New Zealand housing beaten and bruised by Reserve Bank

Last week, the Reserve Bank of New Zealand (RBNZ) sent an arrow through the hearts of Kiwi mortgage holders, hiking the official cash rate (OCR) another 0.5% – the third consecutive double increase.

This decision took New Zealand’s OCR to 2.5%, up from the record low 0.25% in September 2021.

New Zealand mortgage rates have also risen significantly, with fixed rates – which comprise the majority of Kiwi mortgages – nearly doubling from their pandemic lows:

New Zealand standard mortgage rates

Fixed rates have almost doubled from their pandemic lows.

The commentary accompanying the RBNZ’s monetary policy decision remained incredibly hawkish, promising “to maintain its approach of briskly lifting the OCR until it is confident that monetary conditions are sufficient to constrain inflation expectations and bring consumer price inflation to within the target range”.

Today’s shocking inflation data from Statistics New Zealand, therefore, suggests the RBNZ will continue to hike rates aggressively. The consumers price index (CPI) soared 7.3% in the year to June 2022 – the largest annual increase since June 1990:

New Zealand CPI

New Zealand’s CPI highest in 32 years.

Worse, inflation was domestically driven by the housing and household utilities group, due to rising prices for construction and rentals for housing. In particular, prices for the construction of new dwellings increased a whopping 18% annually in the June quarter:

Cost of new dwellings

Cost of dwelling construction hyper inflates.

The latest House Price Index from the Real Estate Institute of New Zealand showed that prices nationally plunged by 5.4% over the June quarter, with every major urban district posting falls.

Given the RBNZ is certain to hike interest rates much further, the house price correction will necessary accelerate. And given New Zealand housing experienced the biggest price boom in the developed world:

New Zealand's housing boom

New Zealand’s house price boom is unmatched.

It stands to reason that New Zealand housing will also experience one of the biggest price busts as interest rates are lifted aggressively.

Kiwis should, therefore, ready themselves for the largest housing correction in living memory. Because it seems nothing will stop the RBNZ from dropping an interest rate sledgehammer on the market.

Unconventional Economist
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Comments

  1. ANZ, NZ – today.

    We have changed our OCR call and now expect the run of 50bp hikes to continue through to November, meaning an OCR endpoint of 4.0% rather than 3.5%. A 75bp hike at the August MPS is a very real possibility. Tradables (i.e. mostly imported) inflation rose to 8.7% y/y (8.5% previously), pushed higher by surging petrol prices in the wake of the war in Ukraine. More concerning is the increased strength in non-tradables (i.e. mostly domestic) inflation, which increased to 6.3% – ahead of the RBNZ’s forecast for a fall to 5.7% and our expectation of 6.0%. Domestically driven inflation tends to stick around a lot longer than the imported variety, and as such, the mix of inflation pressures revealed today demands a more aggressive RBNZ response

      • PalimpsestMEMBER

        Or possibly a number of obituaries. While we acknowledge the importance of a clean-up, that doesn’t hide the carnage on real lives.

    • Jumping jack flash

      This seems reasonable considering that ECB hasn’t come online with its hiking yet.

      I would also say one of those 0.5 increases between now and then will be an 0.75 or a 1%. Probably November’s after energy prices rise to the stratosphere and ECB raises 1% in Sept.

  2. 2023HomelessMEMBER

    Anyone willing to have a bet that Australian inflation print will NOT be a shocker? Plus it will NOT include emerging domestic
    drivers of utilities and housing, like NZ?

    (Suspect no takers)

  3. Hugh PavletichMEMBER

    … and from the RBNZ today … via Interest Co NZ ‘What happened today’ …

    https://www.interest.co.nz/business/116799/review-things-you-need-know-you-sign-monday-its-all-about-scorching-inflation-data

    … extract …

    GOING BACKWARDS
    The RBNZ reported today that the total value of all houses in the country as at March was $1.7 tln, down -$39.8 bln in three months. This is the largest quarter-on-quarter fall ever recorded, and that is only through March. The local house price falls didn’t really get going until Q2, and we won’t know the level of that until September 15.

    https://www.rbnz.govt.nz/statistics/series/economic-indicators/housing

    Consider the recent REINZ HPI for the 2nd Qtr dropping a further 5.4% … as Leith notes above.

    Expect deflation velocity to accelerate going forward as well … all off grossly excessive median multiple stretch of 9.0 …

    Median Multiples – Interest.co.nz

    https://www.interest.co.nz/property/house-price-income-multiples#:~:text=Based on this official work,on the US housing market.

  4. – Rising interest rates are the result of improving wages. And the RBNZ ?RBA only FOLLOW those (rising) rates.

  5. Hugh PavletichMEMBER

    100% pure rip-off? New Zealand voted second-worst place to move to … Tessa McClure … The Guardian
    … h/t DK …

    https://www.theguardian.com/world/2022/jul/14/100-pure-rip-off-new-zealand-voted-second-worst-place-to-move-to

    Kiwis pay 25% more for groceries than Australians do, Finder survey shows … Brianna McIlraith … Stuff NZ

    https://www.stuff.co.nz/business/129247364/kiwis-pay-25-more-for-groceries-than-australians-do-finder-survey-shows

    Kiwis cashing in: Goodbye Auckland house prices, g’day Australia … Nikki Preston … OneRoof / NZ Herald

    https://www.oneroof.co.nz/news/kiwis-cashing-up-goodbye-auckland-house-prices-gday-australia-41809

    Government faces 60-year debt blowout after building costs explode … Thomas Coughlan … New Zealand Herald

    https://www.nzherald.co.nz/nz/government-faces-60-year-debt-blowout-after-building-costs-explode/R7L54GYHNIEJD3Z6TQDFOYRJMI/

    • I left end 2020 and am enjoying tax free status in Abu Dhabi…heats an issue but we are shopping for an apartment in Budapest this week to use for the summer, and it’ll cost what I save in tax in about 18 months.

      I can see the writing on the wall in NZ. They tax and tax and then when they’ve drained you people like little Chloe will means test your superannuation. Er, no thanks.

  6. Hugh PavletichMEMBER

    New Zealand CPI June year 7.3% … Statistics New Zealand

    https://www.stats.govt.nz/indicators/consumers-price-index-cpi/

    ANZ tips OCR will reach 4% in November after inflation rises to 7.3% … Tom Pullar-Strecker … Stuff NZ

    https://www.stuff.co.nz/business/129293267/anz-tips-ocr-will-reach-4-in-november-after-inflation-rises-to-73

    Annual inflation hits 7.3% … Tom Pullar-Strecker … Stuff NZ

    https://www.stuff.co.nz/business/129293267/annual-inflation-hits-73

    Latest inflation figures have come in even hotter than economists and the Reserve Bank had forecast … David Hargreaves … Interest Co NZ

    https://www.interest.co.nz/business/116756/latest-inflation-figures-have-come-even-hotter-economists-and-reserve-bank-had

  7. kiwikarynMEMBER

    So they just updated the passenger arrivals/departures – net loss of 23,300 people from NZ in just the first 17 days of July.

    • Hugh PavletichMEMBER

      That’s 1,370 a day / 500,264 a year … about 10% of the population.

      At say 2.5 people per household roughly 200,105 less houses required on an annual basis at that rate.

      One suspects a lot will be rather keen to get out before they get wiped out. No doubt pondering Sri Lanka.

      Sadly … it seems we are on track to becoming ‘Fiji With Snow’ (pirating economist David Skillings term from years ago).

      What a shame John Key failed to address these issues out of the ’08 election as promised. He seems to have gone ‘off air’ over recent times.

      • Hugh PavletichMEMBER

        … Going back to John Key and the 2007 / 2008 era …

        Video interview with John Key 2007 on housing affordability

        https://www.youtube.com/watch?v=cWPgoAI1cLE&t=2s

        John Key 2007 speech on housing affordability to the Auckland Branch of the New Zealand Property Investors Federation

        https://www.nzpif.org.nz/news/view/53038

        Just after the 2008 election won by National and at the time of the release of the Annual Demographia International Housing Affordability Survey late January (with the Introduction by Dr Don Brash) then Housing Minister Phil Heatley had this to say …

        Bringing better balance to the housing market … Phil Heatley … Beehive

        https://www.beehive.govt.nz/release/bringing-better-balance-housing-market

        For further background reading of the issue from that era … access by scrolling back through the years …

        Hugh Pavletich – Scoop InfoPage

        https://info.scoop.co.nz/Hugh_Pavletich

        Please do check out all the IPSOS NZ Issues Monitors over recent years … which again … should have made it crystal clear to the politicians and public service what the publics REAL CONCERNS are … and conversely … what doesn’t concern them.

  8. Hugh PavletichMEMBER

    China …

    China Weighs Mortgage Grace Period to Appease Angry Homebuyers … Bloomberg

    https://www.bloomberg.com/news/articles/2022-07-18/china-weighs-mortgage-grace-period-to-appease-angry-homebuyers?srnd=premium-asia

    China Risks Hard Landing of Housing Sector, Ex-Official Warns … Bloomberg

    https://www.bloomberg.com/news/articles/2022-07-18/china-risks-hard-landing-of-housing-sector-ex-official-warns?srnd=premium-asia

    China Developers Rise as Banks Urged to Tackle Mortgage Crisis … Bloomberg

    https://www.bloomberg.com/news/articles/2022-07-18/china-developers-rise-as-banks-urged-to-tackle-mortgage-crisis?srnd=premium-asia

    Beijing Panics, Scrambles To Halt Mortgage Boycott By “Urging” Banks To Rush Developer Loans … Zerohedge

    https://www.zerohedge.com/markets/beijing-panics-scrambles-halt-mortgage-boycott-demanding-banks-rush-loans-developers

  9. Hugh PavletichMEMBER

    Retirement village share prices plummet after housing market softens … Anne Gibson – Property Editor … New Zealand Herald

    https://www.nzherald.co.nz/business/retirement-village-share-prices-plummet-after-housing-market-softens/47CFZM435JMXROORHPSXONHF74/

    NZX-listed retirement village company share prices are being hammered by the housing market downturn, according to a new report.

    Andrew Steele and Nick Yeo of Jarden released a study, No Sign of Improvement in Aged Care Funding or NZ Housing, citing a Government funding increase of 3.5 per cent, when one industry group sought more than 9 per cent.

    “Taking account of inflation, the [Real Estate Institute] house price index is now negative in real terms year on year,” the analysts noted.

    The number of days to sell a house continues to rise while sales volumes stagnate at levels not seen since 2014.

    “These two elements in combination suggest further near-term price weakness. This negative near-term outlook is also seen in house price sentiment surveys, which are at levels not seen since the depths of Covid uncertainty in March 2020. We do not expect sentiment to start improving until house prices stabilise,” Steele and Yeo wrote.

    The REINZ house price index was down 10 per cent from its peak last November and ongoing weakness remained a key sector headwind for retirement stocks, the analysts said. … behind paywall … read more via hyperlink above …

  10. Hugh PavletichMEMBER

    The number of residential properties being auctioned slumped further last week – just over a quarter sold under the hammer … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116811/number-residential-properties-being-auctioned-slumped-further-last-week-just-over

    New Zealand sees largest drop in property prices on record, Trade Me figures show … Mark Quinliven … Newshub

    https://www.newshub.co.nz/home/money/2022/07/new-zealand-sees-largest-drop-in-property-prices-on-record-trade-me-figures-show.html

    NZ property prices have the largest monthly drop on record: Trade Me … Brianna McIlraith … Stuff NZ

    https://www.stuff.co.nz/life-style/homed/real-estate/129312662/nz-property-prices-have-the-largest-monthly-drop-on-record-trade-me