This month’s unwelcome surprise for the economy suggests broad-based inflation factors display herd immunity characteristics, remaining stubborn in the face of dampening measures.

Policymakers acknowledged the annual inflation jump of seven-point-two percent was a lot higher than the six-point-four percent the Reserve Bank of New Zealand (RBNZ) predicted and has spurred a fresh round of forecast revisions as markets broadly now price in a 75 basis point hike at the RBNZ’s next Official Cash Rate (OCR) announcement in November.

In words borrowed from the ANZ Bank’s Property Focus Report, ‘robustness’ in the economy is hard to label as bad news. Still, it does mean the RBNZ will need to do more – visa vies longer and higher rate hikes – to dampen consumer demand by any meaningful metric.

The results come as residential market anecdotes appear to be improving, with recent surveys suggesting that first home buyers and moving families are underpinning current activity levels. These buyers are responding to greater listings available on the market for sale and a fresh wiliness from sellers to negotiate.

In addition, RBNZ analysis suggests Kiwi households remain remarkably resilient in the face of rising living costs, and data shows household equity remains high at 79 percent.

Accrued equity gains during the pandemic continue to drive housing market activity, with anecdotal evidence from the coalface suggesting buyers remain willing and able to pay the right price for desirable and well-located properties.

This was recently evidenced by the $2.9 million sale of a beach-side ‘do-up’ in Hahei, Coromandel, by Bayleys salesperson Lea Jurkovich.

Interestingly, the high-value and luxury sales market has remained remarkably resilient in the face of economic headwinds, with Bayleys salespeople noting a scarcity of supply in this sector continues to contribute to elevated levels of competition for trophy homes.

Well-located homes with architectural features, distinct heritage characteristics, or the all-important water view continue to sell well, a trend salespeople expect will persevere as we head into summer and a higher proportion of these listings come available for sale.

This may well have a supportive effect on regional property markets through the summer months. It will be interesting to investigate data around expatriate interest – a key buyer group for higher-value properties.

It’s anticipated that we could see international migration improve as a higher proportion of Kiwis return to Aotearoa, attracted by new migration settings for skilled workers, relative political and economic stability, and the fact that their foreign currency goes that much further at home.

In-depth reports:

• In its Quarterly Property Market and Economic Update for Q3, 2022 research firm CoreLogic says market volatility is giving way to early signs of positivity in the residential market. Increased engagement from buyers and sellers, the former looking to take advantage of a willingness to negotiate, could help ‘sow the seeds’ of a floor for property values into 2023. While the interest rate outlook shows further rises on the horizon, strong employment metrics and more choices available on the market for purchasers currently encourage a stable level of activity – a bright spot on the market landscape to year-end.

• Statistics New Zealand’s recently released inflation data reveals the annual inflation rate remains elevated at seven-point-two percent. A key metric for policymakers is the six-point-six percent reading for non-tradables (domestic inflation factors) which at just zero-point-three percent off its forecast, suggests monetary policy is working somewhat to dampen consumer demand and get inflation under control. Despite this, inflation contributions have been broad-based across all sectors of the economy, reinforcing the likelihood of further Official Cash Rate (OCR) hikes from the Reserve Bank of New Zealand (RBNZ).

• In its latest Property Focus report, ANZ Bank says higher mortgage rates coming to fruition sooner is a likely scenario for borrowers, despite housing sentiments improving with the arrival of warmer weather. The Bank warns that any green shoots in the economy will require significant attention from the RBNZ as it seeks to dampen consumer demand meaningfully. Despite predicted that Kiwis are 60 percent through the bank’s forecast of an 18 percent peak-to-trough fall in residential values, this is still only a partial unwinding of the pandemic run-up - and housing equity – which helps Kiwis to feel wealthier remains high at 79 percent.

Topical articles:

• In its October Monetary Policy Statement (MPS), the RBNZ raised the OCR from three percent to three-point-five percent as it continues to battle domestic and global inflation pressures. The move has seen Kiwis experience five consecutive rate rises so far during this tightening cycle, with market expectations pricing in another 50 basis point rate rise by the end of the year. Persistent domestic pressure continues to challenge policymakers, with near record-low unemployment and strong household balance sheets remarkably resilient in the wake of rising living costs. This strength could see the cycle last longer and rates move higher than initially predicted, with implications for housing market activity as Kiwis adjust to this new economic normal.

• Auckland and Wellington have experienced net population losses totalling 9,200 in the year to 30 June 2022, according to new data from Statistics New Zealand. The report notes the impact of inter-region migration on some of our biggest cities as residents move to other areas across New Zealand in search of employment opportunities, affordable housing or greater lifestyle flexibility. This will provide a welcome boost for regional housing sectors, including Northland, Bao of Plenty and Nelson-Tasman, which saw the highest percentage of population growth.

• In a recent bulletin for OneRoof, independent economist Tony Alexander says the mood of the residential market appears to be more positive as credit availability improves, interest rates near plateau and buyers look to take advantage of current conditions to make a move. While high construction costs have seen building delays and disruption across the new-build sector, a greater proportion of buyers have been lured back to the existing property market concentrating on certainty rather than attempting to pick the bottom of this market cycle.

• In its Small Business Index for September, accounting software provider Xero says rising sales and job growth have provided a boost for New Zealand’s small business economy, which at 97 percent of all firms, represents a significant proportion of household wealth. Despite decreasing slightly, wage growth remains elevated at above the long-term average of three-point-nine percent year-on-year which continues to buoy activity across the housing market and broader economy. It’s a double-edged sword, though, as economic growth will likely require continued action from the RBNZ as it battles to control inflation.

• Precise funding models for new infrastructure remain a key barrier to the efficient creation of affordable new housing. Recently, this has been evidenced by challenges facing the Queenstown-Lakes District Council as it struggles to generate support for mandatory financial or land contributions from new housing developments under the district plan. While developer levies contribute valuable funding for infrastructure such as water services and roads required to cover the basic needs of a growing population, higher compliance costs have historically had an inflationary effect on ultimate property values as developers seek to recoup expenses through sale values.