The recent key macroeconomic data has delivered useful property market insights. Starting with building consents, Auckland’s absolutely necessary house-building upswing rolled on in June (see the chart below). The general consensus seems to be that we’re now at levels of construction in Auckland that at least stop the existing shortfall from getting any worse. Clearly, that’s great news. Added to this is a construction upturn in Wellington, Waikato is holding up at high levels, while Canterbury* has slowed but the levels are still decent.
Secondly, the latest labour market data was also healthy; the number of people employed continues to grow in the range of 3.5-4%, with the recent strength driven by full-time employment (see the chart below). The unemployment rate remains very low at 4.5%. In turn, a strong jobs market will be helping to boost property demand and keep a floor under values across the country. Overall, we’re seeing a pretty resilient NZ property market. Granted, the pace of growth has slowed in the past few months, however, property values are managing to hold up at high levels in Auckland. Wellington has recovered the losses since March, while Dunedin for example is still seeing steady increases (see the third chart). This is despite the banks typically testing affordability at hypothetical mortgage rates of 7%.
However, averages can hide certain individual patterns. We recently compiled some figures (reproduced on Oneroof) showing that the higher-value (‘luxury’) end of the market has been underperforming lately. Over the next week or two, we’re going to write about differences in property value performance broken down by the size of the property.
Following on from the consents and labour market data, the next big item of interest to the property market will be the Reserve Bank’s Monetary Policy Statement tomorrow at 9am. The Official Cash Rate is almost certain to stay at 1.75%, however, the general feeling seems to be that the Bank might push back the forecast timing for its first rate rise from late 2019 into 2020. As an example, this would be on the back of the drop in business confidence. Either way, mortgage rates look set to stay low and stable for at least another year.
On balance, the incoming economic data over the past week or so has not changed the slow and steady outlook for the property market this year and into next. The risks of property values seeing meaningful falls remain low and if anything, the unfortunate problems in the construction sector (e.g. rapid cost increases, the Ebert receivership) could limit supply growth to less than we need and continue to underpin the values of existing housing.
* Anecdotally, the demand for vacant sections around Christchurch remains high and this suggests further strength in the dwelling consent pipeline.