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Analysts at ANZ explain that NZ households in aggregate are seemingly no longer feeling good about rising house prices as houses are unaffordable for many, servicing a large mortgage is a stretch, even at low interest rates, and the home ownership rate has declined.

Key Quotes

“We suspect that the relationship between house price inflation and consumer confidence has changed as a result of these affordability concerns, in combination with the policy-driven slowdown in the housing market. Going forward, the relationship between the housing market and spending is expected to be more nuanced, with housing affordability concerns unlikely to recede any time soon.”

Property Gauges

Housing market acridity and price pressures remain broadly stable. But underlying this, a number of opposing forces are at play in the property market. Affordability constraints are biting hard in Auckland, while markets elsewhere continue to play catch-up. Strong population growth, pent-up demand and supportive financial conditions will continue to support prices. But prudence on the part of banks, continued caution in easing LVR restrictions, affordability constraints, and more restrictive government policy changes are expected to keep prices and activity contained. We expect house price inflation to moderate over the medium term, with regional divergence expected to persist.”

Economic Overview

The economic outlook remains positive, but the economy is navigating some challenges. Firms remain pessimistic and growth indicators are a bit less positive, with concerns about the economic environment lingering beyond the election. Capacity pressures, costs increases, margin pressure and credit constraints are evident as the economy grapples late-cycle headwinds. Sentiment amongst households has pared back recently too, but remains around average. Despite these challenges, the terms of trade remains high, population growth is strong, and monetary policy is expected to remain accommodative for an extended period. The economy is expected to continue growing at (but not above) its trend pace of 2-3% over the medium term. We expect inflation will rise gradually over the medium term, and that the OCR will eventually need to rise. But with inflation pressures lacking and uncertainty about the outlook for wage inflation, the RBNZ will remain cautious for some time yet.”