Meanwhile, we are keeping an eye out for the Real Estate Institute’s residential results for June, which could well come to the public gaze by the end of this week. Recent housing market trends show prices, generally, to be going sideways in Christchurch, modestly down in Auckland and up almost everywhere else.
We expect the REINZ June data to show more of the same. But with Auckland’s large weighting, nationwide house price inflation is expected to fall further. Importantly, the recent decline in Auckland house prices is now getting significant media coverage. This can be self-fulfilling to the extent that folk fearful that a market might correct are more likely to withdraw from it (buyers that is) and sellers will either delist their properties, simply not sell or, if under pressure, accept lower prices than might otherwise be the case.
Party’s Over? Certainly, there is already anecdotal evidence of speculators looking to exit the market for fear of getting burnt. All of this can lead to a sentiment-driven price correction over and above what market fundamentals might dictate. We still think genuine excess demand will underwrite the Auckland housing market but, equally, the prospect of a reasonable correction in prices grows by the day. From a Reserve Bank perspective, housing market developments will certainly play into its lower-for-longer rates strategy. So too will weak inflation numbers. We are forecasting next week’s Consumers Price Index to rise just 0.1% over the June quarter which will result in annual inflation nudging below the magical 2.0% mark to just 1.8%. This is lower than the 0.3%/2.1% combo that the Reserve Bank had in its May Monetary Policy Statement (MPS), largely due to the recent slump in petrol prices. While petrol prices are driving the overall CPI lower, food prices are working in quite the opposite direction, thanks to adverse weather conditions locally impacting fresh fruit and vege prices, while there is heightened inflation in global food prices too. Our Q2 CPI expectation is based on food prices rising 0.8% through the quarter. For this to be so, the June Food Price Index reading, due for release on Thursday, will have to increase about the 0.3% we anticipate. Whatever the outcome, it is unlikely to worry the RBNZ’s inflation forecasts to the upside given price movements elsewhere (such as falling petrol prices) and the deflationary forces from the New Zealand dollar Trade Weighted Index which is running stronger than the Reserve Bank assumed in its May MPS.
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