ANALYSIS: I’ve just completed the last of the five surveys I run each month. These provide coalface insights into what is happening in the housing market, but also in business and retail. Some key results worth noting include the following:
First, businesses are quite optimistic about how they will be travelling a year from now, even though they rate the economy as their biggest worry alongside customer demand and the state of politics. That latter factor is occupying more headspace given the uncertainty of the outcome, as highlighted by recent polls.
Business concerns about the regulatory environment are growing. This is also evident in my monthly survey of landlords, who have become increasingly worried about the potential for new legislation favouring tenants and the removal of interest rate deductibility.
Investors are less worried about finding tenants and meeting their mortgage payments even as interest rates rise. Worries about council rates rises remain high, but insurance concerns are slowly shrinking.
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Real estate agents are noticing fewer people at open homes and auctions, and prices are perceived to be falling in most locations. Investors retain a weaker-than-average presence in the market, while first-home buyers are making the most of the power they have over sellers.
Mortgage brokers report that banks are willing to make financing available for buyers, who are strongly favouring two-year fixed rates. A few homeowners have started to show interest in the three-year term following the recent tightening of monetary policy by the Reserve Bank.
Finally, consumers are feeling a bit better about spending more in the coming few months, but the recent resumption of hostilities in the Persian Gulf could easily see the recovery in sentiment go backwards again.
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Overall, the survey results show the housing market in a weak state but coming off its lows. Consumers are poking their heads out of their shells, and businesses are willing to back their hopes for higher revenue with increased spending on both advertising and recruitment.
Placed alongside the underlying fundamentals like good farm incomes, good growth in inbound tourists and foreign students, lower average interest rates than over 2023 and 2024, plus a strong lift in consents for new houses to be built, it seems reasonable to expect economic improvement.
Independent economist Tony Alexander: "Investors are less worried about finding tenants and meeting their mortgage payments even as interest rates rise." Photo / Fiona Goodall
But there is nothing to justify a view that the economy is about to take off and the unemployment rate will soon be heading back down to the 3.2% low of three or so years ago. The Reserve Bank is expressing some deeper concern about inflation staying too high for too long recently, and the just-released data for the June quarter - annual inflation is 4.1% - justifies the concern.
Our economy has grown by 1.5% in the last 12 months, and the unemployment rate is 5.3%. The underlying rate of inflation - stripping out internationally traded items - is 3.4%, just below the 3.5% average for the past two and a half decades. At this point in the economic cycle, this rate should be a lot lower.
Further interest rate increases will come this year, and getting a growth rate for our economy above 4% in the next few years looks very unlikely.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
