The Housing Market has turned a corner

Economic Forecast Update – March 2024.

It has remained a slow grind for the economy. GDP started contracting in late 2022, and that continued off and on over 2023. Population growth has continued to mask the underlying pressure: by the end of 2023 per-capita GDP had shrunk by 4%, matching the Global Financial Crisis decline.

The economy will stay pretty flat over 2024. Interest rate pressure remains in place, and some pockets of living costs continue to lift relatively fast. Weak household spending will remain a fact of life in the short term, with all the wider flow-on effects.

The cliché is that it is always the darkest before dawn. Tough as it may be right now, small glimmers of the light at the end of the tunnel are showing through.

Inflation has shown further signs that it is coming down. By the end of this year, it will be back within the target band. We expect the RBNZ will be confident enough to cut interest rates before year-end, or if not in early 2025.

The housing market has turned the corner, The recovery is unspectacular so far, though as expected given some of the headwinds.

Lower interest rates, favourable tax changes, and still-booming migration will increasingly boost the market over time. Dairy prices have recovered to such a degree that an $8/kg milk price for this season and next looks achievable. The tourism recovery continues, though more gradually now.

The water wings don’t have a lot of air in them at the moment. It is a matter of continuing to hunker a little longer until consumer spending gets more puff.

Nick Tuffley, Chief Economist – ASB