New Zealand’s economic prospects are good for continued steady growth, growing employment and continued low inflation according to the Reserve Bank.
The world economy is growing strongly. New Zealand’s economic growth has strengthened with our major trading partners and is expected to remain so. The trade war between the United States and China is not likely to have a large effect on the New Zealand economy however we may be subject to slower world growth and downward pressure on the NZ dollar should the trade war deepen.
It is unlikely that the OCR (currently 1.75%) will be lowered further as a result of the Reserve Bank’s inflation outlook with loan restrictions continuing to be applied. Although fixed interest rates continue to be at historically low levels the trading banks have been showing caution, especially towards land development, due to the slowing of the property market.
Net migration remains at high levels with employment growth continuing to be strong. The tightening labour market is placing upward pressure on wages and this coupled with increasing supplier costs is placing pressure on margins especially in the construction sector where a number of large building firms have recently run into difficulty.
The residential property market in and around the Bay of Plenty area has slowed considerably since the high activity periods of 2016/2017 which showed strong value increases and short selling periods. 2018 has been somewhat subdued with property values appearing to have levelled off and sales volumes decreasing.
We note the high value properties in well regarded locations have continued to sell well however periphery locations with higher stock levels have showed prices levelling, longer selling periods and diminishing demand.
Main drivers of the housing market:
- Above average levels of net migration continuing to create demand.
- Low interest rates with the expectation that they will remain at low levels for the short to medium term.
- Introduction of new lending rules for other than family home buyers, has had an impact on the market with agencies reporting increasing stock levels and a reduced level of buyer interest with property values flattening.