Economic Analysis by Tony Alexander.
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1. There are signs that Chinese buyers are returning. If true then extra demand lies ahead, one day to be added to by buyers from India.
2. Interest rates have just been cut, further cuts lie ahead, the pool of savers needing to boost yield through assets other than bank deposits has grown again and will grow further.
3. There remains a big stack of young people wanting to buy property, some catching up on buying they have delayed since 2007.
4. Ney migration inflows are not only high and expected to stay high, they are still growing and 60% of the net flow goes to Auckland.
5. The number of dwelling consents being issued in Auckland is running at about half the number needed just to stabilise the shortage at current levels.The Auckland housing market has been in pause mode since about October last year. We can see this in the Days to Sell measure which went from 3.5 days faster than average in September, 4.2 days in August and 5.1 days in July to only 0.9 days in October, 0.4 days slower than average in November, 0.4 days faster in December and only 0.1 days faster than average in January. I’ll tell you February’s outcome further along. The stratified median dwelling sales price rose 2.6% in August and 3.3% in September, then fell 4% in October, was flat in November, then fell 2.3% in December and again in January. I will tell you February’s result below. The Auckland market has paused since October and that was when the requirement for all buyers to have an IRD number came into play along with the two year bright line test for capital gains tax. And from November 1 all investors needed at least a 30% deposit. But now look at the February numbers. The Days to Sell measure in Auckland for February was 3.7 days faster than average. Back at September’s level. The median stratified dwelling sales price jumped 5.5%. The upshot? There are growing signs that after pausing for four months the Auckland market is sparking back into life with new assistance now from the latest easing of monetary policy and indications of more to come. Will the return of Auckland strength be at the expense of the rest of the country’s surge? No. Its a nationwide phenomena now. NZ Dollar The Kiwi dollar was edging lower this week until the Federal Reserve adopted a more dovish than expected tone last night whilst leaving their funds rate target unchanged. We end against the USD just over 67 cents compared with just under last week. Nothing interesting to note in other words. More interesting is the NZD’s continuing weakness against the Aussie dollar. The AUD was lifted a couple of weeks ago by anticipation of some further improvement in minerals prices stemming from China’s stepped up efforts to boost growth focussing on infrastructure. The NZD is near where it was last Thursday against the AUD at about 89 cents. Personally speaking it feels like a good level to shift some funds back to NZ from Australia. You will find current spot rates here. http://www.xe.com/currency/nzd-new-zealand-dollar If I Were A Borrower What Would I Do? The surprise move by the Reserve Bank last week to cut the OCR to 2.25% provides us with an opportunity to remind everyone of a key point we have been making with regard to interest rates for six years now. You are foolish to make your interest rate risk management decisions highly dependent upon a particular set of interest rate forecasts proving accurate. As noted here so many times before, our ability to forecast interest rates has gone out the window post-GFC because apart from correctly picking the 1% rise in the cash rate over 2014 we and everyone else have gotten essentially nothing right – since late-2007 in fact. We cannot pick the low point in interest rates this cycle. There is in fact no identifiable cycle in place. Monetary policies globally are in uncharted territory, inflation forecasts are repeatedly too high yet the world is awash with printed money looking for a home which pre-GFC would have sparked a massive inflation surge. Post-GFC households and businesses are reluctant to boost their debt levels – dairy farmers being the exception. Were I borrowing at the moment maybe to buy another disused bar in Auckland (see The Listener, February 29) I would have one-third floating to allow repayment flexibility and offsetting against credit funds, and the rest fixed for two years at 4.39%. If I Were An Investor …I’d see a BNZ Private Banker The text at this link explains why I do not include a section discussing what I would do if I were an investor. http://tonyalexander.co.nz/regular-publications/bnz-weekly-overview/if-i-were-an-investor/ For Noting
Current account deficit at just 3.1% of GDP = very low and one reason for NZD strength.
Probable Trump candidacy for Republicans in the US. Impact on NZ. No-one knows. Not even him.
Brexit? Increasingly probable. Source of weakness for both the British pound and Euro, upside for other currencies, huge uncertainties and deeper questions about the future of the European Union.
Wellington house prices – lots more upside to come. Big catch-up with Auckland.
GDP up 0.9% in the December quarter after 0.9% in the September quarter bringing calendar year growth of 2.5% forecast to rise above 3% soon. The economy is in a strong state with many sectors offsetting weakness in dairying – just as we have been saying for all the past year and will do so for all this year.