New normal for mortgage rates
Tony Alexander (pictured above), independent economist, argued that traditional assumptions about mortgage rates and economic recovery should be discarded.
“Tear up the rule book on mortgage rates – volatility is here to stay,” Alexander said in an analysis written for oneroof.co.nz, emphasising the unique financial landscape shaped by global interest rate trends.
The Kiwi dollar’s decline and its mixed impact
In a stark departure from past trends where high New Zealand interest rates boosted the Kiwi dollar, recent global economic shifts have seen the currency weaken. This change is due to simultaneous rate hikes internationally, preventing the usual influx of short-term money seeking better yields in New Zealand.
“This is good news for exporters who don’t face additional monetary policy pain but bad news for homeowners,” Alexander said, noting the disproportionate burden now shouldered by mortgage holders.
Economic growth and export challenges
Despite the weakened currency, which traditionally aids exporters, New Zealand struggles to capitalise on this potential economic advantage.
“Even with our currency newly suppressed, we are failing to grow our export base as fast as our economy overall,” Alexander said, highlighting a worrying trend where household spending is becoming a more significant economic driver, reducing the potential for offsetting gains from robust exporting sectors.
Housing market vulnerabilities and future outlook
The ongoing economic conditions suggested a weaker housing market and increased dependency on Reserve Bank policies to manage consumption and housing market activities.
Alexander cautioned against optimism regarding the stability of house prices and interest rates, even when rates eventually lower.
“Volatility is going to stay with us from here on out,” he said, suggesting that borrowers prepare for ongoing fluctuations and possibly reconsider the once-preferred strategy of fixing mortgage rates for short periods.
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