Monday, 30 September 2013

Lurking in today's chart pack from Treasury...

Treasury's latest Monthly Economic Indicators came out today, with media coverage noting in particular how we are, temporarily, growing faster than Australia.

Or as Treasury put it, "The rebound in the terms of trade [in the first six months of this year] has also driven an acceleration in growth of real gross national disposable income (RGNDI) – a purchasing power-adjusted measure of national income – with RGNDI up by 1.6% in the quarter. In a reflection of the recent divergence in the performance and outlook for the New Zealand and Australian economies, annual RGNDI growth in the June quarter accelerated ahead of that in Australia".

Doesn't often happen, and it's partly down to the capricious commodity gods favouring our product mix over the Aussies', not to mention that we'd rather not have had the Canterbury earthquake in the first place even if it's now boosting construction activity, but we might as well enjoy our little moment of faster-than-them.

If you're not aware, the Monthly Indicators comes with a handy chart pack which covers pretty much all the indicators you'd be looking for, and if, like me, you prefer graphs to spreadsheet data, it's a very useful resource.

Here's one graph that caught my eye.

It goes to the much debated issue of how much of our current house price inflation may be reflecting the physical supply/demand dynamics of the house market and how much may be reflecting monetary policy or bank lending standards being "too loose". It's not either/or, and both could well be in play, and the two are linked in any event, but if it's predominantly one (genuine "I need to buy a house to live in" demand bumping up against tight "there's nothing in the real estate agents' windows" supply) rather than the other ("I've got to get into this hot market market at these cheap mortgage rates"), it leads you down very different policy paths.

This graph shows the reasonably close link between net migration and changes in house prices, and would tend to support the mostly supply/demand explanation of house prices.

It also suggests strong house price inflation down the track. That blue line is the past twelve months' net migration (an extra +13,160 people). But that period includes the last five months of 2012, when there was little net migration happening. In the past three months, net migration has been running at an annual rate of +25,000 people. Project that blue line up to around 25,000 - and you're looking down the barrel of even faster house price rises.

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