NZ
Latest CoreLogic data shows house prices fell 1.2% in June (-10.6% YoY). Wellington is the hardest hit, down 17.2% YoY.
We maintain a bearish outlook on real estate – lots of mortgage rollovers coming up in November – and see more room for the housing market to fall. Noting the average house is worth +$180,000 more than the pre-Covid level in March 2020.
Prefer exposure to real estate via Oceania (the “value” pick which takes advantage of an aging boomer population and trades at a good discount to NTA). Note this fall in house prices almost doubled month on month, suggesting acceleration.
The big “what if” here is immigration – we’ve seen accelerated growth in immigration to NZ and this has created more demand particularly for rental housing stocks. Still, with interest rates at meaningful highs and rollovers still occurring, we take a “glass half empty” view. We continue to see the RBNZ doing another hike. Never in the 20th century has CPI been reduced without the cash rate exceeding it. Cash rate sitting at 5.5% and CPI sitting at 6.7%. Data from credit agency Centrix shows 426,000 people behind in their payments in May, up from 411,000 in April. That represents 11.7% of active consumer borrowers and is the highest since March 2019.
Australia
Bid for Costa Group confirmed – they received a $1.6bn ($3.50/share) takeover bid from US PE firm Paine Schwartz Partners. It’s a component of our Australian model portfolio and we welcome the bid. We like NZ counterpart Scales, too, especially around the $3.10 mark. RBA left the cash rate flat but we see room for at least another two hikes to at least 4.6%.
