The NZ Property Market Podcast
Brought to you by cotality, formerly CoreLogic. Each week co-hosts Nick Goodall and Kelvin Davidson will bring you all the latest news, stats and insight to keep you up to date with everything to do with the NZ residential property market. Including sales volumes, house price indices, buyer activity, interest rates, loan-to-value ratio restrictions and all of the macro economic factors that influence our largest asset class. Contact us on twitter @NickGoodall_CL or @KDavidson_CL
The NZ Property Market Podcast
Values still falling but first home buyers still buying
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This weeks episode is brimming with insights, as we untangle complexities and delve into the data from CoreLogic's House Price Index. The property market is behaving in mysterious ways, with a downward trend across the nation, but certain regions like Auckland experiencing a sharper decline.
Ever wondered how the dynamics of the property market might impact first-time buyers, particularly in a time of flux? We'll walk you through the intricacies of identifying market troughs, and examine the factors leading to some homes performing better than others. With decreasing supply, increasing demand, and relaxing lending restrictions, we ponder the likelihood of the market hitting a stable floor soon. But make no mistake, the market is still a beast of unpredictability, facing affordability pressures and high mortgage rates.
We also touch upon the effects of the election on the market, the financial dynamics between renting and owning a home, and the role of the Bank of Mum and Dad and KiwiSaver in assisting first-time buyers. Lastly, we'll also be looking ahead, discussing key releases such as Cordell Construction Cost Index, Stats New Zealand's migration data and rental prices, and the Real Estate Institute's house price index. So, grab your headphones and get ready for an enlightening journey into the New Zealand property market!
Sign up for news and insights or contact on LinkedIn, Twitter @NickGoodall_CL or @KDavidson_CL and email nick.goodall@cotality.co.nz or kelvin.davidson@cotality.co.nz
Kia ora and welcome to the New Zealand Property Market podcast brought to you by CoreLogic, produced by Agents TV for the 10th of July 2023. I'm Head of Research and at Goodall and I'm joined by Chief Economist Calvin Davidson. Calvin, how are you, mate? Did you manage to catch the all blacks yesterday morning? Yes, i did.
Speaker 2:Yes, it was pretty good, wasn't it? A great start to the year. You normally get used to that sort of rusty start and to actually have a polished performance with lots of tries was really good. Yeah, poor bad. I had family here. My sister in law was in town up from Southland so I thought that was good, kind of filled in time, and you know she's really good with the kids so that took some burden away from Gemma and I. So yeah, it was awesome. She had sort of two hours unbroken to well, not quite unbroken, but almost unbroken to sit and watch the rugby. So that was unexpected and unusual. So that was cool and yeah, like I said, great start this season. And yeah, we'll see how it goes against the mighty South Africans next weekend, but yeah, good start anyway.
Speaker 1:How are you, yeah, pretty good mate, pretty lazy really, you know, like school holiday weekend so there was no kids sport, so that meant, you know, a bit more of a sleep in.
Speaker 1:And yeah, yesterday, certainly very lazy watched a delayed version of the All Blacks game and yeah, that first half for me, you know, i almost made me forget. You know the difficulties and challenges there's been the last couple of years. It was that smooth and polished and, as you say, which feels unusual for the first game of the year for the All Blacks, who sometimes struggle on that first game up, especially, you're thinking, in Argentina, you know, with a crowd over there. So, yeah, certainly a bit of a surprise but did make you forget all those troubles. And then the second half probably wasn't quite as polished and the RGs came back a bit stronger. So, yeah, definitely shapes the game this weekend up quite nicely. But yeah, otherwise, mate, pretty cruisy one from us over the weekend and the weather wasn't as good. So, you know, maybe less pressure to get out and do too many things and, yeah, pretty, pretty cruisy really.
Speaker 2:Yeah, i suppose things could have gone a bit differently this start of the rugby game that if Argentina had scored a try, instead of having having the video ref say that Mackenzie put his hand on it first. You know, you never know sliding door moments, you know you never quite sure. But yep, good start and yeah, we'll move on to the next week for sure.
Speaker 1:And then another thing that's very happy to see the English one this morning in the Ashes test. You know wasn't too sure when I went to bed last night that we're going to make it, but looks like a pretty, pretty impressive finishing effort from Brook and in the couple of tail enders to get them over the line. Make that series go to 2-1 now to the Aussies and again shape up the rest of these this series over in England pretty well too. So yeah, plenty of decent sport out there and things generally going New Zealand's way, and in that case against the Aussies, which I think we, most of you all want.
Speaker 2:Yeah, yeah, i'm pretty neutral on that. I mean, i mean, i've lived in England for a long time, some reason. I sort of sometimes quite like it if England lose. So I'm a bit torn because I don't necessarily like it at Australia wins. So I don't know how you resolve that conflict. But yeah, i suppose, neutral, you can say, well, i just want to see some tight contests, and it's certainly been that. Yeah, if you're a cricket fan, it's definitely been pretty impressive. So, yeah, brown the next one.
Speaker 1:Yeah, yeah, i mean the fact that, yeah, they've taken it to another test to keep the series alive is great. All right, mate, let's get into it. The info and data coming out last week the first one, of course, was done on is our Ecologic House Price Index, which I wrote and sort of talked to the media on this one quite a bit and I think the key thing for me I talked about it, you know the only consistent thing was this inconsistency and then it showed real variability across the country. We did see, in broad perspective, continued downwards trend, with even an accelerating of the downward trend nationwide and particularly in Auckland. So, but then there was moderation and even increases elsewhere. So, in terms of specifics, new Zealand was down 1.2% over the month of June, auckland down 3%, so that's the acceleration there. Wellington down only 0.6%, sorry, but then on the flip side, christchurch up a little bit, 0.3% and that's just the main centres, right like below that.
Speaker 1:Again, there was some real variability and I think my main point I tried to make was that this is actually a feature of the market when it's going through a state of flux, you know, it's almost trying to find a flaw and when that happens you get these really inconsistent sales results. So a property depends, really, you know, how well it sells based on location, type, value, band, and that's that's where it influences the type of buyers that are in there, maybe the amount of competition that happens, and then how well the property you know sale is achieved. And I think it shows there is demand out there but it's not across the board and certainly that's why we're seeing these inconsistent results and I think for that reason too, and you know, i think it's easy for anybody to find properties that are selling really well and you'll see these reports of you know really really vibrant open homes and heaps of people in an auction room. But on the flip side, you can also find those properties that aren't selling well, that have been on the market for ages, that aren't achieving a decent sale price. You know they're having a discount it from their original expectation or whatever, and you can find lots of those examples too.
Speaker 1:So it's really about anyone in the market can find the results to suit any narrative, but I think the main thing for me is trying to cut through all that and go. Well, actually this is a feature of the market and it's going to be like this for a while as the market tries to find a flaw, and it will be different across the different regions, across New Zealand as well. This is not going to play out all one way for the country and that nation wide figure will then get dragged around with it, because Auckland will do one thing one month and then, if it starts to recover, that might drag it up. You know, the size of Auckland does have an influence. So, yeah, that's. Those are kind of the key features for me in writing that release and and fronting the media on it. From your perspective, kelvin, once you sort of checked out the detail of the data and and maybe did a few media interviews yourself, what's your take on that latest month of data?
Speaker 2:Yeah, same as you. I mean, and I think I just point out that there's always we've talked about how it's going to be really hard to say what's the troff is definitely this month. And what are you talking about when you talk about the troff anyway? Is it the national average or like more than half the market? So, yeah, there's always that variability. So and there's legs getting from what's happening on the ground until a house price index and kind of legs from activity picking up to sort of reducing the stock of listings, to feelings and price pressure, and it's going to be different in different markets.
Speaker 2:So you're really hard to everybody's talked about this all the time. You're very hard to identify the trough almost until you, until you passed it. So, in terms of investors or first-aid buyers trying to pick the trough, everyone's always been saying, well, tough business doing that because you're never really going to know. Close enough is good enough, i suppose. So, yeah, that's my kind of wider context.
Speaker 2:Against that It's going to be very hard to say, well, next month's definitely going to be the trough. We're probably only going to know once we've seen a couple of flat results or some modest increases. So, yeah, put a caveat in there, i mean anecdotally, on my street, it's absolutely that point. You've been talking about this kind of two or three houses for sale and kind of look out the driveway and see how busy the open homes are, and one's been really busy, one not, and it could be whether it could be timing, whatever quality of house expectations on price, but it's absolutely. It's that patchy thing. One house has been really good, one not. So yeah, not too much on the actual results themselves, but I just get fully go along with it that it's always going to patch you at this sort of turning point and very hard to identify that turning point until you passed it too.
Speaker 2:So yeah, it's hard to pin down, but it feels like we're kind of there.
Speaker 1:And maybe even well past it. right, like you said, it might even be that you can say the bottom of the market. the trough of the market was last month. it might not be until we're three or six months past that you have real confidence that we are past the bottom of the market. And again, because there's going to be very real results And I expect that to continue for probably the rest of this year.
Speaker 1:I don't expect that even once we do hit that bottom of the market and it could be the next one or two months that it's going to be across the board is going to be very different across the different cities and regions across the country. So I think expect that to continue for the next wee. while I do expect it is still. we are in the settings right now where we're not far off And that is because we are seeing reducing supply of properties to sale. We are likely to see increasing demand because LVRs have loosened, credit's got a bit easier to get. We think we're close, if not there, of mortgage and just rate peak.
Speaker 1:All these things do shape the market to likely hit a floor soon, but again it'll differ on local reasons and local economies and migrants, where they're going and all those sorts of things. So a value for money, affordability, how that plays out across different parts of the country too. So, yeah, it's not going to be one thing for all, that's for sure, and I think expect this variability and volatility to continue, probably for the rest of this year, and then maybe, when it's a clear sign that we are past it, a couple of months past it. maybe then that brings an extra level of confidence that actually leads to some genuine growth in some markets across the country too. But yeah, there's a few months before I think we can start truly talking about that.
Speaker 2:anyway, yeah, yeah, and we're not trying to weasel out of calling a trough or anything here, it's just difficult And I hope so, like ANZ, the economists the area, for example on record is saying they pretty much said the trough is here And I think there's a bit of poetic license in there which is we're never going to be able to say that's absolutely here right now, but it's that general vibe And that we're pretty much there.
Speaker 2:They're seeing a lot of indicators turning around, which we're seeing as well, of course. So hopefully they don't get too much grief about that, because it is within a window of time that you sort of call that trough, and we've said these times as well that it's about as it really isn't about what happens next. I mean, everyone can kind of accept we're sort of more or less there. There's still some challenges, still some supportive factors, but you know, isn't it about what really happens next? That's what people really should be caring about And there's that view out there that will at least for it with us that it's going to be reasonably subdued, because there's still affordability pressures.
Speaker 2:mortgage rates are going to be necessarily being cut anytime soon Or, you know, dramatically so, and you've got still credit rules in place, potentially DTIs. So you know more about that next phase of the cycle, and then you know, we're definitely out there thinking that it's going to be going to be reasonably quiet.
Speaker 1:So so yeah, I'd probably focus more on that as well.
Speaker 2:So yeah, we'll see.
Speaker 1:Yeah, bang on. And I mean on that note, you know we could look at our buy classification data. I know we just got June's data for that as well and one of the key features there has been the first-time buyer strength, especially as a proportion of all sales. They continue to work their way in the market. You know, we know emotional buyers if you can get that money. Lvrs I've now loosened, of course, as well, so that certainly seems to be boosting those FHBs recently.
Speaker 1:And actually I looked at the detail here and The number of first-time buyers. So previously we've talked about the fact that there's fewer transactions happening. First-time buyer share of sales has increased, but there's still not many out there. But when you look at the detail now, the numbers have actually lifted from the low in February. So the number of actual first-time buyers, not just the share of first-time buyers, has increased Since February, as have other buyer groups, so the numbers of them as well. But first-time buyers strengthened more and actually is a raw number. It's the second highest number of first-time buyers. There were the bore properties in June since December 2021. So the second highest in that period of time, the. The one month that was better was December last year where there's a few more, but that that was quite interesting to me, whereas the other, like trend line, the other buyer types, they've been increasing this year but they're still, you know, down on activity from the last couple of years. So again, that's true, the first-time buyers is real, they are managing to find a way.
Speaker 1:We've always talked about the fact that they'll adjust their expectations. They will take advantage of, you know, the looser LVRs, the fact that triple CFA loosened up as well, that would have helped them and their assessment of how much they can service And and they'll, you know, move to, you know, further out from town or whatever it needs to be. So I'm that continues to be the feature for the bi-classification data and again, when you focus on this, it's like, well, what does this mean for the future? They will continue to be there. They are emotional, they're buying long-term. You know the fact that the bottom of the market is there, there abouts, you know. They probably know if you're gonna buy then you need to buy sooner rather than later. There's no point waiting any any longer and that could lead to, obviously, in this increased number and In some areas we'll see a bit more price pressure because there might be two first-time buyers fighting for a property And that's all you need to see those those high performing sales as well.
Speaker 1:So I think that's probably, you know, something that'll shape the market coming up. As well as that, they will continue to be a Relatively, you know, decent buyer group and the coming months and quarters and year or so, whereas investors are going to continue to be dealing with a difficult market from them from a regulatory perspective, from a financial perspective. You know we've talked about the fact there could be change with a change in government, but DTIs might cap any enthusiasm that comes off the back of that, so that could shape things as well. So, yeah, it is a fascinating one. It does help us to really understand the drivers of the market when we look at who's who's the more active. But that to me, you know, first-time buyers will remain probably our key focus in terms of their activity and what that might mean for further growth in the market While investors do continue to be squeezed. I suppose is one way of putting it. Any other insights from that? by classification data that you took from the update, mate?
Speaker 2:Not a lot, i just add around the integration of the LVR's and and You know the potentially timing issues in here, because different things are measured at different stages of the process, with, you know, lending data relating to drawdowns and bio classification being your title transfers and there's a timing issue in here. But you know, i think you can make a case that the looser LVR's Have probably potentially played a role here as well. Keep in mind They were announced in late April as soon as they were announced, everyone thought yeah, i mean that's, that's just gonna happen.
Speaker 2:So you know they could have been some a bit of a bit more action there coming through in May Which is then hitting sort of you know, transfer data in June potentially. That it feels like a timing sort of there. So, yeah, so looser LVR's be part of that as well. And you know we've talked lots about how, basically, all of that High LVR speed limit that the banks have goes to first-time buyers. You know they pretty much pretty much take all of that allowance. So you know you increase that allowance a bit But more money available for first-time buyers So that helps the market share.
Speaker 2:So and on the flip side that you know the LVR data is still So tight for investors, you know pretty much no investors are getting in with with without the required deposit, which, yes, has come down from 40% to 35%, but still very few people actually able to get those loans. You know the the banks operating well below that speed limit. So so, yeah, the interaction with LVR's is part of it. But all those other things you talked about the emotional factor people wanted to get on the ladder and using KiwiSaver potentially- Bank of Mo and Dad.
Speaker 2:All these things are helping. So So, yeah, first-time buyers definitely a key group and I think I said last week, you know, watching Movers as well with, you know, perhaps financing up a little bit, maybe some confidence coming back, that pent up demand for people to relocate, in terms of owner occupiers and obviously investors as well. There are lots of challenges, but election coming up, you know, is there a window? So, yeah, i mean that's an awesome data set and, yeah, we'll be watching every month for sure.
Speaker 1:Yeah, absolutely Yeah. I had an interesting media call this morning I'm someone asking about, you know, because housing's affordability, do we have this generation coming through that just to say that they're never gonna be able to own property ever? And so they start to turn to other things and just be, you know, comfortable and okay with renting essentially for life, and whether that sort of changes the game. And I think that you know, from a very broad perspective I'm not sure when this article will, all this piece will be live on in the media, but I think from a broader perspective, yeah, i think we are thinking about a changing you know face of who's gonna own property in the future, because some people will just see it's, you know, perpetually unaffordable. They'll need to obviously be considerate of what are they doing to save for retirement, because that is one of the main reasons people buy property, whether it's unoccupied or as an investment property. And it's gonna take some time to shift that mentality. But if it truly is unaffordable for some people, especially if they don't have parents with property who might be able to help them out, then I will look at other options. But it's gonna take some time, i think, for that Q mentality to shift completely away from property that you're gonna see more and more owner Listen less unoccupies, listen less first-home buyers out there and that, aside of that, of course, as well as that, we need to see continued regulation and security of tenure for renting.
Speaker 1:You know the models always compared to you know Germany that so many people are happy to rent for life, but the market is very different, but the mindset and the rights and And the availability for tenants as well.
Speaker 1:So I think that it is a bit of a changing Face of the market in terms of you know what first-home buyers want to do. For now They still those that can, are still happy to buy and keen to buy, but there's no doubt that's gonna be increasing pockets of people who will see it is just never affordable and I'll look to other other opportunities for investment and then they'll just need to be comfortable in their renting situation and and getting a good landlord and having a good relationship from that perspective too. So they've got that security of tenure. If they are gonna start a family They don't feel like they're gonna, you know, be shifting around houses every year and the effect that might have on, you know, bringing up your children and different schools and whatnot too. So a really interesting one, i think, because it is changing, but I don't think it's gonna be a dramatic change, and so you know something to watch occur and change over a longer period of time.
Speaker 2:Anyway, Yeah, for sure. Yeah, there's an interesting financial part to it at the moment, isn't there? Yeah, at the moment we'll talk about rents, i think, coming up, but some signs of rental growth might have picked up a burden and rents are high in relation to incomes, but mortgage payments have just gone through the roof with the increase in mortgage rates. So if you're looking at a simple dollar comparison of what it costs to rent versus what it costs to pay a mortgage for a period there, it was actually cheaper to pay a mortgage when interest rates were 2%, but that's dramatically shifted around. So there is sort of this. I suppose if people are renting, it's kind of like I'll just stay renting for a bit, because it's actually relatively cheaper at the moment.
Speaker 2:So that could be a dynamic as well, not preventing lots of first-aid buyers still getting into the market a lot of just talked about. But yeah, there's the financial sort of have shifted around a bit as well. So, yeah, lots to ponder.
Speaker 1:Part of the appeal of being a homeowner and having a mortgage is it's a feeling of forced savings, right That you've got this money that's going in towards investing in the asset you live in. At the end of it, hopefully, you're freehold and then you've got no rental costs or no housing costs when you retire. The key thing, i suppose, for anyone that sees they're going to rent for life is, if there's a difference between what your rental payment is and what your mortgage would be, is that you save that difference into some sort of investment vehicle. You should have reduced costs, you know, then a homeowner as well, you don't have to worry about maintaining that property. So, again, it's about making sure that you're productive with what you're doing with the rest of that money. If there is a difference between your rental costs and what your mortgage costs will be over time, so that you are investing in some asset that grows in value over time and again provides you with some source of income that subsidizes you in retirement. So that's the key thing, i suppose, and you and I have talked about this in the past right, it's one thing to try and reduce the attractiveness of property as an investment vehicle, you know, bring the stick in, for example, to stop property investors. Where's the carrot? I say actually, you know you should be investing your money elsewhere and, whether it's tax benefits or whatever it might be to try and get people investing in other things again because they're going to have to support themselves in retirement. We know we can't all rely on the superannuation fund, you know, and retirement age could increase at some age. So we need a plan. At the moment, most people, rightly or wrongly, see property as that main core plan to a comfortable retirement. What are your other options? And while there are some out there, can we make them even more attractive? So yeah, it's a really interesting discussion and maybe we should move on now, but I'm sure this will be some theme anyway that we'll talk about, you know, over the coming years, really, because it is a changing of the market anyway.
Speaker 1:Yeah, sure, let's move on to a couple of the releases from last week. The first one I thought we just touched on is the building consent data for May. Obviously this data, as we expected it's continuing to fall, but still, you know, provide that context well ahead of the long term average. And my question to you, cal, and maybe you can go through some of the detail here, but provide that context, give a bit of perspective, and I wonder what could normal look like. We know we've come down from this peak of, you know, almost 51,000 consents on a 12 month basis. What does normal look like? Are we expecting to hover around about that 35K mark? Do you think that's realistic and probable, or where's your head at with this?
Speaker 2:Yeah, i mean the actual figures down 18% year on year in May. So now it's comparing back to a higher base. Of course the annual comparison is going to be negative, but you know it's the eighth fall in a row. So we're definitely into that downwards trend at top of a wall to sort of kick in. But it's definitely here now And even there you know there's probably been.
Speaker 2:I mean, even that number might be flat a little bit by this whole change to the insulation standards and maybe some people potentially, you know, bringing consents forward to sort of get ahead of that and add extra costs. So there's a bit of, there's potentially some temporary sort of things in there that are playing with the figures which might actually mean we get an even sharper slowdown, you know, in the next couple of months. But still down with strain is there and from a developer's end, a buyer's perspective, you know the factors have moved against the house, prices are down, makes it harder for a developer to get these things to stack up and frustrates a higher effects by sides of the equation is going to cost you more as a borrower, but you know a developer is financing this out of debt.
Speaker 2:to get these projects done is going to be costing more as well. And of course building costs are up, you know they have to charge higher prices and a market has come down. you know this, this pincer movement there. So all of those factors are suggesting we're going to see more falls and consents. There's still been a pipeline of consents approved, that massive pipeline we've had previously. So as big builders themselves are kind of still we busy getting through that pipeline, i suppose, then the concern is yeah where we ultimately get to in terms of consents and workloads.
Speaker 2:You know that's that's probably the main thing is actually how many houses get built, because we know some consents fall over and you know I never built that sort of thing.
Speaker 2:Yeah, i mean, we've had conversations in the past with various people in the industry that there's a feeling that somewhere around 35, 35,000 dwelling consents a year is sort of the capacity, the sort of long run norm or we can kind of handle or we can get built. As I say, it's not so much about consents but actually how much you get built And seems like there's this wouldn't be called a consensus necessarily, but I think there is a feeling out there that that's sort of the mark. Now we're still well above that. The annual total for the last 12 months is about 45,000. So we're still quite a long way above that 35,000. You know, things never sort of get back to average and just start that average forever. You're probably going to get a period where they they undershoot maybe, and I guess the concern is all the hope is that we don't don't undershoot to the same degree as what happened back after the GFC when they got down to 13,000 or something.
Speaker 1:So yeah, 11.
Speaker 2:Yeah, 11. Yeah, so it's pretty low. So yeah, i mean, i haven't thought about it too much but I'd imagine, if it's right, that 35,000 is the kind of norm for consents and or houses built. We might be in for a year or two where it's below that 30,000, 25,000, something before it, before it starts to come back again and maybe interest rates fall and we get that continued population growth. We see a bit of a pick up again. So yeah, that's kind of what I think is going on cycles. You know they don't get back to the average and stay there forever. It's up and down. So yeah, that's kind of the things keeping around in my mind.
Speaker 2:And there's incentives there now, Okay, interest and activity might change in October or early next year with a potential change of government, but for now there's those incentives for people to buy new builds. Lvrs are incentivising new builds. A DTI system would probably incentivise new builds. So yeah, the hope is that we don't see that post GFC experience. But we're still in a downturn. It's probably got much further to go. We may go below, below normal, you know, before recovering again. That's sort of where I'd go. But yeah, there's still a pipeline out there for builders to work through so that you know activity on the ground will be high for a while. But we'll just see that continue downturning concerns, i guess.
Speaker 1:Yeah, absolutely, and I think, like I said, there's probably has been some pressure on the industry that might be reducing now And it takes some time to get back to that new normal. But I wonder if here the new long-term average will in future be around about that 35k, as you said. It might drop below and go back above, but maybe for the next 10 years the average over that period of time will be 35,000, after we've sort of settled into some level of normality. Notwithstanding, there could be major change. You know that could force these up or down. Who knows what the future holds. But yeah, that sort of feels like about right to me. And but yeah, good, good, good thinking on that one.
Speaker 1:The other release last week was, of course, an update to this new data set. The Reserve Bank have been producing the lending origination data. So, essentially, what terms are people favouring when they are refixing, when they are having a credit event and fixing their mortgage In general? Kelvin, what do you say? More people taking slightly longer terms, simply chasing the best rate? Is that? is that fair?
Speaker 2:Yeah, it seems that way. So we saw in May 67% of new loans were fixed for up to two years. So you know, a six month fix or one year fix or two year fix 67%. In the previous few months that was more like 74, 75%. So in May itself there was a bit of a reduced preference for those shorter fixes, so a bit more of an increased preference for, say, a three year fix.
Speaker 2:Now if you look at interest rates there's quite a margin between. So three year fix now sort of standard rate seems to be sort of yes, 6.2, 6.3, you know, on Reserve Bank figures It's about 50 basis points below or 50 or 60, probably below a typical one year rate. So there is that sort of incentive there. People are looking at those rates and going, oh yeah, the three year fix is cheap, i'll go for that one. So it seems like that might be impacting the actual behavior. In May People went for those slightly longer fixes. It's not a long fix but slightly longer. But also, you know these figures are really new.
Speaker 2:If you look back at the history it's only going back a couple of years And it does. There are quite big jumps from month to month So it could just be simply monthly variability or we'll kind of have to test the numbers a bit more. But you know you can see the interest rates are looking. You know that sweet spot could be a three year fix for some people And then you can sort of see that coming through and lending behavior. The risk there, of course, is that in the next couple of years interest rates actual rates fall and you find yourself locked in at, you know, 6.3 when market rates are 5.8 or something. Not saying that will definitely happen, but you know there is that. That is what sort of interest rate curves are saying at the moment. So yeah, there's obviously people make their own borrowing decisions based on their own circumstances And that's all good.
Speaker 2:But yeah it looks like the people are potentially chasing just whatever's cheapest on offer at the time, and it seems to be coming through in May, so we'll see how it goes.
Speaker 1:Yeah, which is interesting, right, If that is the reasoning, then yeah, might be because people are going yeah, ok, maybe it means we pay a higher rate for a longer period. But I'm favoring certainty and that slightly lower interest rate because you know the extra 50 or 60 basis points does squeeze my you know costs and everything personal expenses so much that actually I'm better to do that and then worry about the other stuff in the future. And, like you say, while many people and the interest rate curves are what I do expect and just rates should fall now, maybe some stage next year, you know that's far from consensus or you know, no one really knows to be fair, there's so many other things to happen between now and then. What happens with inflation, you know international influence, all these things that you know. When you balance all that up, you can see why people would start to favor that one, but might just show a little bit of the mentality that, yeah, favor the lower rates because you need to keep that payment or that jump from your old payment and new payment as small as possible to So.
Speaker 1:Certainly you know thing to watch from that perspective and why. You know we'll be interested in this data. We've talked past about, you know, trying to use this data also to understand when the big bubbles of refixing comes up, but it's limited from that perspective too. So, yeah, certainly one to still continue to watch and give you a bit of insight into, maybe, the mentality of those people that are taking on that debt right now and what they're choosing to do, which will be influenced by those in the market the brokers, the bankers, talking about what the options are out there. But if people do favor the lowest rate, then I think that shows you a bit of the mentality of what's going on out there. Yeah, for sure.
Speaker 2:Yeah, oh, and there's, you know there's a big argument, there's a big case that says, well, you know, act on what you know now. you know, i know what interest rates are now. who knows what they're going to do in the future. So, you know, make the best decision right now And it's all you can do, really, isn't it? And you know, sort of go from there. So so yeah, i mean three years, four years, cheapest rates. we can see in the lending data that people are tending to opt for them. So yeah yeah.
Speaker 1:Well, good, speaking of interest rates this week coming up, we do have the Reserve Bank's decision on Wednesday two o'clock for the OCR. Might have mentioned it last week, i think you know it's a smaller release from them. It's literally just an OCR decision and maybe a bit of a statement, but no full monetary policy statement. Surely no surprises this Wednesday, kelvin, is that you know? is that what you're thinking? I mean, i know that we're never going to. They're always liable to throw one thing at us, but surely now it looks pretty comfortable that we'll see no increase to the OCR.
Speaker 2:Yeah, yeah, i think so. I mean it's that they're going to keep the OCR unchanged. There'll be more about the language. You know this is one of these ones where it's probably trying to interpret what they're saying and you know what, probably what that if they say anything about, you know how long away interest rate cuts might be or their feelings on sort of recession. You know what's going on sort of on that side of things, rather than the actual decision itself, which seems pretty locked in. That's more about sort of you know, right in between the lines, what we can tease out about what might happen, not necessarily even next, probably the next decisions, pretty much locked in as well. But I guess you know what's going to happen in 2024? Can we get any insight about that And has anything changed from the from the previous set of forecasts, sort of six weeks ago? So I think it'll be very much more about that.
Speaker 2:In terms of mortgage rates, well, you know I still still sort of stick to the view that they must be sort of at a general peak, but you know there's still scope within that for individual banks to tinker with their own rates And we've seen that. You know there's been some, some modest increases to to mortgage rates in the past, sort of we could do as as banks react to, you know, internal pricing decisions, offshore factors with wholesale rates. So I guess when we say mortgage rates at a peak again, it's a bit of poetic license there's always scope for for individual banks to tinker at the margins.
Speaker 2:But I think people can still conclude generally that if the OCR is peak then mortgage rates can be close enough, can sort of quantify that worst case and go from there, not withstanding scope for for small changes here and there. So so, yeah, i think so that's kind of the general lie lie of the land. But also you know the fact that mortgage rates aren't likely to fall materially anytime soon either. So even if they don't go up much, you know the possibility of big falls in the next sort of six or 12 months probably isn't isn't that high either. So it is a probably a story of higher for longer, for a while yet.
Speaker 1:Yeah, i think it would be interesting to see their read on recent data releases. So you know what, what they, what their take is on some of the inflation expectations or inflation data that we're seeing through, some of the data measuring the economy. What's the take on all that? And I just thought about it now. Actually, i know that last time they actually did a vote and they published the vote from them, from the, from the committee.
Speaker 1:I wonder and suspect they'll do the same thing again. So what could be interesting is are they all in consensus that hold it, or are there some that might go? actually, you know, another increase or maybe a decrease? you know, if they get one or two people voting other than a, than a flattening, then that could be of real interest. So maybe that's one thing to look out for, assuming they do have a vote and they do publish that vote, and that's not just what happens every three months at the full statement. So that could be one to look out for and give a bit of a guide to what could be next. Again, things will change over time, but I just wonder about that as another, another one to watch for.
Speaker 2:Anyway, Yep, yep, sure, yeah, the ones in the UK, they, they made it published the votes each, you know, each month, and or however often they reviewed the cash right again, remember often it was. but yeah, it does give you an insight. It's almost like you know the betting odds or whatever. the spreads are shifting And so, yeah, it's definitely keep an eye on that one.
Speaker 1:Yeah, and it also, you know, should reiterate the fact that it shows that it's not just one man. despite the fact that Adrian or the governor and releases all the stuff and talks about it, it's not just one man making a decision. This is a committee. that comes to you know, they have a discussion about it and they voted the end of it. So you know, again, increasing the transparency of what's going on here, i think it's really important to talk about that.
Speaker 1:And maybe just one quick check across the Tasman to the Reserve Bank of Australia do meet more frequently to decide the OCO, although I think they might even change and shift more towards the Reserve Bank of New Zealand's policy. But they decided last week and they did keep their official cash rate, or overnight cash rate on hold, lower than ours, of course, and they were, i think, from commentators over there. they were pretty split as to what the expectation was. I think, probably most favored a little that there might be an increase to the official cash rate. So the Reserve Bank over there surprised slightly and holding it flat. But again, you know, there are some consistencies worth watching across the Tasman And the fact that they held might also lead to the Reserve Bank, seeing that they are comfortable following through with, as you said, their expectation from six weeks ago that the 5.5% is a peak for now way a little bit longer.
Speaker 1:So wait and see how this pans out. We know that there's people refixing, a lot of people refixing their mortgages. see how well they handle this and then, you know, maybe come to decision, decision time and in three or four months time, later in the year, when they know a bit more and a bit more certainty and comfort and making a call one way or the other to what might be next. So, yeah, maybe, maybe that's the key thing right now. Yeah, other releases.
Speaker 2:Yeah, wait and wait and see. There's the mode there and now.
Speaker 1:Yeah, the wait and see mode agreed. The other releases this week, calvin. from an internal perspective we are releasing the Cordell Construction Cost Index for Q2. You touched earlier on building costs and the fact that you know there's still an increase happening here. Of course inflation is still happening, but the rate of inflation is reducing. That's probably the key thing to look out from our perspective. There's also migration data for May from Stats New Zealand, rental prices from Stats New Zealand for June And we expect the Real Estate Institute's statistics, both sales volumes and the house price index, to pay attention to later on in the week for June as well. Your pick of those releases or any other comments you want to make as people expect to come on those ones.
Speaker 2:Yeah, probably I'm just looking across that list sort of going. You know the general tone will be sort of stronger. I suppose, if you want to call it that, you know we're probably still going to have a reasonable net migration number. Obviously the background is it's been really high lately and maybe some signs and April's figures that it's slowed down a little bit. But even after a slowdown it's still been pretty high. So I guess you know you'd say that still strong population growth flowing through to potentially strengthening rental growth, which you know we've started to see that maybe coming through in May's figures. So we'll get that during update. So it could be a strengthening a rental growth a little bit. And yeah, i mean the area and Z figures. So in sales activity last month maybe just signs of a turning round. So I guess people will be really watching that See if activity did pick up again in June. And yeah, i guess what everyone's watching House price indices right now and they've for any signs that it's flattened off or even started to increase a little bit.
Speaker 2:So yeah you get the general feeling that cross net migration, across rents and potentially across kind of sales activity, that the general tone will be will be a bit stronger. So yeah, we'll see.
Speaker 1:Yeah, very interesting, and I think you know the rest of the issue don't release seasonal adjustment on their index, but some of the economists do, and that's why you get varying results and have different reads on that as well. So certainly one thing to pay attention to, depending on headlines that come off the back of that as well. And, yeah, so that's one thing I think I just be wary of, or soon to be be conscious of, and of course it is a short week. It might even this might even happen later in the week, as we have the month that you keep public holiday. So that could be something for your Friday reading, as the reins and data comes out later in the week. The other thing to mention is that I will be recording the monthly video this week as well, so that should be published later in the week.
Speaker 1:I suspect the one thing for this is I have to record before the official cash rate decision on Wednesday afternoon. Now I'm going to go at it and say that you know, in the record I'm probably going to say the Reserve Bank this week or this month didn't increase the official cash rate. So if they do, then I'm going to have to rerecord the whole thing, or certainly a section of it. But my plan at this stage is that I'm so confident we're not going to see any surprises here, i can record and talk about something that's happening in the future as if it's happened in the past. So for those train spotters out there, you can wait till that one's published later in the week and you'll certainly get a feel for how I've done that one. Anyway, i'm going to record two different sections. So please, reserve Bank, don't spring a surprise. Let me go at it with a simple view on it, and that'll be published later in the week anyway.
Speaker 2:Yeah, nice one. I mean I'm writing a note to do with the official cash rate, but I've got scope to change it after the event. You know this is a different kettle of fish isn't it?
Speaker 1:I might talk to the team about recording two sections or, you know, two little bits wherever I talk with the Reserve Bank and that's, in set, the right one, depending on what happens. But yeah, if we're sitting at 99,99,95%, maybe no change, then maybe I don't have to record that second piece. but could we make a look, a fall if it's wrong? So we'll see on that one, but watch out for that. Alright, mate, anything else on your mind? or should I send us away today?
Speaker 2:No, no, let's get into it. It's a lot to do on a short week.
Speaker 1:Indeed, yeah, good call. Yeah, i got a few days, a few hours and days off this week with school holiday juggling. And the one thing I didn't mention at the start, of course, was that, you know, start of school holidays last week and we've got renovations happening at our house and the digger managed to hit our fibre cable. So not ideal first day of school holidays last Monday to be out of internet for either working from home or trying to keep kids distracted on devices. But we're through that now. So hopefully this week we're all good And that'll certainly dictate how things go this week and got a bit of time off, both of us to spend some time at home. So, yeah, enjoy your week, mate. Say to everyone else that's juggling school holidays. But just want to say thanks very much, calvin, for your thoughts, as per usual. Thank you very much for listening.
Speaker 1:Make sure you do subscribe to the podcast and feel free to get in touch with us to all our details within the show notes of the podcast player you're listening through right now. Smith. thanks again. My name is Nick. He's Calvin. You've been listening to the Zener Property Market podcast. See you all.
