Isbister Partners New Zealand

Job worries increase – By Independent Economist Tony Alexander 

Job worries increase – By Independent Economist Tony Alexander 

In the middle of last year an upturn in the housing market got underway and we saw a rise in my reading of FOMO gleaned from the monthly survey of real estate agents I undertake with NZHL. Average house prices began rising after a year and a half of going down following the late-2021 credit crunch, and the stock of property listed for sale fell to near 24,000 from over 28,000 at the end of 2022.
 
But the upturn in market activity brought forward a wave of sellers who had stood back from the market since the credit crunch. That wave has produced a 21% rise in property listings to above 29,000, a flattening of sales, a fall in FOMO back to earlier very low levels, and a rapid slowing in the average pace of prices growth.
 
Apart from the surge in listings is there anything else new with potential relevance for interest rates which has caused this weakness in residential real estate activity? Yes. Job worries.
 
Recently Statistics NZ confirmed that our economy has gone back into recession. The new government is reversing some of the 18,000 boost in civil servant numbers built up under Labour, and businesses are catching up on restructuring delayed by the pandemic.
 
My survey of real estate agents shows that back in December only 13% felt buyers were worried about their jobs and incomes. That rose to 24% in March and now sits at 37%. I can see a similar rapid change in job worries in my monthly Spending Plans Survey. Almost 6% of people say they will spend less because of job worries compared with just 3% in December.
 
For some sectors of our economy including retailing, much of hospitality, and residential construction, the 2024 outlook is poor. For borrowers however, while there are new job worries to take into account, the chances of a period of rapid interest rate cuts occurring have increased because of the clear deterioration in the outlook for the economy.
 
But as noted here for some time now, the start of this policy easing is not imminent. Inflation remains too high along with the pace of wages growth, and some hefty price increase for the likes of council rates and home insurance have yet to feed their way through the inflation rate.
 
For borrowers the incentive remains to fix for a shorter than average period of time. But it would pay to spread one’s risk through time because as we have seen since 2007 (that’s right, 17 years ago) interest rate predictions here and offshore have more often been wrong than right.
 
For additional information on the economy, housing market, and interest rates, you can subscribe to Tony’s free weekly Tony’s View publication at www.tonyalexander.nz
 
 
Below is part of an article written by Ben Brinkerhoff from Consilium (shared with his permission)

The poor plight of investors that switched from Term Deposits during COVID 

So, here’s the problem in a nutshell:

  1. A large group of TD investors appear to have missed out on the great investment markets pre-COVID.
  2. Disenchanted with low interest rates, they moved into investment portfolios in 2021 and 2022 searching for better returns.
  3. They ended up running right into bad share returns and historically bad bond returns.
  4. Many appear to have jumped back out of investment markets in 2023 only to miss out on the stellar bond and global investment returns that 2023 delivered to disciplined investors. 

Yikes!

The graph below really shows the story. TD deposits hit their lows, right on cue when the NZX hit its high (September 2021). So, as markets go down, the maximum amount of former TD investors feel the brunt of poor returns, and they quickly move back into TD’s rather than stick around to enjoy the recovery. 
We’ve highlighted September 2021 when the NZX50 was at its peak and the cumulative TD balance was at its low (the same month). 

Household TD’s and NZX50 Growth of Wealth Dec 2016 – Dec 2023

Source: RBNZ and NZX

What is the lesson? 

The first lesson is that as a nation we are collectively terrible at ‘timing’ markets. But were not alone. 
In the United States one of the most esteemed investment consultants is Charles Ellis, author of “Winning the Loser’s Game.” He said this about market timing, “market timing is a truly wicked idea. Don’t try it.” 

He also said, “Market timing is unappealing to long-term investors. As in hunting deer or fishing for rainbow trout, investors have learned the importance of ‘being there’ and using patient persistence – so they are there when opportunity knocks.”
For investors that started investing in 2021 only to be disappointed in 2022, our strong encouragement is to hold on and stay disciplined. It’s nearly impossible to pick the times to be in and out of the market. Instead, if their strategy needs to last over decades, then give it time and work with an adviser to see if the plan is still on track, or if they need to make some small adjustments. 

Discipline and time are the super skills of great investors. It’s the one thing consistently rewarded, and something that a good adviser can help us be much better at. 
 
Disclaimer:  This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia.  Please don’t take this as personalised financial advice.  Discuss your situation with an Advisor.  This is where I need to say past returns are no guarantee of future returns. 

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