House prices in New Zealand rose unexpectedly

House prices in New Zealand rose unexpectedly in March

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According to the REINZ this morning, the median house price in New Zealand rose 3.0%m/m to NZ$360,500 in March from NZ$360,000 in February. The stratified median house price was 1.7% higher over the month.

We had expected house prices to fall given the flood of listings that have come onto the market and the uncertainty surrounding possible changes to the way property is taxed, which will likely be announced in the upcoming Budget in May. These two factors will weigh considerably on the housing market in the near-term, leading house prices lower even though the fall in days taken to sell a house in March (from 46 to 35) suggests that house prices will rise.

The further moderation in house price gains we forecast will curb consumer spending, adding to the existing weakness on the domestic front. Consumer spending already is benign, owing to a combination of rising petrol prices and weak labour market conditions. That said, we may see a bounce in retail sales around mid-year if the government confirms in the May Budget a hike to the GST. History shows there is an incentive for consumers to spend ahead of an indirect tax rise. The bounce in spending will be most evident in big ticket items, but should be discounted and not interpreted as a true recovery in retail activity.

With respect to monetary policy, the housing market indicators will of course play a part in upcoming policy decisions, but the RBNZ’s focus will be on the 1Q CPI numbers (April 20). We do, though, suspect to see a change of rhetoric in late April. In the statement accompanying the OCR announcement on April 29, the RBNZ will likely step away from its current policy guidance which suggests that the policy stimulus in place may be removed “around the middle of 2010.” This owes mainly to the persistent weakness in the timely domestic data. By dropping this explicit reference to the timing of the first rate hike, Governor Bollard will allow himself more flexibility to delay such a move if economic conditions fail to evolve in line with the RBNZ’s expectations. We maintain our call for the first rate hike to be delivered in July.

ENDS

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