Download Rock star economy but who can afford a house?

Rock star economy but who
can afford a house?
NZ Update
Chris Tennent-Brown – ASB Senior Economist
August 2015
Topics
• NZ economic snapshot.
• Housing market comments.
• Strengths and weaknesses– sectors and regions.
• What next?
2
Disclaimer
This document is a private communication and is not intended for
public circulation or for the use of any third party, without the
approval of ASB. The information contained in this document is
given with an express disclaimer of responsibility. No right of
action shall arise against ASB or its employees either directly or
indirectly as a result of this information. Those acting upon this
information do so entirely at their own risk. This information
does not purport to make any recommendation upon which you
may reasonably rely without taking further and more specific
advice.
3
Rock star economic growth
%
NZ GDP GROWTH
%
7
7
Annual av erage %
(f)
5
5
3
3
1
1
-1
-1
Per quarter
-3
Mar-89
4
Source: Stats NZ, ASB
Mar-94
Mar-99
Mar-04
-3
Mar-09
Mar-14
• Growth trend is around 2.53%. Largely led by strong
population growth, consumer
spending.
• Great performance by global
standards.
• Export outlook mixed. Dairy a
key risk this year.
• Low interest rates and lower
NZD will support growth over
2016.
Dairy doldrums
$
MILK PRICE AND DIVIDENDS
(per kg milksolid)
10
Source: Fonterra, ASB
Dividend
ASB Milk Price
forecasts
8
Milk Price
6
4
• However, taking a step back
(and a deep breath), we
expect the dairy price bottom
is nigh.
• Nonetheless, the milk price
this year is going to be low.
2
0
05 06 07 08 09 10 11 12 13 14 15 16 17 Long Run
5
• Dairy fundamentals are taking
a back seat to very weak
market sentiment for now.
Elsewhere, it’s a little more encouraging
Index
June 2011
year = 1
1.6
PRICES FOR SELECTED NZ FOOD
EXPORTS TO CHINA
Source: Stats NZ
Kiwifruit
1.5
NZ EXPORTS
$
$
(Annual $ billion)
18
36
Dairy
Source: Stats NZ
Beef
1.4
15
30
12
24
Mutton
1.3
Lamb
1.2
Other (RHS)
9
1.1
Wine
1.0
Meat
6
18
12
0.9
0.8
3
Dairy (whole milk powder)
6
Forestry
0.7
0
Note: 2015 includes 11 months to May
0.6
2011
2012
2013
2014
0
05
2015
06
07
08
09
10
11
12
13
14
15
2016
• Weaker dollar, reasonable prices, and lower interest rates
6
Tourism doing well
'000
NZ SHORT TERM ARRIVALS
'000
(m onthly, seasonally adjusted)
280
RWC
CWC
260
ANNUAL CHINESE SHORT-TERM
ARRIVALS
350
300
240
250
Lions tour
200
220
150
200
100
180
50
Source: Stats NZ
160
05 06 07 08 09 10 11 12 13 14 15
Source: Stats NZ
0
Jan-00
Jan-03
Jan-06
Jan-09
Jan-12
Jan-15
• Record tourist arrivals over the past year
• Lower NZD a boost for local operators
• Chinese visitor arrivals keep lifting, Australians keep coming.
7
Strong population growth
NZ NET MIGRATION
(annual total)
'000s
'000s
60
60
50
50
40
40
30
30
20
20
10
10
0
0
-10
-10
Source: Stats NZ
-20
Jan-90
8
-20
Jan-95
Jan-00
Jan-05
Jan-10
Jan-15
• Net migration at record highs.
• Fewer permanent departures
as Australian job opportunities
slow.
• Increased permanent arrivals,
returning NZer’s from
Australia and skill shortages
attracting foreign labour.
Strong labour demand AND supply
EMPLOYMENT & UNEMPLOYMENT
%
%
6
12
(f)
Annual employ ment growth
10
3
8
6
0
4
Unemploy ment rate (rhs)
2
Source: Stats NZ, ASB forecasts
-3
Mar-93 Mar-97 Mar-01 Mar-05 Mar-09 Mar-13 Mar-17
0
• Labour demand is strong, with
employment up 3% yoy.
• Construction and manufacturing
key drivers of employment
demand.
• However, labour supply is
growing strongly.
• Strong net migration, dominated
by young people motivated to
find jobs.
• Nominal wage growth is weak,
but real wage growth is strong.
9
Sector employment stories
SECTOR GROWTH (000's, annual change)
Manufacturing
Construction
Retail trade, and accommoda-tion and…
Arts, recreation, and other services(3)
Information media and telecom-…
Agriculture, forestry, and fishing
Health care and social assistance
Professional, scientific, technical,…
Rental, hiring, and real estate services
Financial and insurance services
Transport, postal, and warehousing
Electricity, gas, water, and waste services
Mining
Education and training
Public administration and safety
Wholesale trade
-25
10
-15
-5
5
15
25
Sector growth stories (GDP)
NON-RESIDENTI AL INVESTMENT
(annual average growth)
%
Q1 2015 PRODUCTION GDP
(Annual % Change)
0.0
40
Source: Stats NZ, ASB est
Agr i/forestry/fishi ng
(f)
30
Mining
20
Manufactu ring
10
`
Elect/g as/water/waste
0
Constru ction
-10
Wholesale Trade
-20
Retail Trad e & Accommodation
-30
Mar-89 Mar-93 Mar-97 Mar-01 Mar-05 Mar-09 Mar-13 Mar-17
Transport/postal/wareho using
Media/telecommu nicatio ns
%
RESIDENTIAL INVESTMENT
(annual average growth)
Fin. & insuran ce service s
30
Rental/hiring/rea l estate
20
Pro f/scien tific/technical/admin
10
Pub lic admin & safe ty
`
0
Edu cation /trainin g
Health car e/social assistance
-10
Arts/recrea tio n/other services
-20
Source: Stats NZ, ASB est
(f)
-30
Mar-89 Mar-93 Mar-97 Mar-01 Mar-05 Mar-09 Mar-13 Mar-17
11
2.5
5.0
7.5
10.0 12.5
Housing construction
RESIDENTIAL BUILDING CONSENTS
AUCKLAND RESIDENTIAL CONSENTS
(3mma, thousands)
(3 m onth m oving average)
000's
000's
3.5
2.4
700
Source: Stats NZ
3.0
2.0
600
Houses
NZ
500
2.5
Townhouses
1.6
Apartments
400
2.0
1.2
300
1.5
0.8
200
1.0
0.4
Source: Stats NZ
0.5
Jan-95
12
Auckland (rhs)
0.0
Jan-00
100
Jan-05
Jan-10
Jan-15
0
Jan-95
Jan-00
Jan-05
Jan-10
Jan-15
By region……
Share of NZ economy
Mar-14
%
Annual growth =
Qtr(t) / Qtr(t-4)
Northland
Auckland
Waikato
Bay of Plenty
Gisborne
Hawke's Bay
Taranaki
Manawatu-Wanganui
Wellington
Tasman
Nelson
Marlborough
West Coast
Canterbury
Otago
Southland
New Zealand
2.5
35.3
9.0
5.2
0.7
2.8
4.0
4.0
13.2
1.8
1.0
0.7
13.1
4.3
2.4
100

The place to be
13
Population
Jun-14
000s
000s annual
growth
166
0.9%
1527
2.3%
431
1.5%
282
0.9%
47
0.2%
159
0.6%
115
1.1%
232
0.4%
492
1.0%
49
0.6%
49
1.2%
45
0.2%
33 -0.6%
574
2.0%
212
1.4%
97
0.5%
4510
1.5%
Employment
Mar-15
000s annual
growth
74 -0.1%
797 4.8%
221 2.9%
139 3.7%
99
3.6%
60
108
266
4.2%
2.0%
-0.9%
91
1.1%
330
122
55
2361
3.7%
4.1%
5.4%
3.2%

Be there or be square
Retail Trade
Mar-15
$m annual
growth
430
9%
5295
10%
1401.9
7%
899
1%
128
-2%
385
4%
255
-4%
632
4%
1548
5%
157
17%
202
15%
164
-6%
95 -38%
2109
13%
827
7%
277
11%
14805
7%

Fair to middling
House Prices
Mar-15
$000s annual
growth
341 2.2%
790 13.9%
358 3.7%
401 4.3%
263 -2.5%
333 1.0%
337 2.1%
253 0.5%
438 0.7%
420 0.8%
402 2.6%
365 3.0%
199 -0.7%
442 5.5%
352 3.5%
220 1.2%
491 7.7%
Construction
Mar-15
$m annual
growth
81
-4%
1162
14%
277
-4%
188
20%
12
28%
68
7%
62 -11%
95
51%
244 -23%
39
62%
24
1%
36
45%
17
6%
1072
17%
166
14%
44
13%
3588
10%
New Car Sales
Mar-15
No. annual
growth
1183
8%
28449
16%
4503
14%
2948
16%
235
-9%
1272
8%
1032
10%
1981
7%
5248
11%

Needs an energy injection

Take pity
1220
12%
237
8028
1790
692
58818
20%
14%
13%
-3%
14%
Rating
Mar-15
5 - hot
1- not
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






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The NZ economy
14
RBNZ: Rock Star Governor?
15
RBNZ rate cuts will keep mortgage rates low
NZ INTEREST RATES
%
%
10
10
10-year govt bond
8
8
(f)
6
6
4
4
OCR
2
Mar-01
16
Mar-05
Mar-09
Mar-13
2
Mar-17
• RBNZ cut the OCR 25bp in
both June and July.
• We expect 2 further 25bp
cuts over the rest of 2015, to
2.5%.
– Weak dairy outlook
– Falling business
confidence,
– Canterbury rebuild has
peaked
Mortgage rates
%
HOME LOAN RATES
%
(Specials and low LVR Rates)
%
8
8
Source: ASB
8.0
8.0
%
HOME LOAN RATES
10-y ear av erage
July 2014
Variable Rate
7.0
7
7.0
5-y ear
7
Two-y ear ahead
f orecast
Current
6
6
5
5
6.0
6.0
2-year
1-y ear
5.0
3-y ear
5.0
Source: ASB
4.0
Jan-14 Apr -14 Jul-14 Oct-14 Jan-15 Apr -15 Jul-15
17
4.0
Current Low LVR
special rates
4
Var iable
Rate
1-year rate
3-year rate
4
5-year rate
Housing market
18
Supply and demand
NUMBER OF WEEKS INVENTORY
TOTAL HOUSING INVENTORY
(thousands, seasonally adjusted)
70
Source: realestate.co.nz
20
60
17
54
60
50
Nationwide (rhs)
40
14
48
11
42
Nationwide
30
Auckland
20
8
10
Wellington
Auckland
0
Jan-07
36
Canterbury
Source: realestate.co.nz
5
Jan-07
Jan-09
Jan-11
Jan-13
30
Jan-09
Jan-11
Jan-13
Jan-15
Jan-15
• In Auckland there is only 9.6 weeks’ inventory of houses for sale.
• Nationwide inventory of houses for sale is nearly 20% below a
year earlier (20 weeks’ worth).
• Asking prices in Auckland are at a record high. The combination
of very low mortgage rates and low numbers of listings means
more house price gains should be expected.
19
What next?
ASB Housing Confidence Survey (Source: Camorra)
Net percent who believe
(3 months to July 2015) …
Auckland
Rest of North Island
Canterbury
Rest of South Island
TOTAL NZ
Compare 3 months to April 2015
Good time to
buy a house
House prices
will increase
Interest rates
will increase
-27%
0%
-17%
-3%
-11%
-8%
71%
63%
58%
61%
65%
56%
-7%
0%
-7%
0%
-3%
11%
• House price expectations hit a record within the latest ASB
Housing Confidence Survey, with a net 65% of respondents
expecting house prices will increase.
• Far fewer respondents expect higher interest rates, and more
people are expecting interest rate declines this year.
• Sentiment about buying a house varies from region to region.
Nationwide a net 11% see now as a bad time to buy.
20
Housing market
REGIONAL HOUSE PRICE FORECASTS
(annual growth)
25%
ASB f /c
20%
AKL
15%
5%
• Canterbury market starting to
find some balance.
CHCH
10%
Other
0%
Wellington
-5%
Nationwide
-10%
Source: QV, ASB(f)
-15%
Mar-06
21
Mar-08
Mar-10
Mar-12
• Auckland housing market still
tight, low interest rates add
further fuel to the fire.
Mar-14
Mar-16
• Outside of Auckland and
Canterbury, low interest rates
boosting demand, housing
demand/supply balanced.
Auckland houses unaffordable
MORTGAGE REPAYMENTS
OF A FIRST HOME BUYER
% H/H INCOME
HOUSE PRICE TO INCOME
10
10
(25 year, 20% deposit)
Total
Auckland
Canterbury
Wellington
8
80
8
70
Illustrative only. Assumes median house
price and median household income.
Auckland
60
6
6
50
40
NZ
4
4
30
Source:StatsNZ, REINZ
Jan 00
22
Jan 05
Jan 10
Jan 15
Source: RBNZ, REINZ, ASB estimates
20
Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16
Debt...doesn’t have to reduce (but it might)
%
NZ HOUSEHOLD DEBT &
HOUSE PRICES
170
Household debt (%
disposable income, lhs)
$, '000
$50 0
$45 0
%
NZ HOUSEHOLD DEBT
(% of disposable income)
180
%
18
household debt (lhs)
160
16
140
14
120
12
100
10
$40 0
140
$35 0
$30 0
110
$25 0
Median house
price (rhs)
$20 0
$15 0
80
80
8
debt serv icing (rhs)
$10 0
60
Source: RBNZ, REINZ
50
Mar-92 Mar-96 Mar-00 Mar-04 Mar-08 Mar-12
23
6
$50
Source: RBNZ
$0
40
Mar-91 Mar-95 Mar-99 Mar-03 Mar-07 Mar-11
4
Other ways of looking at the issue
HOUSE PRICES/NOMINAL GDP
REAL HOUSE PRICE INDEX
(Ratio, Average 1980-2000 = 100I)
(deflated using CPI)
160
200
160
200
Source: QVNZ, ASB
Source: QVNZ, ASB
150
150
100
100
50
50
0
0
62
24
67
72
77
82
87
92
97
02
07
12
17
140
140
120
120
100
100
80
80
70
75
80
85
90
95
00
05
10
15
In other words……
• Some of the housing issues relate to the types of houses we
have built, and still want.
• Zoning also plays a part in affordability.
• So does transport.
• The trade offs to make housing more affordable aren’t easy.
• We need to review our ideas of appropriate housing.
25
Summary
• Global growth gradually recovering.
• NZ economy is set to record 2.5-3% growth over next 2 years.
• But inflation pressures are low, and we expect the RBNZ to cut a
further 50bp, OCR back to 2.5% later this year.
• Housing: continuing upward pressure on house prices and
downward pressure on interest rates.
• Auckland’s affordability stretch will remain a problem for a
while – opportunities for elsewhere.
26
Keep up to date: www.asb.co.nz/reports
27