numbers, but in just that sense that we could be poised for an acceleration in the sense that demand's picking up on back and net migration and also supply's still pretty tight. If you look at rental listings it's still quite tight, so a sense that the direction of travel for rental growth could be upwards. Now that interaction between supply and demand tells you a bit about vacancy and if demand's rising, supply's still pretty tight, that supply of available rental properties or the vacancy rate would tend to be going down. That is what we're seeing. We've done some numbers. That simply takes the total stock of rental listings on the market right now and puts that against bonds lodged, in other words the stock of available rentals versus how many rentals there might be.
Speaker 2:Now it's not perfect because not every rental property has a bond lodged and maybe not every rental property gets listed either. There could be private transactions, I guess. So it can never be perfect, but you'd think those things are pretty consistent through time. So it's going to tell you the trend and we've certainly seen that vacancy rate, when you look at listings divided by number of bonds, has come down quite a lot. About a year ago nationally it was about 4%. Over the past year it's come down to about 2.5%. So demand rising supply tightening.
Speaker 2:we've seen that vacancy rate come down so hard to know exactly what normal it is. It could be sort of 4%-ish. So we're currently running in a position where things have certainly tightened.
Speaker 2:So that points to top of this pressure on rents. It looks pretty tight in Auckland, pretty tight in Otago. We've heard all about the shortage of properties in Queenstown, so no surprises there. Maybe a bit looser in Wellington not loose but slightly looser, and we are seeing rents in Wellington actually fall. So it all sort of fits together. But from a tenant's perspective it doesn't look very great because it does feel like the pressure is going to come on rents in the next three or six months. So yeah, we'll wait and see. Is there a chance that there'll be a reacceleration on July's numbers on Friday?
Speaker 1:Yeah, I think I'd instantly want to link those two things together. I'd like to say about the timeliness of stock and how that flows through to that rent with price growth. So we're certainly wondering, we're looking for data and talk about that in the next week. And the other thing was our bioclassic data course which is actually in the market. Prince Van Dyer's about to be better off to be stricken past John recently. We get that data for July later this week as well. So I'm sure we'll talk about that one next week. We expect to see that first-hand buyer.
Speaker 1:I think it's to stay out Anything else you're looking forward to on that data or anything else you want to cover up before we close down and get out of here? Calvin?
Speaker 2:Not really just to get all the beginning tomorrow morning, you know, turning out that pain and gain, and we're going to do our chart pack for next week as well. So yeah, that's what I enjoy getting stuck into the writing, looking at the numbers and telling that story. So yeah, busy week ahead.
Speaker 1:Yeah, nice mate. Well, I better go and head down to this conference and see what's going on. I keep looking at the window because it's actually started raining here, so I'm not sure what's going on there. It's supposed to be paradise and it's now started raining, but hopefully it's short lived and only happens while I'm actually in the conference, rather than later on when we get a chance to have a bit of a break and go and enjoy it. So we'll see how that goes. But I will leave it there, mate. We'll wrap up for today, and thanks for your thoughts and thank you very much for listening. Please do make sure you subscribe to the show and get in touch with us as well. All our details are available within the show notes. If you just swipe over the cover art, then I'll say thanks again. My name is Nick, he's Calvin. We're listening to the New Zealand Property Maker podcast. I'm out here. Bye.
