Following the Reserve Bank’s (RBNZ) announcement yesterday on the 10th of April that it was leaving the Official Cash Rate (OCR) unchanged at 5.50 percent, I thought you would be interested in knowing what impact I see this having on the housing market and interest rates.
The RBNZ’s decision yesterday represents the sixth time now since May 2023 that the OCR has been left unchanged. The RBNZ has been telling the country and markets repeatedly that its focus is on getting inflation back within its target range of between 1 and 3 percent. As I’ve mentioned previously the new Government’s legislation introduced into Parliament late last year mandated that the central bank refocus its attention on inflation been its top priority. The RBNZ has reiterated again yesterday that maintaining the OCR at a restrictive level for a sustained period remains necessary to further reduce capacity pressures and inflation. A sustained period generally indicates at least 9-12 months’ time. The RBNZ also noted that most major central banks globally are cautious about easing monetary policy given the ongoing risk of persistent inflation.
A crucial date for the country which might give us an indication of how soon the RBNZ will consider a reduction to the OCR is next week on the 17th of April. This is the next scheduled consumer price inflation report produced by Stats NZ. Currently inflation is sitting at 4.7 percent to the December 2023 quarter. Personally, I don’t believe that inflation is currently falling fast enough or is at a level yet that would see the RBNZ consider reducing the OCR in 2024, hence its comments made yesterday. With the above in mind most borrowers would be wise currently to fix for a period of at least the next 12 months to position themselves to take advantage of lower interest rates hopefully in early/mid 2025. Again, when interest rates fall historically, they tend to reduce much more slowly than when they increase.
In terms of where things are sitting currently with the housing market Auckland seems to have hit a bit of a wall. There is a great deal more properties for sale now which indicates that most vendors can’t find a buyer who is willing or able to pay them what they want for their property. This has to do with affordability. Yes, interest rates are high but historically speaking nothing out of the ordinary. What has happened is that the cost-of-living crisis caused in part by high inflation has made the cost of goods and services i.e. food, petrol & insurance premiums now significantly more challenging for many people to afford. The Wellington market also seems to be experiencing what has happened in Auckland in recent months but unfortunately for Wellington it will also have to contend with the proposed job cuts to the public service. House prices in Wellington are clearly going to be impacted because of the latter thus anyone looking to sell needs to set their sale price expectations accordingly. Overall affordability remains the key thing that will determine the direction that house prices take in New Zealand moving forward.
Another recent development in the housing market has seen the new Government rephase back in the ability to deduct interest expenses from the 1st of April 2024 when all affected taxpayers will be able to claim 80 percent of their interest expenses and 100 percent from the 1st of April 2025 onwards. The rationale for this decision is partly to encourage more people to become private landlords to help the country tackle the current shortage of housing.
Please let me know if you would like to discuss the current mortgage rate that you are on with your bank or are needing assistance with finance to purchase a new property or refinance.
Kind Regards
Simon