COMING DOWN: New Zealand’s best advertised mortgage rates

Leading up to today’s official cash rate decision, there were equally strong cases for either a 0.25% or 0.50% cut, with the Reserve Bank ultimately opting for the latter. This seems to reflect a new focus on the ‘real time’ economic indicators (such as falling employment) and the potentially growing risk that weak activity causes inflation to undershoot the 1-3% target before too long, rather than staying stubbornly above it.

Given this was an ‘interim’ Monetary Policy Review (as opposed to the full Monetary Policy Statement), the commentary attached to the decision was always likely to be fairly brief and that proved to be the case. There’s a sense in the Reserve Bank’s commentary that they feel a need to act fairly quickly to get monetary policy back towards a more neutral setting (or even stimulatory), rather than the restrictive territory it’s been in for quite some time now.

Overall, the OCR is now clearly on a steady downward path. In terms of the housing market impacts, the key point is that mortgage interest rates are likely to continue to drop too. This could easily produce a short-term lift in confidence and a more active housing market as we hit the normal Spring uplift anyway.

However, although house prices may well stop falling in the near future, there are also plenty of reasons why they are unlikely to surge upwards either. For a start, housing affordability remains stretched, and elevated listings are certainly putting finance-approved buyers in a strong position when it comes to price negotiations.

But perhaps the most important restraint right now is the labour market. Job losses themselves will tend to limit house sales and prices. But there’s also the knock-on effect on sentiment even for those people who keep their jobs but don’t feel as secure in their role as they did before. In addition, flatter wages will also tend to subdue the housing market.

Looking ahead, it wouldn’t be a surprise to see limited growth in house prices in 2025, as mortgage rates drop. But keep in mind that lower rates will simply bring forward the timing for the debt-to-income restrictions to start biting; another reason to be cautious about the speed and duration of the next housing cycle. Indeed, the DTIs are effectively an ‘insurance policy’ for the Reserve Bank in this cycle. Previously, they might have been wary of cutting too soon, at the risk of driving house prices up. But now DTIs will act to curb that growth. CORELOGIC NZ