Editorial: Green shoots in property sector point to economic rebound

The Reserve Bank will be keeping a close eye on inflation, house prices and mortgage rates. Photo / 123rf

Editorial

New reports that suggest the housing market slump is nearing bottom will be welcome news for many New Zealanders.

If true, they could also signal a rebound in consumer confidence.

But we should be wary of assuming that the slowing of price declines will be followed by a return to the heady days of the property market boom.

Like the final series of Succession, this economic cycle almost certainly has more twists in it.

There are some fair winds that have underpinned optimism in reports by OneRoof, CoreLogic and the ANZ Bank in the past few days.

The Reserve Bank’s big call last week - indicating the Official Cash Rate (OCR) was now at its peak - will have sparked optimism in the property sector that there is light at the end of the tunnel with regard to high mortgage rates.

We have also started to see a big turnaround in immigration.

New Zealand’s population is growing again at a rapid pace. The annual net migration gain is running at around 66,000 a year, but in the past few months, gains have been at record-breaking levels.

If we annualise the net migration gain for the year to date we’d see a population gain of more than 100,000 people this year.

Those people are going to have to live somewhere.

Meanwhile building consent numbers are falling - albeit still running at historically high levels.

Simple supply and demand suggests a market rebound is not far off.

But that doesn’t necessarily equate to a straight-line recovery.

ANZ, which has forecast a turnaround in the market from the September quarter, warns that the Reserve Bank may not be able to let the rebound stand.

For better or worse, property remains central to the New Zealand economy, primarily based on the wealth effect it creates for home-owning consumers.

Any sudden rebound in the property sector would likely have inflationary consequences.

That means the Reserve Bank would be forced to respond by hiking the OCR further.

Governor Adrian Orr has not made any promises to keep the OCR on hold.

He has offered a forecast based on the facts as he and the monetary policy committee saw them last Wednesday.

Those facts could change. If property prices rebound and lift economic activity before inflation is under control, the OCR will go higher.

There is no avoiding the pain of rebalancing this economy.

So - despite some horror stories being highlighted in the media - the data suggests most Kiwis are coping with higher mortgage rates.

The Centrix credit report for April showed home loan arrears declined for the first time in eight months.

Despite rises in the past year, they still remain below pre-Covid levels, when they were 1.35 per cent in December 2019.

Those who followed the stop-start post-GFC recovery will recall the term “green shoots” being deployed many times by commentators.

In reality, it took years for those shoots to bloom.

We should take heart that green shoots are starting to emerge in this economic cycle. But we can’t afford to relax just yet.