It’s always interesting when we reflect on the past year and often I will start by looking back at what I might have predicted back at the start of the year.
So I shared what I believe for the five major themes: the economy, the election, inflation, interest rates and house prices. Is it turned out I believe these have been the five main themes over the year and some of my opinions were correct or at least sort of correct.
I’ll just step through these and recap on what my opinion was, what has actually happened or is happening.
The Economy
One of my comments about the economy and business was it would start to see a surge in the number of businesses in financial trouble in early 2023 and therefore we would see a high number of redundancies and layoffs. The reason that I made this statement was because of the increased costs that have been loaded on businesses over the past few years combined with the increased interest rates that affect businesses just as much as homeowners.
Actually it probably hasn’t been as bad as I predicted yet.
We are definitely seeing the agricultural sector being hit hard financially, and I’ve been hearing about some quite large staff layoffs in the smaller towns but that has yet to filter through to the larger cities. No doubt it will, and I guess the question is can the economy and therefore the agricultural sector recover enough before it has a major impact?
The Election
We all knew that there was going to be an election in 2023 and I had said that in my opinion we would see a change in government with a National lead coalition taking over.
I believed that this was primarily because of the state of the economy and the non delivery of so many of the Labour Party promises.
We sharing this opinion I was hopeful that we would see a lot of good ideas floated by all the parties prior to the election however in my opinion now I don’t believe we’ve seen it a lot. This may be because the cupboard is a little bit bare, and because in politics the major parties need to be quite centrist.
Inflation
I raised the issue of inflation mainly because I have a belief that this needs to be controlled to avoid the interest rate increases which we have seen.
In my opinion I had thought that inflation would have been under control by March April of 2023 and this was due to what I believed would have happened earlier in the economy with redundancies and business failures highlighting the need to stop spending. I did make a comment that there was a risk that the government would continue spending in the hope of buying an election result.
Unfortunately For the country as a whole we saw a round of significant pay increases and a continuation of government spending which kept fuelling the economy and therefore inflation. We’re hearing that the inflation is sticky, but hopefully now that the election has passed we will start to see more sensible spending and that should see inflation level off and start decreasing.
Interest Rates
Interest rates are linked to inflation, and therefore because inflation has not been controlled interest rates have remained high.
I had expected that inflation would have been under controlled and the Reserve Bank would have started to look at reducing interest rates in mid year to assist the mini Kiwis with home loans end business finance that were feeling the pressure of those high interest rates. Unfortunately we are still all feeling that pressure today.
The question now for as when will we start to see interest rates coming down?
As mentioned above when we spoke about inflation, I think we will start to see interest rates level off and slowly come down over the next 12 months. It’s never going to be as fast as we wanted, but hopefully we are not going to see any major interest rate increases and instead we’ll start to see some decreases in that early to mid part of next year.
House Prices
I’ve always believed that house prices should be controlled by supply and demand and I still do believe that ultimately these are what will control house prices.
I did predict that we expected that demand would remain low during 2023 and I think it’s fair to say that that has happened, and probably has remained low for the whole of 2023.
Moving into 2024 the biggest concern will be supply of houses. Mini property developers have put their plans on hold and therefore we expect that there will be a shortage of new properties built during 2024 and that could lead to a lack of supply.
We have also seen a huge number of people emigrating to New Zealand and with that population growth there is demand for homes whether it be rental properties or homes for people to buy. But the change of government there is an expectation and a real need for property investors to re enter the market and fill that shortage of rental properties. There are also plenty of people who are currently tenants that was their increasing rents are finding it more attractive to become homeowners, and if they can get financed approved then they would be active buyers on the market too.
With this lack of supply and the increased demand the only way house prices can go is up, and we’re already hearing some economists predicting some quite significant property price increases over the next two to three years.
In Summary
In summary I think the trends that we discussed 12 months ago were the key trends for 2023, and although my predictions we’re not 100% accurate on timing they were pretty accurate overall.
I did say that I believed that 2023 would be a challenging year, and I’m sure that rings true for many Kiwis.
I would like to say that I have a crystal ball and can predict what will happen on 2024; however that is not the case but I will still try to put together some concepts of what I think could happen.
My comments here are not designed as financial advice, but hopefully it gives you an opinion with some common sense attached and maybe even some topics to discuss around the BBQ this summer.
