Editorial: Stalled housing market a symptom of economy stuck in neutral

Monetary policy is doing its job. Photo / Getty Images

EDITORIAL

If you’re buying or selling a house right now, you’re probably well aware of the state of the property market.

Prices have ticked back up into positive territory, but sales volumes have been extremely low. The days it takes to sell a house have also risen.

Hopes we were back on the way to normal market conditions appear to have stalled - along with market forecasts for impending interest rate cuts.

“Stagnant,” is how ANZ economists describe it all in their latest Property Focus report.

“Days to sell in Auckland are back near their 2022 peak, with the average home taking around 48 days to sell,” ANZ says.

As a barometer for the broader economy, the housing market is often derided for not being productive or driving real wealth creation.

But there is no getting around the fact it means something in a country where the family home still represents the primary story of wealth for most people.

For better or worse, it is hard to imagine a booming economy in this country that isn’t underpinned by strong house price growth.

And on that basis, things are not looking good right now.

For those hoping a resurgent housing market might inject a bit of life into the struggling economy, there are few signs we’ll see a sudden turnaround in the next few months.

As with so many sectors of the economy, it feels as if the cycle has stalled.

Much of that has to do with the glacial pace at which inflation is subsiding. We’re headed in the right direction. Food and transport prices have fallen.

But the tougher, domestic component of inflation - the rising costs we are still passing on to each other - are not coming out fast enough for the Reserve Bank.

That means more pain ahead and more headwinds for housing. At least that’s the prevailing view among economists. We’ll get the official verdict next Wednesday when the RBNZ delivers its latest Monetary Policy Statement.

ANZ has forecast a hike to the official cash rate. In fact, its economists expect two more rate hikes by May, taking the Official Cash Rate to 6 per cent.

That would certainly put a dampener on any hopes for a significant lift in housing market activity.

Most economists disagree, arguing the rate will stay on hold through most of the year. But few are prepared to pick a cut any time soon.

Signals coming from the RBNZ are hawkish. Governor Adrian Orr seems highly focused on getting inflation back in its box before he gives the housing market any cause for cheer.

Monetary policy is doing its job. It has smoothed the economic cycle and helped New Zealand avoid a major recession.

But the path back to something we can call a “good economy” is proving long and slow. It will get tougher before it gets better.

The economic message for 2024 remains the same: hold on, hang in there. Trust that there is a rebound coming. Just don’t count on it in the next few months.