What’s happening to Auckland property prices, why did the share market dip – and why did your KiwiSaver balance dropped lately? Jarrod Kerr, chief economist from Kiwibank, explains the latest in the New Zealand economy.
Auckland property sales up in October
Data shows that house sales in Auckland during October were “up quite strongly”, says Kiwibank chief economist Jarrod Kerr.
“I think we are seeing signs of a small pick-up,” he says.
“So, it’s not bad news at all,” Kerr says. “Prices, in my opinion, are going sideways over the next year or two, but they’re up on this time last year.”
Last year, there were high expectations of what sellers could expect to sell a house for, Kerr says.
Now it’s possible that sellers are getting slightly less for their homes, compared to what they thought they might get last year, he says.
“Council valuations, QVs, were bumped assertively high. [Sale prices] aren’t down on what the property was bought for before, but they’re down compared to QV and seller expectations of last year. I think that’s fair to say.”
Kerr says some New Zealand property investors became concerned after seeing “quite a correction” across the ditch in Sydney, Melbourne, and Brisbane.
“We cannot ignore the decline in Aussie house prices, as we have all too familiar similarities in parts. But this time, Australia is dealing with a glut in supply… whereas New Zealand’s housing market is undersupplied by 100,000 affordable homes”.
KiwiSaver balances have dropped
There have been recent fluctuations in the share market, which mean that many people’s KiwiSaver balances have dipped, he says.
“Even though [KiwiSaver] is meant to be a very long-term strategy, when you hear of fluctuations in the market, you do get worried. This is your nest-egg that you’re trying to grow,” Kerr says.
Some of the concern is due to a lack of financial literacy in New Zealand, he says, and it’s something that needs to be addressed. “We shouldn’t be overly concerned on a month-to-month basis”.
“Everyone’s asking the question: ‘What’s happening with my funds?’ And in the current climate, it’s a fair question to ask, whether you’re financially literate or not. There’s a lot of madness out there.
“The gains that people have made since 2009 in their KiwiSaver balances have actually been very strong, broadly speaking. There has been a decent gain in the last two years.”
Kerr says the dip recently was “a bit of a correction”, rather than “wiping out wealth”.
What happened with the share market?
He accepted that investors were “absolutely” worried with the recent share market fluctuations, Kerr says.
“You hear of fund managers fielding a lot more questions today than three or four months ago.
“People tend to ignore the gains they’re making in their funds in the good times, and get on with daily life. But once things look a little panicked, they immediately get worried. It’s hard not to get sucked into the headlines on a daily basis.”
Kerr says there are quite a few factors driving the recent dip.
Brexit uncertainty and the trade war between the US and China are having an effect, he says.
The Federal Reserve Bank in the US, the dominant central bank in financial markets, tightened interest rates and, with that, the US dollar rose.
“We’ve seen a lot of value and wealth created in equity markets globally in the last few years. And we have seen a correction in the last two months. Certain sectors were getting overvalued, and now they’re being more fairly valued on the back of this correction. Higher interest rates always tests company valuations. And a higher USD always tests the debt-laden Emerging Markets.”
Jobless figures improve
Our unemployment rate is now at a low 3.9 per cent, says Kerr. “It’s a great result, no matter how you look at it. It came in much stronger than anyone was forecasting.”
The unemployment rate is an indication of how the economy is doing, but it’s usually about six to nine months behind, he says.
“If your economy is strong, it takes a while for employers to start hiring people, because it’s a big expense and you’ve got to be sure.”
Kerr suggests there might be a correction next quarter, “but the outlook is undeniably strong”.
First published 11 December 2018
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.
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