New Zealand’s house sales volumes fall in Q1 2016, low inflation conditions give scope for further easing

New Zealand’s house sales volumes in seasonally adjusted terms grew 4.7% m/m last month, as compared with the rise of 4.3% sa in February. But for the first quarter, the house sales volumes declined 2.8% due to major decline in January. Sales levels are just 1.7% lesser than the level seen in late 2015 and around 6% lower than the peaks seen in September 2015.

According to the sales data, sales volumes in Auckland recovered sharply, rising 12%. While several supply, demand and regulatory factors seem to have contributed to the recent stillness in prices and activity, supports given by a bolstering labor market, strong net immigration and very low interest rates seems to becoming greatly prominent, according to ANZ. But sales in Auckland decreased 4.7% in the first quarter, 21% lower than the peak seen in September. Meanwhile, sales for the remainder of the nation grew more moderately by 1.6%, up 20% y/y and up 4% from September 2015 levels.

However, the inventory levels have dropped just a little in spite of the increase in sales. Even though the levels are historically low, this implies that tight dwelling supply is maintaining the balance of power on the seller’s side, noted ANZ. Prices throughout the country continued to increase. The REINZ stratified measure grew 2.3% m/m sa and 3% q/q. The house price inflation in annual basis strengthened to 13.3%.

For the central bank, the housing market has been a source of financial stability concern and also an inflation concern, added ANZ. The low inflation backdrop gives the RBNZ scope to further lower OCR; however, the central bank will be cautious regarding the possible housing market impacts, according to ANZ. Further reductions in OCR do not come without risk, added ANZ. ANZ projects the central bank to lower rates by 50bps by the end of 2016.