It’s no wonder NZ Reserve Bank governor, Allan Bollard hinted last Thursday that New Zealand’s official interest rates would be cut later this year, even though inflation was expected peak around 4.7% for the Consumer Price Measure by September.
He left the Official Cash Rate unchanged at 8.25%: for NZ’s embattled housing and real estate sectors, that’s still too high as figures out yesterday showed yet another fall in house prices last month.
And new home starts in the first quarter fell sharply from the fourth quarter as demand and higher interest rates bite home.
It was quite a telling admission by the governor as he pointed out that since March; the economy had slowed even further than previously forecast as inflation and world oil prices continued to rise.
He also pointed out that oil prices had risen 30% since March. Friday night he and the rest of the world received a rude reminder of the fragility and volatility of world oil prices and economic growth as the US labour market worsened in May and oil prices rose 8% in the day and 16% for the week.
So will this force him to trim rates earlier than the September quarter, as he seemed to offer last week, or will next month do?
The fall in NZ house prices was for a third month in a row: like Australia, housing is a good indicator of the pain being felt in the domestic economy, along with retail sales, which fell 1.6% in the first quarter.
The average Kiwi house price fell 0.3% from April to NZ$387,299 in May, according to Quotable Value New Zealand, the government’s valuation agency.
The organisation said that over the year May house prices rose 2.4%, the smallest rise since the monthly series began in February 2005. That’s half the 4.9% rise in the year to April and indicates the pace of the decline.
Governor Bollard last week forecast in the RBNZ’s Quarterly Monetary Policy Statement that he expects Kiwi house prices to fall 7.7% in the current year, and doesn’t see any recovery until 2011.
"While most areas are still holding their value from a year ago, some areas are beginning to report small declines” said Mark Dow of QV Valuations said in a statement on the website.
“Whether properties are holding their value or being sold beneath previous expectations is being influenced by how much pressure the owner feels to sell. There are increasing reports that where sellers aren’t under financial pressure or needing to relocate, they are choosing to take their properties off the market or rent them out rather than accept lower offers.
"Both our preliminary statistics, and feedback from our valuers in the field, suggest that this decline is set to continue for some time yet” said Mr Dow.
“Buyers have a luxury they haven’t experienced for a number of years where there is far less pressure to make a quick purchase decision. Buyers can now benefit more than ever from doing their research in order to make the most informed decision possible” said Mr Dow.
According to the NZ real Estate Institute the number of home sales fell to a 16-year low in April and there seems to have been no sign of any improvement in May from yesterday’s figures.
Around 87% of NZ mortgages by value are at fixed rates and won’t immediately benefit from any cut in official interest rates. That means homeowners will feel the pain of higher effective rates for the next year at least. Many mortgages have an annual fixed period of two years and the average rate on such a loan now is 9.89%, up just over 1% in a year.
The news is bad for the banks (mostly the big Australian four who control 80% of the market) in that home loan volumes are falling. But income will be maintained for the next year on the existing pool,
More bad news for the banks and building companies (e.g.Fletcher Building, James Hardie) as New Zealand’s building industry sagged badly in the first quarter.
The value of residential building work put in place fell 6.6% in the March quarter (after removal of price changes and seasonal fluctuation), Statistics New Zealand said in a report yesterday.
It said the March quarter fall followed a drop of 2.0% in the December 2007 quarter.
"Non-residential building work fell 5.9% in the March quarter, following a rise of 12% in the December, 2007 quarter. These changes are largely due to work on commercial buildings.
"The value of all building work put in place fell 6.3% in the March quarter, following a rise of 3.1% in the December quarter.
"The trend for residential building work has decreased for the latest two quarters, while for non-residential building work the trend has increased for the latest three quarters.
"The actual value of all building work was $3,082 million in the March 2008 quarter, with residential and non-residential building work contributing 62% and 38% of this value, respectively," the agency reported.
