The latest REINZ data revealed an unprecedented 11,000 house sales in May and the median house price rose to a record $210,000 – a rise of almost 12% over the past 12 months.
The ongoing strength of net immigration is continuing to create significant demand for housing.
In defiance of the tightening of entry criteria for new arrivals in late 2002, yet another new record of more than 42,500 people was seen in the 12 months to May, an increase of 36% on the same period last year.
The relative strength of New Zealand’s economy (and labour market in particular) and this country’s isolation from the world’s trouble spots is still attracting new arrivals and ex-pat Kiwis, as well as dissuading New Zealanders from leaving.
Moreover, after the ugly experience of a three year bear market in global shares, rental properties have been firmly re-established as the investment of choice for New Zealanders.
And, of course, the housing market is a direct beneficiary of the Reserve Bank’s efforts to bolster a slowing economy via cutting the Official Cash Rate. The RBNZ has signalled that another 25 basis point cut to 5% is likely in late July.
But with some of the risks associated with SARS and electricity problems now waning and the domestic economy remaining fundamentally sound, we would caution against expecting the RBNZ to cut the OCR much further (if at all) than that.
Borrowers who have been holding out for the lows in fixed rates should also be aware that longer term wholesale rates are starting to move higher – a process we expect to continue as a gradual US-led recovery in the world economy takes hold during the second half of the year.
David Drage is the chief economist at ANZ Bank.
