Good bye 2023, Hello 2024

Well, what a year. We can all feel the hangover from the pandemic and it seems like 2024 may not be to much different at this stage.

Importantly, please remember my end of year emails are a gathering of my thoughts and by no means accurate predictions. In 2021 I wrapped up with a prediction that rates would top out around 5.5% errr wrong. In 2022 I mentioned that I though Interest rates would top around 7% in the mid year then plateau. So far so good, but I also said we could see rate cuts late 23 or early 24… Yet to be seen.

As we finish out this year we are seeing data that shows record population growth and a contracting economy. The population growth masks the toughness we feel, it shows us “better” data, more people = more transactions = more GDP (in theory) and that we are only slightly contracting as opposed to in a deep recession. You may remember that earlier this year I mentioned that may be a play to keep us out of a recession and low and behold here we are. Or a productivity boom. The population play is easier.

We are hearing noise about “Soft Landing” this and “Hard Landing” that. I am of the view that right now we are in the soft landing. Its not coming, its here. We are living it. The data even says it. Low +/ growth, but employment still stable. The next part is whether the softness prolongs or we get a hard landing. Either way something is happening in 2024.

With rates where they are there is obvious pressure on the economy. I believe the RBNZ and the OCR is at a delicate point in the cycle. To secure the soft landing we are at the stage where rates will need to be lower within the next 12 months. Wage increases are slowing, you aren’t going to see this new govt handing out big pay rises and go on a hiring spree, so credit will need to slowly start flowing again and that can only be done by reducing servicing costs once wages are stagnant.

Alternatively, if its all too late we get the hard landing, unemployment trends upwards and rate cuts will ensue to re stimulate the land of the long white cloud. As we have come accustom too. So it seems either I am guessing rate cuts.

What about inflation? Well, as discussed earlier in the year, inflationary periods generally are not transitory and can take far longer than people wish to believe. A solid bet is that it contracts with the economy slowing but back in target range for good? Unlikely.

Housing market? Well, all this chat about contraction and recession etc means what for housing? All markets are forward looking and interest rate markets are pricing cuts, we know house prices enjoy lower rates and I think the housing market is perching itself on that. I think the housing market is going to be fine. We could see an environment where house prices stay stable or increase slowly on the hope (or reality) of rate cuts at the same time unemployment pushes higher. Strange to think about.

On balance I think we see rates fall by something like 100bps. More or less. I think we could look back in 12 months time with mortgage rates around 5.5% 6% or so or I am wrong about the whole scenario, Artificial Intelligence has taken all our jobs and the population of NZ is crossing 6 million.

Regardless, I want to wish you and your families are very happy holiday season. A big thank you from Guardian Smith. 2 years straight in the hardest housing market in modern memory and we are still here and growing. Looking forward to a ripper 2024!

We will be closed and I will hopefully be out on a boat fishing until the 15th of Jan!

Thank you for the support! Drink, laugh and eat far too much and we will see you in the new year.

Mikey

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