CHIEF ECONOMIST CORNER: THE LOWDOWN
Strong arguments can be made for why the OCR might not increase much, if at all, in the future. Inflation is low and technology is reducing firms’ pricing power. The world is struggling to generate growth strong enough to absorb spare capacity and in many places, key pro-cyclical sectors such as housing are now “rolling over”. We live in a world beset by low inflation and New Zealand is not immune to these forces. Additionally, prudential policy is increasingly doing the job the OCR used to do. Not only does all this mean that there is little pressure on the OCR to move up at present, it also means that the neutral interest rate (where the OCR will settle across the cycle) has fallen – quite a lot. The OCR is only one factor that shapes borrowing rates and they could change for other reasons, such as bank funding costs. But the OCR is still a material influence and while we can debate whether or not it will lift from current low levels, what is increasingly clear is that it is not going to move by much in any case. MORTGAGE BORROWING STRATEGY Average mortgage rates remained virtually unchanged again this month, and retain the by-now very familiar tick-shape. The 1 year rate remains the low point; and against our expectation of the next OCR hike being delayed till November 2018, it remains the “sweet spot”. It is not quite the proxy for floating that the 6 month could be considered to be, but it’s a lot cheaper and fixing annually is still fairly regularly. Longer-term rates remain very low by historic standards and offer certainty, but they are financially less attractive in this low inflation environment. PROPERTY GAUGES Auckland house prices are falling and momentum across the rest of New Zealand is easing up. There are still strong legs of support from natural population growth and migration. However, the interest rate cycle has turned, credit is harder to come by, affordability constraints have pressured the Auckland market, and LVR restrictions have knocked the investor market. That’s a powerful combination that is not set to ease up anytime soon. We expect the market to remain subdued into 2018. Keeping you in the loop – Minimum Bank Deposits New Builds
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James Twiss
Licensed Business Owner of Harcourts Four Seasons Realty 2017 Ltd Greg Roberts
Licensed Business Owner of Harcourts Four Seasons Realty 2017 Ltd Archives
September 2020
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