Tariffs and global uncertainty: potential affects on the NZ property market

A tariff is a tax on imports that effectively raises the price being paid by that country’s consumers. As a result of the (shifting) tariff rates on various countries that the US has introduced – or at least threatened to introduce – most focus in a New Zealand context has been on how our inflation path might change and what the economic growth effects could be.

Starting with inflation, on one hand, a potential fall in the NZ dollar exchange rate (as the US dollar theoretically strengthens) could mean we pay more for imports into NZ, pushing up overall inflation. But conversely, should large exporting nations such as Japan or China divert goods here rather than to the US, this may tend to lower import prices. On balance, the inflation effects in NZ aren’t necessarily looking major in either direction.

Then in terms of the economic impacts, although NZ’s tariff rate on exports into the US is at the low end of the spectrum, this new world of trade protection still can’t be good for a small trading nation such as we are. Slower GDP growth in NZ than otherwise might have been the case – not least because a country such as China may also end up taking fewer of our own exports – suggests that the official cash rate and mortgage rates may keep a ‘downwards bias’ for a while yet.

In regards to how all of this might play out in the housing market, again there are nuances. At face value, lower mortgage rates will tend to put some upwards pressure on property sales volumes and house prices. But a weaker economy and general household uncertainty – particularly if job security is undermined – would tend to work in the other direction.

And quite apart from all of that, we’re still looking at a housing market awash with available listings, which is putting a lot of pricing power in the hands of buyers and keeping a lid on values. The debt to income ratio limits for mortgage lending are also lurking in the background, albeit not a major factor yet for the majority of borrowers.

It’s early days yet, but the data suggests that many borrowers are ‘taking a bob each way’ in this environment, keeping some debt on a floating mortgage rate just in case there are further falls ahead, but also locking in some certainty with a 1-2 year fixed rate at 5% or less. Ultimately, that decision about floating vs fixed is down to each individual to make, and we only ever know the optimal borrowing strategy in hindsight.