Super-sized spring rate cut - but no surge in store for house prices

Thursday, 10 October 2024

Parts of the housing market are still “very depressed”, says Ray White chief economist Nerida Conisbee, including Wellington.

The effect of the Reserve Bank’s super-sized cash rate cut was almost instantaneous for mortgage brokers.

Soon after the mid-afternoon announcement, Mortgage First in Christchurch was flooded with inquiries from mortgage holders and new buyers.

'I've had about a dozen emails and quite a few phone calls waiting for me to reply to, just this afternoon,“ said broker Sam Parsons.

Parsons said most buyers who had settled purchases in the last few weeks were on floating rates, anticipating a drop.

Reserve Bank figures show that more than one in three owner-occupiers had their loans fixed for six months or less at the end of August.

The Reserve Bank has cut the Official Cash Rate by 50 basis points, dropping it to 4.75%. The move has triggered immediate interest rate reductions across major banks, giving homeowners a break ahead of the holiday season. Zane Small reports.

And yesterday their gamble likely paid off with the Reserve Bank’s monetary policy committee slashing the official cash rate (OCR) by 50 basis points to 4.75% ‒ its lowest level in 18 months.

The committee said it did so because it was confident inflation was within its 1% to 3% target range and nearing the 2% midpoint.

The bank said the economy now had “excess capacity”, with economic activity subdued, business investment and consumer spending weak, employment conditions continuing to soften and low productivity growth constraining activity.

Banks immediately responded with ASB, ANZ, Kiwibank and BNZ cutting their own variable interest rates.

Mortgage holders weren’t the only ones celebrating with the Government, real estate agents, retailers and mortgage brokers also revelling.

Finance Minister Nicola Willis said there was “still more work to do, but our careful and deliberate plan to rebuild the economy is working”.

“Like businesses, we are confident that brighter days are ahead.”

Retail NZ called the cash rate cut “an early Christmas present” amid hopes it would turn around consumer confidence in time for the sales season.

But economists and property experts are warning Kiwis shouldn’t expect the housing market to suddenly take off.

Economist Brad Olsen said it was unlikely house prices would be so good they’d “jump on a rocket ship to the moon”.

Economist Brad Olsen says house prices won’t take off again despite the cash rate cuts.

“We don’t expect that tomorrow buyers will be flooding the market,” said Olsen, Infometrics’ chief executive and principal economist.

That was because though mortgage rates were coming down, they remained relatively high.

Another of the reasons for that is because while banks like ASB, BNZ and Kiwibank have started cutting their variable mortgage rates, they haven’t dropped the “test rates” they use for deciding whether buyers can afford loans.

Mortgage adviser Karen Tatterson, from Loan Market, said: “What we need now is for the banks to drop their test rates.”

Currently banks were testing the affordability of loans with test rates of 8.75% to 8.95%, which was so high it was making it impossible for many buyers to qualify for loans.

CoreLogic’s chief property economist Kelvin Davidson said housing affordability remained stretched and it was still a buyer’s market with a large number of listings creating more supply than demand.

CoreLogic property economist Kelvin Davidson says the labour market will keep house prices subdued.

“But perhaps the most important restraint right now is the labour market. Job losses themselves will tend to limit house sales and prices.”

Even those who keep their jobs would feel less secure than before, he said.

Ray White’s chief economist Nerida Conisbee said the cut came “not a moment too soon, or perhaps a little late”.

With liquidations on the rise, business sentiment low and net migration still very high, she wanted to see further rate cuts.

While some areas, like Taranaki, Hawke’s Bay and the West Coast were on the rise, other regions still had a “very depressed” property market, like Marlborough, Wellington and Auckland.

Debt consolidation platform Money Sweetspot also had a warning; while the OCR meant Kiwis could enjoy some more in money in their back pockets in time for summer, they should continue to be sensible.

“It’s crucial that we don’t get carried away or make any silly decisions that come back to bite us post-Christmas,” said co-founder Meurig Chapman.

“With any surplus money, it’s still important to put some away for a rainy day, so that we’re living within our means, and also avoiding being caught out by the unpredictability of life.”

All banks are predicting a further 50 basis point cut when the Reserve Bank releases its final monetary policy statement for the year on November 27, which would take the OCR down to 4.25%.

The Reserve Bank reiterated future changes to the OCR “would depend on its evolving assessment of the economy”.