Does it make sense to sell now, or hold on until house prices lift again? Photo / Manfred Gottschalk
OPINION
Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide,
Q: How long should we expect house prices to decline?
In other words, does it make sense to sell now, or hold on until they lift again?
– Roger H
A: An absolute Kiwi classic of a question from Roger in the comments section of last week’s Inside Economics. I’m not going to attempt to answer the second part because that really depends on personal circumstances.
But the issue of how long the current slump will last is an interesting one, particularly as the rate cut last month should have injected a bit of positive sentiment into the market.
As it happens, a couple of the major bank economists have had a look at the market in the past week and made some forecasts.
In a report last week, BNZ chief economist Mike Jones wrote that house prices were likely to stay flat through this year but increase by 7% over 2025.
Initially, increased demand driven by lower interest rates would just soak up some of the increased number of houses for sale and avoid further price falls, Jones said.
Real Estate Institute data for July showed that there were almost a third more properties listed for sale than at the same time a year earlier.
But Jones expected that there would be a “modest upswing” in prices.
ANZ also put out its August Property Focus report late last week, titled “Kicking off into the wind”.
The ANZ economists noted that the housing market continued to weaken in July and that subdued sales over months and rising listings on the market suggested weakness was likely to persist in the near term.
But with the Reserve Bank of New Zealand (RBNZ) kickstarting its easing cycle last month, and mortgage rates having already responded, ANZ expects the “dynamics in the market to shift later this year, with a recovery in house prices over 2025″.
The base case was for the Official Cash Rate (OCR) to be cut steadily to 3.50% by the third quarter of 2025.
“We expect prices to stabilise around the end of the year and rise 4.5% over 2025,” the ANZ economists wrote. “We see the risks as balanced around that forecast. A stronger rebound certainly is a plausible scenario, especially if the housing market responds more aggressively to lower interest rates.”
So there you go, a 4.5% increase in 2025 or 7%? Or perhaps somewhere in between. One thing we can surmise from these forecasts is that economists don’t expect lower rates to drive a housing boom any time soon.
As ANZ notes, mortgage rates aren’t the only driver of price. Net migration rates are falling fast so population pressure is unlikely to be a factor. Supply remains pretty strong, especially for apartments.
On balance though, a market growing at a stable rate, somewhere near the return on other investment classes sounds quite promising. Here’s hoping.
With the housing market in the doldrums these past couple of years, the heat has gone out of the debate about a Capital Gains Tax.
Ironically, this would have been a good time to introduce one as it wouldn’t have been particularly onerous on property investors. Sir Michael Cullen’s Tax Working Group proposal would have applied to capital gains from April 2021, catching the profits from the Covid stimulus bubble (which peaked in November 2021).
But since NZ First killed that off in 2019 neither major party has been keen to consider it. Now with an internal debate starting again within the Labour Party, outgoing Treasury chief executive Dr Caralee McLiesh has fuelled the fire in her exit interview with the Herald’s Jenée Tibshraeny.
I was impressed to see the bureaucrat say some things of substance on her departure. It’s not that common these days.
McLiesh also suggested we need to address the growing cost of superannuation, without quite saying the age of eligibility needs to rise.
National has previously been in favour of lifting the Super age to 67. Sir Bill English campaigned on it in 2017. Act also supports it. So it’s quite plausible it will be back on the agenda if National can shake off the need for NZ First as a coalition partner in 2026.
Ultimately McLiesh was stating the obvious around the state of the Crown accounts. The nation has a structural deficit. The Government spends more than it earns.
The only way to fix that is to gather more revenue via tax or cut spending. Otherwise, we’ll just have to keep borrowing which will eventually start to trouble the global rating agencies.
The likes of Fitch Ratings have been generous to date. They affirmed our AA+ credit rating last month based largely on our solid history of fiscal management.
It is not a sustainable strategy though and we all know it.
So, good on McLiesh, an Australian applying an outsider lens, for highlighting the big discussions this country is going to have to have at some point very soon.
Speaking of big, awkward discussions, Australian academic Dr Darren Lim was in New Zealand last week talking to business groups about geoeconomics and our relations with China.
We hear a lot about geopolitics, but what exactly is geoeconomics?
“Geoeconomics is really about how economics affects national security,” says Lim. “So economic transactions, economic actions by governments and by companies.”
Lately, his focus has been on the United States and China relationship and the national security implications that it brings to Australia, Lim says.
In New Zealand, we talk a lot about diversifying away from economic dependence on China.
But Lim says we can’t expect individual companies not to take the highest prices on offer. What he does argue is that they should understand and hedge against the risk that taking the higher price from China comes with geoeconomic risk.
Australian industries such as wine and lobster fisheries have been hit hard by Chinese trade sanctions in recent years.
There’s no getting around that risk and tensions between China and the US are only really in their infancy.
But that doesn’t mean war!
Clearly the prospect of military tension escalating around Taiwan poses the ultimate risk to New Zealand, given we are diplomatically aligned closer to the US and economically to China.
A military standoff would present a choice we don’t ever want to have to make.
“It would be unpalatable, full stop, because war would be incredibly costly for everyone,” Lim says.
“I think both in Beijing and in Washington there is a recognition that war in Taiwan is not something that either sees as in its interests.“
Lim doesn’t see a prospect of war in the next few years but neither does he see tension subsiding as the US and China jockey for position as the dominant power in the Pacific.
“Australia and New Zealand would lose, obviously the Taiwanese people would lose, but the whole world economy would be devastated, including our neighbours in the South Pacific across Southeast Asia, everyone would lose,” he says.
“So it’s in everyone’s interest to maintain the status quo as weird and uncomfortable as that might feel to some. And the question is, how can we promote that?
“Ultimately, it’s about sending a message that it’s, we think it’s inherently bad that Taiwan would be invaded, but it would also be catastrophic for the world and that we – being Australia, New Zealand – who have interest in... preserving the status quo need to engage in a strategy both with Beijing, but also the world to really communicate how catastrophic that would be.
“That’s a very different thing to saying we’ll take this side or this side, you know, once the, you know, the guns start firing.”
It requires a very sophisticated approach, Lim says. But New Zealand is not as powerless to send messages as it sometimes seems, he says.
If you are interested in these issues then I recommend watching the full video interview, as it goes deep into the challenge facing New Zealand. Click the link here.
Finally, we can’t go past a bit of transtasman rivalry. Westpac economist Satish Ranchhod has run the ruler over both economies for a comparative look in his latest research note.
At face value, you’d have to say the Aussies are in better shape. But a headline from the Australian caught my eye this week: “Treasurer turns on RBA, says rates strategy ‘smashing’ economy”.
Australian Treasurer Jim Chalmers really attempted to shift the blame for the slowing economy on to the central bank governor, Michele Bullock, ahead of the release of GDP data this week expected to show growth slowing to a crawl.
Clearly, things are getting tense as Australia’s economy slows. GDP figures out today showed growth of just 0.2% in the second quarter. Crikey Cobber, it’s not even a recession yet.
For the record, Ranchhod notes diverging economic conditions in the two economies, largely due to different monetary policy strategies.
“The RBNZ tightened to a greater extent, resulting in a sharper slowdown in activity, along with more tangible signs that inflation pressures are dissipating,” he writes.
“That’s also meant the RBNZ was able to begin cutting rates sooner. In contrast, policy has been tightened by less in Australia. That’s seen a more resilient labour market and economic growth. But it’s also resulted in a more gradual easing in underlying inflation, with rates remaining on hold for longer.”
The differing approaches implied different risks, Ranchhod said.
“Australian inflation may take longer to fall. In contrast, in New Zealand, there may be larger risks of inflation undershooting 2% and the unemployment rate will peak higher.”
Meanwhile, Australia’s economic growth is likely to outperform ours.
“We’re forecasting the New Zealand economy will contract by 0.3% over 2024 and that it will grow 1.3% in 2025,” Ranchhod wrote. “The Australian economy is forecast to grow 1.6% in 2024 and 2.3% in 2025.”
Unemployment levels are both headed in the same direction but with a sharper rise on this side of the Tasman.
In New Zealand, it has risen from a low of 3.2% to 4.6% currently, and it is expected to rise to 5.6% over the year ahead.
Unemployment in Australia has risen from a low of 3.5% to 4.1% in the March quarter.
It is expected to rise to 4.6% over 2025 – a little above trend levels.
One bright spot has been wage growth, which has remained firm in New Zealand at this stage (with some of that strength due to public sector pay agreements), Ranchhod said.
“Wage growth in Australia has been slightly more modest, in part due to the impact of enterprise agreements.”
That dynamic is unlikely to last though, with local wage growth expected to drop in the year ahead.
Finally, Ranchhod notes that Australia has a much stronger fiscal position, with smaller operating deficits projected over the coming years and much lower levels of net debt – something that gives it a big advantage despite some of the cyclical economic issues being similar.
“Combined, Australia’s superior fiscal and current account positions are likely to be supportive of its longer-term growth potential relative to New Zealand,” he said.
“Those factors also mean that Australia is viewed as ‘lower risk’ by financial markets, with higher borrowing costs in New Zealand. However, that difference is set to narrow over the coming year given the diverging trends in inflation and activity, with interest rate cuts expected sooner in New Zealand.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
Nearly 90% of new mortgage lending in October was floating or fixed for a year or less.