NZ: Housing market enters 2018 on a firmer footing - ANZ

According to analysts at ANZ, the New Zealand’s housing market has entered 2018 on a firmer footing after cooling through 2017 and from here, they expect the housing market to remain stable, with prices rising at a moderate pace.

Key Quotes

“A key headwind is affordability – particularly in Auckland, where eye‑watering prices are holding the market back from resurgence. But this is not true everywhere. And now that the Auckland market has cooled, the rest of the country is playing ‘catch up’. While there are reasons to expect Auckland house prices to rise faster than elsewhere on average over time, a large and unsustainable divide was created by Auckland’s recent astronomical rise.”

“Going forward, this catch-up dynamic is expected to support the rate of house price inflation outside Auckland. And with steam taken out of the Auckland market and affordability at its limits, we expect price pressures there to remain subdued.”

“Property Gauges

Housing market activity has shown more signs of life of late, bouncing off low levels. However, our overall views have not changed. There are clear opposing forces. On the one hand, strong population growth coupled with a challenged supply backdrop argues that a fundamental supply-demand imbalance will continue to drive prices higher. But this is going head-to-head with tighter lending standards, LVR restrictions (although these are gradually being eased), affordability constraints and possibly more restrictive government policy. We continue to see price growth remaining modest – with ongoing regional divergence expected.”

“Economic Overview

• The economy entered 2018 with more positive news in the foreground. Growth was stronger than initially estimated over recent years. Firms remain cautious, but surveyed business confidence has come off post-election lows. And near-term indicators suggest the economy is growing at around-trend pace, after cooling from the stronger growth seen over 2015/16.
• The economy is navigating some late-cycle headwinds, but the medium-term growth picture is positive, with stimulatory fiscal policy and supportive financial conditions doing their part. We expect OCR hikes in time. But with evidence of a lift in domestic pricing pressures lacking, the OCR looks to be on hold for some time yet.”