It's a wee while since we received positive news and data relevant to the residential real estate market in New Zealand, and unfortunately the review of monetary policy by the Reserve Bank this week was more bad news. The central bank has grown more concerned about the pace with which inflation is falling in New Zealand, and have slightly delayed their pick for when they cut the official cash rate from the middle of 2025 into the second half.
They noted that they had even had a discussion about raising the cash rate at the moment but did not proceed with that.
So in one regard, the news from their meeting was positive
But most forecasters have pushed out their expectations for when the first cut in the official cash rate comes by two or three months, with the common pick now being around the middle of next year.
I still think there's a good chance of a cut coming before the end of the year because I can see from my regular monthly survey of businesses that plans for raising prices are starting to be rapidly reined in. This is exactly what the Reserve Bank is waiting to see in order to gain confidence that inflation is on a good downward track.
But they're not going to take the word of my survey as the key indicator of this happening. Instead, they'll pay a lot of attention to the ANZ’s monthly business outlook survey where business pricing plans have yet to start consistently declining.
Given the recent declines in both business and consumer sentiment, it seems reasonable to expect that as we go through winter and perhaps even through spring, the level of activity in the residential real estate market will remain relatively muted. Gains in house prices are eventually going to return, and as interest rates fall through 2025, the impact of strong population growth set against declining new numbers of new dwellings will produce some potentially firm upward pressure on prices.
But for this year, there is a chance we see prices flat to slightly falling over the next 6 or so months
This of course is very good news for those buyers who have their deposit together and don't really care if prices should fall 2 or 3% soon after they make their purchase.
Even for investors the purchasing environment is relatively good, although I can tell from my various monthly surveys that there is an increase underway in the number of investors who are looking to sell. These are likely to be older ones growing concerned about the sharp increases in council rates and insurance costs plus business owners looking to free up cash to help their business financial position.
A key thing to keep an eye on is one’s exposure to builders and those associated with the construction trade. The deterioration in the outlook for construction this year — which was beyond what I had been expecting — means that liquidations are going to continue apace.
This doesn’t mean that I would forsake getting a house built this year or even purchasing a unit off the plan. But I would get someone to give insight into the financial position of the business I would be paying my funds to, in order to secure the property.
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