Roger J Kerr says healthy job market and stronger economy will boost residential property sales

Roger J Kerr says healthy job market and stronger economy will boost residential property sales

 By Roger J Kerr

The stronger employment figures last week convinced some players in the interest rate market that pricing-in absolutely no OCR increases in 2015 was probably not that smart.

Over coming months I expect continuing positive NZ economic data and a mild recovery in dairy export prices to convince a few more investors, borrowers and intermediaries in the NZ short-term interest rate market that two OCR increases of 0.25% next year is more than likely.

The residential property market always plays a pivotal role in the NZ economy and thus the application of monetary policy management.

The housing market levelled off somewhat through the middle part of this year due to LVR regulatory restrictions, mortgage rate increases from March to June and fears of capital gains taxes from a potential Labour coalition government in the lead-up to the September general election.

As we move into summer a number of drivers for residential property have changed again:

- Fixed rate mortgage interest rates are lower today than March when the RBNZ commenced their adjustment away from super loose monetary policy settings. Governor Wheeler cannot control the two to five year fixed rate swap interest rates that the banks price their cost of funds. Lower US Government Bond yields over recent months have produced the much lower term swap rates.

- There is an expectation that the RBNZ will adjust the LVR restrictions lower by increments over time. Some guidance on their plan will be provided later this week.

- Job security is arguably higher today as many sectors signal shortages of skilled and semi-skilled workers. Several industries are actively recruiting from overseas as the massive growth in work permits to foreign nationals testifies.

- The NZ dollar is at a lower entry point for Asian investment buyers of NZ real estate.

- Property, particularly commercial and industrial property, is seen as providing higher investment returns than bank deposit interest rates at 4% and NZ shares that have had a spectacular run up, but may be becoming fully priced.

- Local Government restrictions on fringe-city land availability is still a major factor in keeping land prices artificially high and thus largely out of reach of first home buyers who want to build a house.

The supply shortage of residential houses is being addressed at a rapid rate which will eventually correct the supply/demand imbalance in the market.

However, while credit is easily available and considered cheap the increases in property prices will continue. 

-----------------------------------------------------------

To subscribe to our daily Currency Rate Sheet email, enter your email address here.

Email:   

 

Daily swap rates

Select chart tabs »

The '1 year %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '2 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '3 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '4 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '5 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '7 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '10 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA

 

-----------------------------------------------------------

Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

3 Comments

Comment Filter

Highlight new comments in the last hr(s).

is this satire or "auckland only" article

I'm fairly certain that it is satire.

Pump and dump.