1. The unemployment rate: bad news is good?
Stats NZ’s Q2 labour market figures released last week were good and bad. Clearly, with the unemployment rate rising from 5.1% to 5.2% – and only prevented from going higher because the overall size of the labour force stayed flat and the participation rate amongst those people actually dropped a bit (70.7% to 70.5%) – you could hardly say this is a positive set of stats.
However, it’s also worth keeping in mind that 5.2% was a touch lower than most economists had been expecting, and on top of that, it doesn’t act as any sort of barrier to another official cash rate cut on August 20 – as the Reserve Bank looks to respond to weak economic activity and head off the risk that inflation undershoots the 1-3% target down the track.
2. Property values are going nowhere fast
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The weakness of the labour market remains a restraint on house prices at present, even as the effects of the falls in mortgage rates over the past year continue to filter through. Indeed, the Cotality Home Value Index showed a 0.2% drop in national median values in July, and although areas such as Hamilton and Tauranga rose, Wellington, Dunedin, and Auckland saw further falls.
Looking ahead, the continued rise in sales activity is still bringing down the stock of listings on the market gradually. But they started from such a high level that buyers will probably enjoy plenty of choice for a while yet, meaning that any competitive price pressures that eventually re-emerge could be small and slow to come through.
3. Still going longer, but less long in June
Turning to the mortgage market, the Reserve Bank’s data for June showed that a reasonable number of new borrowers are keeping some debt on a floating rate, but also that longer-term fixed rates remain more popular than they were in the second half of last year. However, those fixed-rate borrowers didn’t go quite as long in June, just shifting back a bit from two-year rates towards 18 months and 12 months.
Cotality chief economist Kelvin Davidson: "The weakness of migration and, hence, overall population growth is a key reason for flat property rents." Photo / Peter Meecham
This may reflect some attractive rate offers for one-year fixes in June, but probably also a sense from borrowers that they’ll still be able to fix at a similarly low rate when that loan rolls over in mid-2026. A rolling series of one-year fixed rates has always tended to be fairly popular with NZ borrowers, but it did fall short in mid-2021 when most people may well have regretted not taking a five-year rate at less than 3%. Let’s hope, for borrowers' sake, that the mistake is not being repeated now!
4. Keeping a close eye on inflation
On that front, nobody is anticipating a repeat of the previous spike in inflation, so a big surge in shorter-duration mortgage rates in the near term isn’t a central scenario at present. However, we shouldn’t overlook inflation entirely, and this week’s (Friday) selected price indexes figures for July from Stats NZ will be closely watched. The hope of course is that the inflation pulse provided by these monthly figures (covering about 45% of the quarterly CPI) will have eased a bit.
5. Net migration set to fall again?
Finally for the week ahead, we’ll get the June net migration figures from Stats NZ, also on Friday. Migration has continued fall in recent months as departures have remained high, and there doesn’t seem anything to suggest this trend will be arrested in the latest numbers. The weakness of migration and, hence, overall population growth is a key reason for flat property rents.
- Kelvin Davidson is chief economist at property insights firm Cotality
