YO U R I NVE STI N G
Going Up, Going Down Economist Cameron Bagrie takes a good, hard look at New Zealand and how we’re going as a nation.
Stating the obvious No longer a one-way bet From the new Chief Economist of the Reserve Bank in his first speech. “For several decades,
we have traded houses among ourselves at ever-increasing prices in the belief that we were creating prosperity. But the tide may well have turned against housing being a one-way bet for a generation of Kiwis.”
The Chief Economist’s statements are hardly surprising when you consider that interest rates are higher than they were in 2017 (and house prices are still around 45 per cent above 2017 levels), and migration is now a net outflow, not an inflow. We are consenting a lot of houses such that supply is exceeding population-based demand. Credit conditions are tighter and the tax regime less friendly.
What goes up… House prices continue to retreat. The REINZ might still be reporting annual growth in house prices, but house prices have fallen considerably after peaking in November 2021. Since that peak, house prices nationally are down 9 per cent and in Auckland they have dropped 13 per cent.
Following the trail of debt When interest rates rise, you follow the trail of debt. Household debt has risen $88 billion in the past four years. Around $165 billion of mortgage debt is due to refinance in the coming 12 months. A one-year fixed rate has gone from 2.2 per cent to 5.5 per cent. Ouch.
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The nadir The annual rate of inflation looks to have peaked at 7.3 per cent. Now, the focus is on how quickly it can come back down. That is the real challenge. Many economists, including myself, expect inflation to be stickier, and difficult to get back to 2 per cent consistently. Reasons include a modest reversal of globalisation (think outsourcing to China); worker shortages and wage increases exceeding productivity growth; climate change costs; a rising presence of government; and ongoing supply shocks.
