1. Rental growth still running at double its normal speed
There was more bad news for tenants last week, as Stats NZ reported rental growth of 5.8% in the 2021 calendar year, down from the 7.8% rise in the year to September, but still roughly twice its normal speed (long-term average of 3%). Given that tenants’ incomes are a binding anchor on rental growth, eventually the current pace has to slow. But for now it certainly seems that landlords have the pricing power, and are acting fast to recoup higher costs such as mortgages and the loss of interest deductibility on their tax returns.
2. Thursday’s CPI inflation will emphasise further scope for mortgage rate rises
This week’s data (due Thursday 10.45am) could show that consumers price inflation hit 6% or so in the 2021 calendar year, a multi-decade high. In turn, it’ll probably mean a lot of chat about the scope for the probable official cash rate increase on February 23 to become a 0.5% rise rather than 0.25%. Needless to say, we haven’t seen the end of mortgage rate increases yet.
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3. It’s going to be a quieter year for real estate agents
To my mind, December’s data confirmed that property sales volumes have passed their peak and that they’ll ease downwards in both 2022 and 2023, as the market adjusts to key changes such as tighter credit conditions and of course higher mortgage rates themselves. Our forecasting model points to a drop in sales volumes from around 97,500 in 2021 to about 91,000 this year and 88,500 in 2023 (compared to long-run norm of about 97,000). If anything, the difficulty of capturing ‘credit conditions’ in a numerical model suggests that the risks are to the downside too.
CoreLogic chief economist Kelvin Davison: “We haven’t seen the end of mortgage rate increases yet.” Photo / Supplied
4. And fewer sales will help listings to be replenished
With less property leaving the pipeline at the sales end, a continued flow of new listings onto the market (potentially some from investors who can no longer find the equity and/or stomach higher costs at a time when gross rental yields are low) will help to increase choice for buyers and take a degree of pricing power away from vendors. Bay of Plenty, Wellington, and Otago are key regions where the total stock of listings on the market has already risen significantly.
5. Keep watching the monthly filled jobs data
Also out this week are the filled jobs figures from Stats NZ on Friday (covering December). They’ve been buoyant for several months now and the latest numbers are also likely to be strong. But the labour market is something I’ll be watching closely this year, as it could be the difference between a property market slowdown or a more serious downturn.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
