Grieving Kiwis attend New Zealand housing market funeral

Roy Morgan has released its New Zealand consumer confidence survey for July.

Confidence remained at recessionary levels, with households “understandably worried, with strong inflation eating into budgets, interest rates higher, house prices falling, and uncertainty ongoing”.

New Zealand consumer confidence

New Zealand consumer confidence stuck at recessionary levels.

Turning to the sub-indices, the majority of respondents expect to be worse-off next year:

Kiwis better-off next financial year

Most Kiwis expect to be worse off next year.

They expect the economy to be worse in 12 month’s time:

New Zealand economy in 12 months

New Zealand economy to worsen over next 12 months.

They also expect the economy to be worse five years ahead:

New Zealand economy in five years' time

New Zealand economy to be worse off in five years.

In an especially bad omen for consumer spending, Kiwis are expecting to spend less on major household items:

New Zealand buy a major household item

Kiwis to cut back consumer spending.

Mortgage indebted Kiwi households are also showing far more pessimism than households not paying off mortgages, which is understandable given the aggressive rate hikes from the Reserve Bank:

Confidence by home ownership status

Kiwis with a mortgage are far more pessimistic.

As previously reported, New Zealand house prices have fallen hard in response to the Reserve Bank’s aggressive monetary tightening. The latest REINZ House Price Index reported a sharp 5.4% decline over the June quarter, with all major urban areas registering quarterly falls. Whereas the Trade Me property index posted a record a 1.9% monthly fall in June amid “skyrocketing supply”.

This follows a 29% decline in the value of mortgage finance commitments over the 2021-22 financial year, amid the lowest number of June mortgage originations on record:

New Zealand mortgage commitments

New Zealand mortgage demand collapses.

Roy Morgan’s consumer confidence survey suggests more pain for the housing market, with more Kiwis (35%) expecting house prices to fall over the next two years than to rise (33%):

New Zealand house price expectations

More Kiwis now expect house prices to fall than rise.

This is a dramatic turnaround from the end of 2021 when 68% of respondents expected New Zealand house prices to rise.

The Reserve Bank last month stated that it would continue tightening monetary policy to contain inflation, which hit a 32-year high 7.3% over the June quarter.

Therefore, Kiwi buyer sentiment will remain weak and house prices will continue to fall. How far depends on how aggressively the Reserve Bank hikes rates.

Unconventional Economist

Comments

  1. Hugh PavletichMEMBER

    Australia and New Zealand are the “California’s of the south west Pacific’ with grossly excessive dwelling prices and mortgage load ‘stretch’…

    California exodus continues, with L.A., San Francisco leading the way: ‘Why are we here?’… Summer Lin … The Los Angeles Times

    https://www.latimes.com/california/story/2022-07-29/california-exodus-continues-l-a-san-francisco-lead-the-way

    … extracts …

    … San Francisco and Los Angeles rank first and second in the country, respectively, for outbound moves as the cost of living and housing prices continue to balloon and homeowners flee to less expensive cities, according to a report from Redfin released this month. …

    … Redfin chief economist Daryl Fairweather cited a June report that tracked the change in spending power of a homebuyer on a $2,500 monthly budget. While 11.2% of homes in Los Angeles were affordable on that budget, using a 3% interest rate, that amount swelled to about 72% in Houston and about 50% in Phoenix. …

    … The state is also seeing a dwindling middle class, said Ohanian, who cited a report from the National Assn. of Realtors, outlining that the national median home sales price has reached $416,000, a record high. Meanwhile, California’s median home price has topped $800,000. … read more via hyperlink above …
    .
    .
    SF Bay Area Housing Prices Suffer Largest One-Month Drop On Record … Zerohedge

    https://www.zerohedge.com/economics/sf-bay-area-housing-prices-suffer-largest-one-month-drop-record
    .
    .
    California didn’t learn any lessons out of the GFC … and still hasn’t.

    Sorting out fringe land supply artificial scarcity values and properly debt financing infrastructure must be the focus.

    The fringes are simply the essential ‘inflation vent’ … allowing all dwelling types to be affordable …

    https://www.macrobusiness.com.au/2022/07/reserve-bank-overshoot-pummel-new-zealands-housing-market/#comment-4295045

    Even in 2009 … adjusted for population … California had about a million less dwellings than Texas.

    What is the situation now … some 13 years on ? …

    Housing Bubbles: Jumbo Mortgages = Jumbo Problems … Hugh Pavletich … Scoop NZ News(March 2010)

    https://www.scoop.co.nz/stories/WO1003/S00019/housing-bubbles-jumbo-mortgages-jumbo-problems.htm

  2. Jumping jack flash

    The houses were the siphon hose that the debt entered the economy through.
    A house-load of debt at a time was poured into the economy, totally saturating every corner of it like some proverbial ferrofluid allowing the banks complete control by simply controlling the parameters of their debt.

    Of course, when the source of debt dries up, it is the houses that are affected first.

    And then soon afterwards everything is affected. As the existing debt dries up, all the demand it maintains is destroyed. As new debt isn’t created, the new demand that would have been created from it simply doesn’t exist. And that’s not even considering the inflation aspect.

    Businesses have no need to employ people to service demand that doesn’t exist. Some businesses will have no reason to exist at all.

  3. Hugh PavletichMEMBER

    Grieving (just the bubbleonians though …) Kiwis attend New Zealand housing market funeral … Leith van Onselen … MacroBusiness Australia

    Stats NZ Building Consents for June … just released today …

    … New Zealand is still ‘building out of the bubble’ at about 10 consents per 1000 population per annum … likely the highest in the developed world. Take particular note of the strengthening consenting in the more affordable Greater Christchurch / Canterbury region at 13 / 1000 with the stellar performer Selwyn County to the south of Christchurch above 26 / 1000 !!!

    Building consents issued: June 2022 … Statistics New Zealand

    https://www.stats.govt.nz/information-releases/building-consents-issued-june-2022/

    … Almost 1000 new homes a week being consented … Interest Co NZ reports today …

    $31.5 billion of new building work consented in the year to June … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116978/315-billion-new-building-work-consented-year-june

    … New Zealanders major concerns … by a country mile … are general inflation and housing inflation … as last months quarterly Ipsos Issues Monitor makes clear …

    17th Ipsos NZ Issues Monitor – June 2022

    https://www.ipsos.com/en-nz/17th-ipsos-nz-issues-monitor-june-2022

    • kiwikarynMEMBER

      They are being consented, but I don’t know if they are being built. The difficulty that developers have in offloading already built homes suggests they may not be – you cant move on to your next project until you sell your current one. I’m already seeing development land put back up for resale, and price cuts on newly built properties looking for an owner.

    • Building completions Ireland in the years 2002 through 2006 in excess 50000 on a annual basis, New Zealand consents ( not completions ) have started to decline. The Stats NZ table provides context New homes consented, 12-month rolling totals, March 1966–June 2022
      One year does not address or correct a fundamental issue. The record consents/1000 New Zealand was back in 1973

  4. Hugh PavletichMEMBER

    From todays Interest Co NZ http://www.interest.co.nz ‘What happened Monday’ …

    .MORE SELLERS THAN BUYERS
    Buyers are taking control of housing markets nationwide as asking prices drop. The number of homes for sale has more than doubled year-on-year, with the national average asking price declining by -$87,000 from its peak. It will get tougher from here. There is now 27 weeks of inventory available for sale at the current sales-rate and that is up from 23 weeks in June, and up from just 8 weeks in July 2021. It is especially tough in Northland and Wairarapa…

    https://www.interest.co.nz/Charts/Real%20estate/Housing%20inventory

    The number of homes for sale has more than doubled year-on-year, with the national average asking price declining by $87k from its peak … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116973/number-homes-sale-has-more-doubled-year-year-national-average-asking-price

    • kiwikarynMEMBER

      I would take those realestate.co.nz figures with a grain of salt. I track the TradeMe listings, and while they say Canterbury listings are up 98%, Trademe listings are actually down on April’s numbers and still way down from 2020 numbers (which were already very low). Either more real estate agents are choosing to use realestate.co.nz for advertising or they are offering some deal to get more listings, but there is no way listings have gone up that much in general except for Wellington.
      TradeMe listings:
      July 2020 Christchurch had 3456 listings, currently 2921
      Wellington Jul 2020 had 1433, currently 2626 but still less than the 2974 in April 22
      Auckland Jul 2020 10,567, currently 12,269 but still less than Aprils 12,701

      • Hugh PavletichMEMBER

        Good comments Kiwikaryn … and thank you.

        The best measure of scarcity or abundance is ‘price’.

        Lets just say we are on the ‘abundance road’ … exactly where being debatable.

        Those in the residential development / construction industry interested in survival will need to lead pricing down, by dealing effectively with fringe artificial land scarcity values and getting long overdue infrastructure debt financing in place.

        They need to check out where the consents rate per 1000 population per annum slumped to in 2009 following the GFC in Ireland and California … when they were unable to supply affordable new stock to survive.

        The Infrastructure Funding and Financing Act was passed in to law August 2020 … with the unanimous support of the Parliament. It needs to be tidied up to be made workable though.

        • kiwikarynMEMBER

          Someone needs to track completions, or the issue of Certificates of Occupancy – that would give a much better picture to the true supply of housing.

          • StatsNZ does produce data on the total housing stock. Don’t have the series to hand now, but will in a couple of hours when I get cracking for the day.

            Lots of indicators you can track, REINZ sales, days to sell and inventory, auction clearances all useful. I’m wary of listing data myself.

            A recession in NZ is a foregone conclusion. It won’t show in the Q2 data but the data over the next 9 months will be awful. Household consumption going to be flattened, vehicle sales down, business investment and residential investment to flame out and it won’t be offset by inventory net exports or government spending.

          • As promised, here is the Statistics NZ data. It’s re-balanced based on each Census so I think it has some integrity. In the June quarter the housing stock expanded by 12,000 units, taking the annual increase to 43,100 units. The population estimates for Q2 aren’t out yet, but I am assuming a population increase of 4.5k. Based on occupancy of 2.6/unit, that means there needed to be 1,730 units completed to absorb the incremental population, but there were 12,000 completions so that means there’s extra housing for 26,700 people. Clearly, supply-demand is moving rapidly in favour of the former.

            Dwelling Data
            Group: Demography Dwelling and Household Estimates – DDE
            Table: Estimated Private Dwellings, As At Quarter Ended (Qrtly-Mar/Jun/Sep/Dec)

  5. Clearly Goldman Sachs is less pessimistic, forecasting 30 percent odds of a New Zealand recession in the next 12 months, nudging Australia at 25 percent.However its base case is no recession. Covering all bases if United States goes into recession ,Goldman increases the odds of a recession to 50-60 percent. Goldman does not specify what determines a recession.

    • Of course there will be a recession, there is nothing else to the economy but housing, related consumer discretionary and farming/horticulture. Tourism is dead.
      The government is doing everything possible to make life difficult for any productive industry and small business.
      Maybe savings from Covid lockdowns will provide some financial buffer, but this won’t be even across the consumer sector.

  6. DingwallMEMBER

    Imagine if all that investment, focussed on non-productive sh1te, had been channeled instead into productive industry new and old. Kiwis would have cheaper housing and more jobs and diverse jobs….. Australia is almost as bad but not to the extent to stop kiwis coming here to find jobs and (cheaper? LOL) housing

  7. Hugh PavletichMEMBER

    Relearning history : Former Fed Chair Paul Volcker … and the importance of sound and credible public administration …

    If Volcker Were Alive Today, He Would Be Appalled … Zerohedge

    https://www.zerohedge.com/economics/if-volcker-were-alive-today-he-would-be-appalled

    Authored by Bruce Wilds via Advancing Time blog,

    For many people, former Fed Chairman Paul Volcker’s relevance today is rooted in how he broke the back of surging inflation in 1980. He is widely credited with employing the harsh policies that ended the high levels of inflation seen in the United States during the 1970s and early 1980s. back then few people realized his brave and bold move would shape the economic system for decades. … read more via hyperlink above …

    Paul Volcker – Wikipedia

    https://en.wikipedia.org/wiki/Paul_Volcker

  8. Hugh PavletichMEMBER

    No talk of reducing inflationary government spending … instead the opposite …

    Cost of living payment will add temporary fuel to inflation: Economists … Melanie Carroll … Stuff NZ

    https://www.stuff.co.nz/business/money/129439201/cost-of-living-payment-will-add-temporary-fuel-to-inflation-economists

    The Government’s $350 cost of living payment will add to inflation, which the Reserve Bank is trying to tame, but it’s not enough to seriously stoke the fire, economists say.

    The $27-a-week payment for about 2.1 million people aimed to help households whose budgets were getting squeezed, the Government said in its May Budget.

    However, Treasury worried that injecting about $750 million into the economy when prices were already rising could add to consumer inflation, which hit a 32-year high of 7.3% in the June quarter. … read more via hyperlink above …
    .
    .
    Nation of debt: Housing debt jumps 7pc – can we afford the rising cost of it? … Tamsyn Parker … NZ Herald

    https://www.nzherald.co.nz/business/nation-of-debt-housing-debt-jumps-7pc-can-we-afford-the-rising-cost-of-it/ELJ6JR7NU656NFNKPHMIHMSWYI/

    Housing debt has risen at a slower pace in the last year but the cost of servicing that debt has gone up sharply.

    Reserve Bank data shows housing debt rose 6.9 per cent to $339.41 billion in the year to May 31. That was much slower than the 11.5 per cent growth in the year to May 2021.

    But at the same time, one-year fixed-term rates have jumped from a record low of 2.25 per cent to over 5 per cent.

    Kelvin Davidson, senior economist at CoreLogic, said from a financial stability point of view New Zealand couldn’t have kept going the way it had been.

    “Housing was very stretched affordability wise. There is no free lunch in economics, at some point interest rates were going to go up.” … behind paywall … read more via hyperlink above …

  9. Hugh PavletichMEMBER

    Barfoot & Thompson’s median price down $130,000 from its November 2021 peak as July sales hit 22 year low … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116991/barfoot-thompsons-median-price-down-130000-its-november-2021-peak-july-sales-hit-22

    A third of properties sold under the hammer at last week’s auctions, up from a quarter the week before … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116992/third-properties-sold-under-hammer-last-weeks-auctions-quarter-week

    Lowest July housing sales in 22 years as Barfoot & Thompson says prices in retreat … Anne Gibson … NZ Herald

    https://www.nzherald.co.nz/business/lowest-july-housing-sales-in-22-years-as-barfoot-thompson-says-prices-in-retreat/AB5EJ3XZ7ZHNSFJ75U3GB6CGNM/

    The global housing boom is running out of steam … The Economist … reprint Stuff NZ

    https://www.stuff.co.nz/business/property/300651757/the-global-housing-boom-is-running-out-of-steam

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