NZ: House price growth to slow this year - Westpac

Research Team at Westpac notes that while NZ’s household spending looks to have made a firm start to 2017, the housing market has had a weak start.

Key Quotes

“Looking ahead, we are forecasting house price growth to slow this year, and expect that growth in household spending will follow suit.”

“In New Zealand there has typically been a close relationship between growth in house prices and consumer spending. That reflects the importance of housing as a major portion of the wealth of New Zealand households. When house prices are rising and the market is turning over rapidly, Kiwis feel more inclined to borrow against some of that wealth and spend it. That means the housing market plays an important role in New Zealand’s economic cycles, and therefore has important implications for the outlook for inflation and interest rates.”

“On the one hand, consumer spending looks firm. While retail spending disappointed a bit in the December quarter, with core retail sales volumes rising only 0.6% in the quarter and 4.2% over the year, spending on debit and credit cards in January was particularly strong and will help put spending in the March quarter on firm footing. After a couple of subdued months, card spending rose a whopping 2.5% in January, taking annual growth back towards its recent trend of 5%.”

“On the other hand, the housing market had a very weak start to the year. House sales (in seasonally adjusted terms) fell sharply in January, and after several months of decline are down over 20% from their peak last April. At a national level the rate of price growth has slowed considerably over the past few months. But there are again regional differences in the housing market’s performance. In previous hotspots such as Auckland, Hamilton and Tauranga the rate of price growth has slowed since July. But the majority of regions have actually seen an acceleration in house price growth since July; few regions in the North Island are running at below double-digit annual gains. This is somewhat at odds with the latest change to the LVR restrictions, which was to extend the limit on investor LVRs from Auckland to the rest of the country.”

“The ongoing need to house a growing population will remain a key factor underpinning housing demand, making it difficult to see an outright decline in prices.”

“Pulling it together, if our view on house prices is correct, then we’d expect to see the rate of growth in consumer spending slow from here. This argues for inflation pressures remaining well-contained, meaning that the Reserve Bank can remain on the sidelines for some time to come.”