ANZ Property Focus report
The housing market is showing signs of stabilising after a sizeable recovery (off lows) with volumes and days to sell stable for three months. Limited listings, however, is underpinning prices. Migration continues to rise but so, of course, is the unemployment rate.
The retracement in house sales in October is a timely reminder that it’s not all plain sailing for the real estate market. This month we introduce mortgagee sales and rental growth into the mix of the regular indicators we monitor.
Our core economic views remain unchanged. While momentum continues to build, particularly in relation to the housing market, deleveraging is ongoing and is restraining aggregate momentum. The recent forecast lift in dairy farm incomes will now likely mean any adjustment in that industry occurs in a more orderly fashion, but we see most of the income boost going towards debt repayment. The economy is undergoing a significant process of change, and the greatest uncertainty at present is predicting the behavioural aspect that is inherent in every economic cycle. The more we grasp for the old normal, the greater the risk of a double dip.
We see greater value in maintaining our long-standing strategy of keeping the duration of borrowing short. While it is inevitable that short-term interest rates will rise at some stage, our strategy still applies given that a) so much is already priced into the market and b) structural changes means an upward sloping yield curve is here for the foreseeable future. If you want certainty, there is a price to pay for it.
The RBNZ’s new liquidity requirements for local banks already look to be having an impact on the shape of the mortgage curve. Further regulatory and prudential changes are in the pipeline. The end result will be a steep yield curve, which gives monetary policy a lot of traction when the tightening cycle eventually starts. The flip-side is that it will result in a structural shift lower in the neutral OCR.
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