Tony Alexander | The Big Picture | NZHL

Taken from Tea with Tony September 2022

This month we look at the big picture – recession, will we, or won’t we?

We’ve seen another increase in the official cash rate and with further rises to come what does this mean for interest rates? 

And house prices continue to fall but are we entering the end stage?

Here’s Tony’s take.

Recession or no recession, what does it mean?

A recession usually means a sharp increase in the unemployment rate impacting household spending and an increase in distressed sales. However, Tony emphasises there are key differences from what we have seen previously, including the current labour shortage. Although businesses are indicating a negative outlook, with current low staffing numbers many are stilling looking to hire.

While Tony predicts a weakening in retail spending due to the cost of living, he doesn’t predict a downwards spiral.

However, Tony notes the strong possibility of international recession with Monetary policy tightening in the United States, zero Covid strategies in China and the energy price crisis in Europe and the United Kingdom.

Although international job losses usually see fewer visitors with the border opening, Tony says we will still see more visitors than we did a year ago.

However, international cutbacks on export products could impact New Zealand, with vulnerability in logging due to the downturn of China’s building sector. While this is negative for New Zealand, as a food exporting nation- due to a number of international factors resulting in high food prices – Tony says there is still strong support for the primary sector.

Interest rates & inflation, what’s happening?

Tony explains that after rising interest rates from an aggressive low in 2020 and 2021, the Reserve Bank is now entering a ‘difficult stage’ of determining how much more restraint they need.

Tony predicts uncertainty will likely continue over the next few months until we get an accurate feel for where inflation is sitting. Tony is quick to stress the unreliability of forecasting and predictions currently, however, he believes we have seen the peak in fixed interest rates with a slight decrease (0.2 – 0.4%). He doesn’t expect to see a fall in rates over the next 6 months due to tight bank lending margins which are lower than normal.

However, Tony is expecting a slow decline into lower interest rates in the second half of 2023.

House price predictions, Tony’s advice

In an uncertain market, Tony claims the only thing he feels ‘very certain’ about is that he cannot accurately pick when house prices bottom out.

Tony cautions first home buyers about trying to predict this and waiting for the lowest point and advises them to remember why they are buying the house.

Tony poses a question to first home buyers – are you focused on waiting to buy at the bottom of the house price cycle or on buying a house while housing stock has doubled (from last year) and vendors are willing to cut a deal to sell?

As for his advice, Tony says, “Stop treating housing as an investment to trade over the cycle, remember why people buy their first house – it’s to be in it for ten, twenty, thirty years to raise a family.

This is an environment where first-home buyers really need to focus on what’s most important.

Personally, for me, if it were my kids I would say ‘you don’t know where the bottom of the market is, I don’t, get on with your life”.

First home buyers, are they back?              

According to Tony’s surveys, first home buyers are stepping forward with a net 5% of real estate agent respondents saying they are seeing more compared to a month prior when 36% said they were seeing fewer first home buyers.

Additionally, a net 7% claim to see a rise in open home attendance.  However, property investors are still stepping back, and auction attendance is still on the decline, although this is slowing.

Tony emphasises this is a unique opportunity for first home buyers to get on the property without the competition of investors and while the choice of property listings is at its maximum (107% above last year) with listings likely to decline again in 2023.

The end game

While Tony can’t predict when house prices will hit their lowest point, he believes we are in the end game of house price decreases however, the prices are still on the decline.

And, with the end of the credit crunch hitting earlier in the year, 25% of Tony’s mortgage advisor respondents claim banks are more willing to lend.

However, Tony notes buyers are still concerned with interest rates and access to finance and are still showing signs of FOOP (fear of overpaying). Tony concludes that while the housing market is still weak, the pace of weakening is slowing down.

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*Please note – Tony Alexander is an independent economist. His views are his own and not necessarily shared by NZHL or vice versa. Tea with Tony is brought to you by NZHL in a sponsored capacity.