A shaky economy but SCP holds steady
In our most recent webinar, we were joined by Christina Leung, Principal Economist for the New Zealand Institute of Economic Research (NZIER) who talked us through inflation, cost of living, house prices and mortgage rates.
What were Christina’s findings, and what they mean for your investments with us?
What’s driving the rise of inflation?
In the year to June inflation was at 7.3%. This is the highest level we’ve seen since 1990. There are two key factors at play driving inflation up – constrained supply and strong demand.
Covid-19 certainly plays a part in this. We’ve seen supply chain disruptions both domestically and internationally cause constrained supply, particularly in the construction sector, and we’ve seen increased government spending and loose monetary policies boost demand.
Interest rates are continuing to rise – could this put NZ into a recession?
There’s the risk a recession could occur, but the Reserve Bank will do what it can to try and avoid the scenario.
The official cash rate (OCR) was recently increased to 2.5% and the Reserve Bank has promised to continue increasing it for as long as they need to.
It’s also likely we’ll see a rise in mortgage rates as a means to rein in inflation. Reserve Bank data shows over one-fifth of mortgages are due for repricing in the coming months. This will have an impact on the wider property market.
House prices are falling – will they continue to fall?
The Real Estate Institute of New Zealand (REINZ) house price index is a great house price indicator. It shows us that although house prices are falling, they are still slightly higher than last year’s levels, and 27% higher than pre-Covid levels.
Sellers and buyers both think the same home is worth a different price currently, but on the whole house prices are anticipated to keep trending downwards.
What do re-open international borders mean for the New Zealand labour market?
We have a competitive labour market right now as unemployment is extremely low. We expect international arrivals to alleviate some of the labour market strain. However, there’s also chance of a ‘brain drain’ as some Kiwis flock to a similarly tight Australian job market.
As many markets around the world are facing similar labour shortages, it is expected wages will continue to increase over the coming year to match demand.
What does this mean for your investments with Southern Cross partners?
SCP has a track record as conservative lenders for more than 25 years. We lend at conservative loan-to-value ratios of up to 65% of the completed value of construction projects and up to 70% for residential refinance. This gives investors a buffer if things change during the loan period.
We’re careful about who and what we lend on using the ‘quality over quantity’ mantra. For every loan application we assess the property valuation, loan-to-value ratio (LVR), if a borrower can make realistic payments, and if they have a clear exit.
While past performance doesn’t determine future returns, we’re proud to say our conservative lending strategy means no one has ever lost money through an SCP investment. And that’s a track record we’re dedicated to maintaining.
