Tony Alexander analyses the OCR cut's impact
The housing market in New Zealand is showing signs of recovery with residential property sales increasing from a low of 59,000 in mid-2023 to nearly 71,000 currently.
According to Tony Alexander (pictured), the recent decision by the Reserve Bank to lower the OCR by 50 basis points to 3.75% is expected to provide further relief to the housing sector, although price gains have been modest at an average increase of about 2.5% since mid-2023.
Consumer confidence wavers amid recovery
Despite signs of market recovery, consumer confidence remains shaky with ongoing concerns about employment and economic prospects.
Alexander’s Spending Plans Survey indicated a shift in consumer behaviour, with a net 10% of respondents planning to reduce their spending in the coming months – a reversal from previous trends where spending intentions were more positive.
First-home buyers up, investors down
The market is seeing a divergence in activity between different types of buyers. While first-home buyers are becoming increasingly active, owner-occupiers remain cautious, and the participation of investors has notably declined.
“My most recent survey... showed that a net 48% of agents were seeing more first-home buyers in the market. But only a net 12% were seeing more investors,” Alexander said, highlighting a significant reduction in investor interest since December.
Investors wary amid rising costs and new regulations
Investors are showing reluctance to enter the market due to slow price growth and increasing operational costs such as council rates, insurance premiums, and maintenance expenses.
Additionally, new debt-to-income rules are beginning to impact investors, limiting their ability to leverage property investments heavily.
Economic and policy Influences
The OCR cut and updated economic growth data have led the Reserve Bank to anticipate less inflationary pressure, adjusting its forecast and bringing forward the predicted end-point for rate cuts to the end of 2025.
Alexander questioned whether this would significantly boost investment, suggesting only a mild increase in property prices over the next two years.
While the OCR cut provides some optimism, Alexander advised caution, anticipating only modest growth in the housing market due to mixed economic signals and varied buyer activity.
