Wednesday, April 14, 2010

New Zealand: Retail Sales and Home Loan Approvals

New Zealand released its retail sales figures today, revealing soft figures; affirming suspicions that the recovery is still weak. Sales declined -0.6% from January (where sales rose 0.7%), disappointing those predicting a 0.2% rise. The NZD sold-off sharply against the USD following the release, dropping about 50 bps before returning to pre-announcement levels at around 0.71 (NZDUSD).

The RBNZ weekly home loan approvals data was also out on Wednesday, and showed a continued drop-off in the pace of approvals. The chart below shows the number of loan approvals dropping off on a rolling annual basis and a year on year percent change basis.

Even on a value approved basis home loan approvals are tracking down sharply. Part of this is the realisation that while the recovery is here, it's not yet strong. People are aware of the risks and are opting to spend less and use less debt in preference of building up safety reserves (though capacity to service new loans may also have dropped).

But another aspect weighing on the housing market in New Zealand is the regulatory uncertainty around taxation of investment property. New Zealand is set to close certain loopholes available to property investors such as claiming depreciation losses against personal income. Along with plans to drop the personal tax rate and increase goods and services taxes the moves may well encourage more financial asset investing over property investing.

However there are positive drivers of the property sector at present such as positive net migration, and presently low interest rates (but don't expect this to last), and a wild card will be KiwiSaver first home buyer withdrawals. New Zealanders are allowed to withdraw their contributions from KiwiSaver on the 3rd anniversary of their first contribution to purchase their first home (as well as receiving a subsidy from Housing NZ). Thus this may see an increase in activity around the lower end of the housing market towards the end of 2010 and into 2011 as more individuals qualify.

Overall the outlook for the New Zealand economy is still for a reasonably fragile recovery, but a recovery nonetheless. But given continued weakness in spending and continued deleveraging New Zealand will not be able to rely on a consumer lead recovery. The best way out would be to lift exports and business investment. In terms of the housing market the economic environment is reasonably balanced, but there does not seem to be any strong drivers of prices rises present. The most likely scenario is for further sideways movement in price; probably in track with inflation; but of course regional drivers will see some areas outperform others.

Econ Grapher Analytics
Reserve Bank of New Zealand
Statistics NZ
Real Estate Institute of NZ

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