Inflation pressures stir rate debates
Kelvin Davidson (pictured above), chief economist at CoreLogic, talked about the key developments in New Zealand's housing market this week.
CPI figures meet expectations
The latest Stats NZ figures showed a 0.6% increase in the consumer price index for the March quarter, closely aligned with the Reserve Bank’s expectations of a 0.4% quarterly rise.
Prior to the release of the latest CPI figures, Davidson said in a OneRoof report that, “if the actual result is roughly in line with those projections, don’t expect too much to change in terms of market expectations or mortgage rates,” emphasising that local factors such as rents and council rates continue to drive inflation concerns.
Stable OCR amid uncertainty
Last week's decision by RBNZ to hold the OCR steady at 5.5% came with minimal fanfare, reflecting ongoing caution.
“The Reserve Bank essentially stuck to the script it’s been reading from for some time now: inflation is dropping, but it remains too high, which means the OCR will stay high,” Davidson said.
Borrowers bet on rate drops
A notable shift in borrowing behaviour has been observed, with a significant 56% of new loans in February opting for short-term fixes, betting that rates have peaked.
“People don’t want to lock in for too long,” Davidson said, indicating a belief that future rate adjustments will trend downwards despite the current premium for shorter fixes.
Construction costs stabilising
The Cordell Construction Cost Index indicated a mere 0.5% increase from Q4 2023 to Q1 2024, suggesting a stabilisation in building costs due to improved supply chains and increased sector capacity.
This trend offers relief to both households planning new builds and builders pricing projects, amidst broader concerns of a downturn in dwelling consents and rising builder liquidations.
Rental market sees modest relief
Recent data from Stats NZ indicated a 5.1% increase in rents over the past year, the lowest since July last year. While it’s premature to declare a peak in rental growth, the relative affordability of rents to household incomes hints at an inevitable slowdown.
“Maybe now we’ll just have to wait and see,” Davidson wrote for OneRoof.
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