It does not matter to you or I whether we call our fledging Government, “Coalition” or “Labour Lead”, while its aspirations appeal to many, its actions at this stage are not inspiring confidence. The nations GDP figure for the last quarter, a good result, finds the jury of business confidence still out. “Let’s wait and see how the next quarter looks,” seems to be the prevailing view of market commentators. And consumer confidence has slipped downwards.
On what may be the plus side, there are hints that the Official Cash Rate may be lowered not just maintained. Under the previous regulatory regime governing the Reserve Bank operations, this would reasonably have been taken as indication that looking ahead inflation may well be lower than had been forecast. However, inflation management is no longer the sole measureable performance target, maximum sustainable employment is now included in the Reserve Bank’s monetary policy objective. Keeping the cost of capital low frees business cash flow for salaries and wages. And as has been demonstrated by the nurses, teachers, and IRD staff there is a real demand for not just CPI increases but for wage and salary ‘catch-up’ increases.
Doom and gloom from overseas commentators headlining the high cost of NZ housing and therefore the residential housing market’s vulnerability to a ‘market correction’ may accurately reflect a rational economic analysis of our housing market. It is however an approach which is underpinned by the premise that the market behaves rationally and ignores our cultural mind-set that holds: owning your own home is a good decision. Most of us prefer to have our own place. And despite the fact that immigration in the year ending August was down by some 8,800 we still need more homes to buy and rent than are being built.
Demand exceeds supply, still, and the lack of capacity in the building industry will ensure this situation continues so long as ordinary folk have the confidence in their ability to earn and pay off a home loan and the banks have the confidence to lend at a sustainable rate. The banks also have their own confidence testing considerations: provision for Australian Government regulatory fines; USA’s arbitrary introduction of trade tariffs; and the sentiments of their overseas shareholders. But by way of a footnote: the ability of NZ based banks to withstand any sharp change is ‘shock tested’ and their capacity to successfully manage financial stressors has been increased since the GFC.
So how does this all show up? Well, the winter season was slower. Buyers were less active and the price expectations of some sellers proved to be aspirational. But willing buyers and willing sellers still reached agreement.
The onset of spring has bought a fresh surge of action. More home owners are putting their homes up for sale. Buyers are more active with multi-offers increasingly commonplace. And there are more pre-auction offers. There is a more willing acceptance that prices have shifted and the opinion that, “we’ll just wait for a better offer,” is heard less and less. Banks and other financial businesses are lending, albeit in a reportedly more measured way. Overall the local housing market is fairly evenly balanced between sellers and buyers. Conditions are good!