Economist talks about its impact on the property market
In its first Monetary Policy Statement of the year, the Reserve Bank has kept the OCR steady at 5.5% for the fifth consecutive time, as expected, while cautioning about persistent inflation.
Kelvin Davidson (pictured above), chief economist at CoreLogic, delved into RBNZ’s rate decision and its impact on mortgage rates and the property market.
No change in OCR, but inflation watch continues
Davidson said the OCR was maintained at 5.5% despite speculation of a possible increase, with the central bank opting for stability.
“Today’s decision... may have been a close call,” he said. “In the end, of course, the decision was made to keep it steady for now – but there’s little tolerance at the RBNZ for any upside inflation surprises.”
RBNZ’s MPS painted a cautiously optimistic picture, forecasting a dodged recession, modest employment growth, gradually increasing house prices, and a slowdown in inflation to hit the target range of 1% to 3% by the September quarter this year.
Davidson interpreted this as the RBNZ “talking tough” on inflation while acknowledging current downward trends and their potential to ease wage and price pressures.
Mortgage rates and the property market
Davidson suggested that even if the OCR has peaked, significant reductions are unlikely in the near term, especially with domestic inflation factors like rents and council rates still at play.
“RBNZ’s projections show the OCR holding until at least early 2025, with cuts not really seen until closer to the middle of next year,” he said.
This outlook pointed to a period of “higher for longer” one- to two-year mortgage rates, which the CoreLogic economist said “will restrain new property demand and also cause a few headaches for households needing to reprice existing loans up to current market rates.”
Despite the OCR hold, Davidson sees little immediate change for the property market, with mortgage rates nearing their peak but not expected to drop significantly soon.
“The labour market should support property, but perhaps not drive it up strongly,” he said. “Migration is an upwards boost for property demand, and especially renting right now, but this extra impetus might not last much longer.”
Davidson predicted continued variability in sales volumes and house prices, forecasting a modest 10% increase in sales and a 5% rise in national average prices this year, signaling a tempered market compared to past upturns.
To access the CoreLogic article, click here.
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