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Household consumption has been solid over 2015, despite a slowdown seen in other areas of the economy – such as agriculture and exports. Household spending grew 3.1% in the year to June 2015, and subsequent data indicates strong consumption growth into the September quarter. Some of the boost in retail sales is likely to be due to the buoyant tourism sector, with a record 3 million tourists entering NZ in the past year (see our recent note on tourism here). Nevertheless, spending on goods not normally associated with the tourist trade - such as motor vehicles, electronics and hardware - also reported robust sales growth, suggesting that local households have also been happy to spend. We see four key reasons why consumption has remained robust, including:
We expect the factors listed above will remain supportive of household spending over 2016 and provide a boost to general economic growth. As such, the outlook is looking positive for the retail sector as we head into the New Year.
We have seen a considerable turnaround in house price appreciation since the introduction of several new housing-related policies a couple of months ago. As such, the pace of national house price appreciation has fallen from a rate of 20% yoy in September, down to 12% yoy in November. The NZ government has introduced new rules around property taxation (effective from 1 October) and the Reserve Bank of New Zealand (RBNZ) has also brought in new restrictions requiring1 a 30% deposit on property investment purchases in Auckland from the start of November. In anticipation of these changes, there was a very strong run-up in house sales over the middle of this year, with the Auckland market experiencing particularly strong turnover. Property investors are reported to have made up 40% of Auckland property sales earlier this year, but recent data suggests that many investors sold-up in Auckland before the tax rule changes were applied and are now looking at alternative regions.
Given the large amount of activity concentrated in the Auckland market, the national house price figures have been amplified by significant increases in prices and sales in that region. House prices in Auckland increased by almost 30% over the year to September and have accounted for almost half of national sales this year. The tables now look to be turning, with Auckland house price appreciation dropping back to 17% yoy in November and demand starting to pick up elsewhere. Looking around the country, sales have increased in almost every region – and sales typically tend to move ahead of rising prices – indicating that further price increases could be on the way. For those in the Waikato/Bay of Plenty and Wellington regions, median house prices have already hit new highs at $392,500 and $435,000 respectively. The REINZ data for November showed that sales outside of Auckland were up almost 24% relative to this time last year. The RBNZ has also loosened up its loan-to-value ratio restrictions outside of Auckland to allow banks to lend up to 15% of their lending to those with less than a 20% deposit, which should make it a bit easier for those with a smaller deposit to get on the property ladder.
In addition, mortgage rates remain at historically low levels and the RBNZ’s recent 25bp OCR cut has already seen banks quickly reduce floating mortgage rates further– which may well encourage more people to enter the property market in the year ahead. The outlook for housing-related industries such as construction, real estate services, and durable goods is likely to remain strong for at least another year or two yet.
1 Banks may lend up to 5% of lending in this group to those with < 30% deposit but this will be very limited.
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