Fuel prices and global tension

If you felt like the news from overseas was starting to weigh on your weekend open home plans, you aren’t alone. With the situation in Iran shifting by the day, the ripple effects are being felt right here in Aotearoa, specifically through the numbers we see at the petrol pump and the uncertainty creeping into our local economy.

Kelvin Davidson, Chief Property Economist at Cotality, notes that the spillover impacts on fuel prices and physical supply are currently the most significant hurdles for the market. "Uncertainty is very high and the key question is ‘how long it lasts’," says Kelvin. "Nobody knows that, so in the meantime, we have to work with what we have."

Watching the 'second round' effects

While the Reserve Bank typically won't rush to react to 'first round' inflation - the immediate spike in fuel prices that sits outside their control - they are keeping a very close eye on what happens next.

The risk is that these costs start to bleed into the broader economy, leading to higher production costs and pressure on wages as workers try to keep up with the rising cost of living. Kelvin points out that while this is a "very real possibility," our economy is already operating with spare capacity. There is also a strong chance that GDP growth slows as a result of the conflict, which could actually help dampen inflation in the long run.

Confidence takes a hit in the Super City and beyond

We are already seeing the psychological impact of these global headwinds. Consumer and business confidence has already dropped sharply, and whether the result is higher interest rates or a weaker economy, the housing market is facing fresh challenges.

"The balance of all these factors will just have to play out," Kelvin explains. "Whether we get higher interest rates or a weaker economy (or both), the net result is fresh headwinds for the housing market."

What this means for your property journey

For those looking to secure a slice of Mainland paradise or a spot in The Garden City, the current climate suggests that conditions will likely remain in favour of buyers, at least for those who feel secure in their employment and have their finance sorted.

"Clearly, we all hope the war ends soon and we can get back to some kind of normality relatively quickly," says Kelvin. But until then, expect a market that rewards the patient and the prepared.

Author

Kelvin Davidson

Chief Property Economist, Cotality

Chief Property Economist, Cotality - cotality.com Kelvin joined Cotality (previously CoreLogic) in March 2018. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.

In his role with Cotality, Kelvin’s focus is on keeping up to date with what’s going on in the property market and continually finding different ways for viewing and interpreting it. Kelvin’s economics background means that he knows his way around a spreadsheet, but more importantly he always puts more emphasis on providing the key insights and telling a story.