Winter is here in more ways the weather

It is definitely getting chilly outside! I have been up and down the country recently and experienced a frost in Christchurch and its taking that extra bit longer for the car to warm up in the morning in Auckland. If there was one thing I could wish for it would be slightly longer summers here in NZ but we play the cards we are dealt.

It’s no secret that NZ entered into a technical recession. A reminder that when those announcements happen they are for about 3months prior to when we hear about it as our data takes a fair while to hit the airwaves. But I think it is safe to say since then we have only seen things get tougher.

Regardless of my forever optimism it is hard to deny that winter has closed in on the NZ economy. We see liquidations ramping up. Half of the NZ media seem to have lost their jobs. I ran a poll on my social media and 24% of tradesman said they are ‘week to week’ with their work. (Although, another 24% said they still had 12 months in the pipeline) We hear about the IRD being owed billions of dollars in unpaid tax. Friends in the recruitment industry are seeing the huge flip from a long list of jobs available to a long list of employees available. All of these things are forever and always in an economy, though each of them has moved from the last topic of conversation to the first now.

Unemployment has bounced from the lows of 3.3% in September 2022 to 4.3% in the latest round of data. This trend is accelerating and again, this data is lagged. So I imagine the next one will be higher again. A wise man said to me this year, your job for the next 12 months is… To keep your job. Its tough talk but the conditions do clearly show us that times have changed.

The good news! Is that we are likely going to witness the bottom of the housing market soon. Adjusted for inflation. We don’t try and time the market. But here is the foundation that is currently being laid out. The new govt is changing the restrictive CCCFA regulation and easing it. We are having the Interest deductibility returning for investors. The Brightline rules (Capital gains tax) are being eased. We have lower LVR restrictions on the horizon. Building consents have fallen back to levels not seen around 2017 (Less new stock) Listings across the country are closing in on all time highs not seen since the years of the GFC (can’t go much higher on a relative basis). Immigration booming. Rent prices have shot up about 8% Year over Year.

Its not about whether we think these things are bad or good. It is simply a trend change in how the big boys in power are viewing the market. Its been in a restrictive trend since the end of 2021. Now we are seeing a trend change to one of easing. Sprinkle some lower interest rates in there and see what happens.

The outlook for the rest of the year in economic terms seems cold. There isn’t an indicator out there that screams “we’re booming” but that’s ok. This is what the RBNZ wanted. Inflation must be stopped and the tools they have to do so are more brutal on some (all us mortgage holders) than others but its all they got. I think we should expect the Data around GDP and Unemployment to look increasingly grim but its the double edged sword we have to play with because the worse it gets the closer we are to getting interest rate cuts.

Cheers, Mikey Smith – Guardian Smith

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