Rising house prices a symptom of tight Canterbury housing market
• The ASB
Cantometer continued on its upward trajectory in July,
lifting to 0.9.
• July increase on the back of a further lift in building consents, rising house prices and increased retail spending.
ASB’s Cantometer Index has continued its upward journey, lifting to 0.9 in July and indicating that reconstruction has firmly taken hold.
ASB Chief Economist Nick Tuffley says, “The increase in the construction index was underpinned by further lifts in residential and non-residential building consent issuance.”
Meanwhile, the Canterbury housing market continues to heat up. Mr Tuffley says, “Housing demand remains firm, but a low level of new house listings has kept the market tight and pushed house prices higher. Canterbury house prices outperformed nationwide prices in Q1, and as a result provided a large boost to the housing index when incorporated in the Cantometer.”
“Although consumer confidence was flat over the June quarter, the strong lift over the preceding year points to continued healthy growth in retail spending,” says Mr Tuffley. Canterbury retail spending growth has been outpacing growth around the rest of the country.
New Zealand’s economic recovery is starting to broaden beyond construction. While the headline inflation rate remains low, inflation pressures are expected to lift as the economy recovers. Construction costs are now also rising outside of Canterbury, a concerning development for the RBNZ. In addition, the recent decline in the NZD will see the price of imported goods start to lift. “We expect inflation will quickly return to the mid-point of the RBNZ’s target band over the next year. We continue to expect the RBNZ will start to lift the OCR from March 2014,” concludes Mr Tuffley.
About the Cantometer
The Cantometer is designed to summarise activity in Canterbury. The study takes a range of publically available regional economic data, which are standardised and aggregated into a summary measure. The index has been rebased to zero in June 2010 (the end of the quarter immediately preceding the first earthquake) such that a positive number represents activity being above pre-earthquake levels.
Along with the aggregate Cantometer index, there are five sub categories: Construction, Housing, Employment, Consumer spending and Miscellaneous*.
These sub-indices will provide some insight into which sectors are driving the rebuild activity at a given point in time.
For most activity the data reference the level of activity. However, when incorporating wages and house prices into the index we believe levels are less informative. Instead the index uses prices relative to the rest of the country.
An increase in relative prices is a signal for resources to be reallocated to the Canterbury region.
The historical Cantometer series represented on the charts is a simple average of the complete set of data for each month.
*The miscellaneous category includes electricity, car registrations, guest nights and permanent and long-term net migration. A common factor driving these areas will be population growth, and we expect all these indicators to increase as the rebuild gathers momentum.