See full article from Interest.co.nz below:
By David Hargreaves
ANZ economists say latest sales figures are consistent with a housing market that’s nearing a turn, while the increased demand for housing from migration is likely to put upward pressure on prices.
The boost to housing demand from surging migration figures poses “some upside risk” to house prices, according to economists at the country’s largest bank.
In their NZ Weekly Data Wrap publication the ANZ economists say the latest figures released last week showed that the REINZ House Price Index was unchanged on a seasonally adjusted basis in April.
“Coupled with a 7.1% month-on-month (seasonally adjusted) increase in sales (albeit from very low levels), and no change in the number of days to sell, the outturn was consistent with a housing market that’s nearing a turn,” the economists said.
“While it’s only one month of data, it adds upside risk to our recently updated house price forecast (an 18% peak-to-trough decline, from 22% previously). While we’re not expecting house prices to take off again, the boost to demand from surging migration does pose some upside risk.”
The economists say there tends to be “a lagged relationship” between net migration and house prices, “and while correlation doesn’t necessarily imply causation, the increased demand for housing at a time when new supply is slowing is likely to put upward pressure on prices”.
“That said, there’s still plenty of downward pressure from other headwinds, namely relatively high borrowing costs, a slowing economy, and a loosening labour market.”
The ANZ economists have been forecasting an annual increase in net inbound migration of 40,000 this year.
But they note that net migration continued to surge in March, with a net inflow of 12,100 new migrants, and revisions to Stats NZ’s historical data adding an extra 1000 migrants in the last year.
“The annualised rate for the first three months of the year is nearly 130k – well in excess of the highs we saw pre-Covid. That certainly adds upside risk to our forecasts for activity, labour supply and house prices, as we all budge up,” the economists said.
They noted that the impact on inflation of migration, however, is ambiguous.
“All else equal, greater labour supply will ease capacity constraints in the tight labour market and reduce wage pressures.
“But wages tend to respond with a lag, and new migrants entering the country add to demand in other areas, particularly the housing market.”
The economists say the overall inflation impact of migration will partly depend on the composition of new migrants (eg families tend to boost demand more than single working migrants).
“Research has tended to show that migration is net positive for demand, and the RBNZ noted in April that it poses upside risks to inflation in the medium term.
“Given the current capacity constraints in the labour market, labour supply growth may be more disinflationary than usual. But our gut feel is that it’s an upside risk to the OCR [Official Cash Rate].”
The RBNZ has its next review of the OCR next week and is widely expected to do one more 25-basis-point move (taking the rate to 5.5%) before pausing to assess the situation and gauge how the inflation outlook pans out in coming months. Inflation as measured by the Consumers Price Index (CPI) was at an annual rate of 6.7% as of the March quarter, down from 7.2% as of the December 2022 quarter – but still a long way outside of the RBNZ’s targeted 1% to 3% range.
