Afterraising rates to 14-yearhigh, the Reserve Bank signals it’s done

Experts say OCRdecision will bring certainty to the market, but warnhomeowners notto expect a“bounceback” in prices anytime soon. NIKKI PRESTON reports

Therecould be “lightatthe endofthe tunnel” for thehousing market, property experts have told OneRoof, but Kiwisshouldn’t expect interest rates to plunge or house prices to soaranytime soon

OneRoof canvassed the opinions of various economists following the Reserve Bank’s clear signal to themarket that last month’s 25 basis point lift in the Official Cash Rate (OCR) to 5.5% -its highest level in 14 years -would be the last thiscycle

The Reserve Bank’s Monetary Policy Statement in May ended the bank’s most aggressive hiking cycle since 1999, but noted that interest rates would be remain higher for longer in order to return annual inflation to its target rate, predicting that cuts to the OCR wereunlikely to take place until the tail end of 2024.

However,italso noted that house prices areunlikely to fall as steeply as it had previously assumed.

Bayleys head of insights, data and consulting Chris Farhi said therehad been some concernlast year that interest rates might “rage totally out of control” and the current tweaksbythe RBNZ gavepeople more confidence around whereinterest rates wereheading.

He felt the housing market would start to stabilise in the second half of the year,but different regions could reach the bottom at different times.

“Auckland andWellington markets have corrected faster and harder than most other places around New Zealand, so we would expect to see those two markets stabilise earlierthan others with maybe alag effect in some of the other regions.”

Ray White chief economist Nerida Conisbee said the Reserve Bank’s strong signal that the OCRhad peaked could provide people with some certainty after a stressful period of ongoing interest rate rises.

“It does provide abit morecertainty around the outlook that if you buy ahome now,whatever interest rate you areatisgoing to probablybethe peak of your repayments, and if anything, those repayments will start to reduce over time as those interest rates arecut.”

Conisbeesaid the biggest house price drops in both New ZealandandAustralia occurred last year and it was agood time to buy at thelower prices if people could get financing

“Weare not going to see arush of buyers coming in –that will absolutely start to happen when rates get cut, but you will start to see those moresophisticated investors coming back in and really takingadvantages in conditions.”

CoreLogic chief property economist KelvinDavidson did not think the “inevitable” OCR increase to 5.5% would make much of adifference to interest rates or even house prices.

“They might not rise any further –Ithink we are probably at the peak, but Ithink we will stay at thatpeak for awhile because the Reserve Bank isn’t planning on bringingdown the OCR anytime soon.”

And while the latest announcement, along with the country’s higher net migration, strong labour market, mortgage,and the loosening of theCCCFAand LVRall point towards the end of thedownturn, he added, that it also didn’t mean it was “boom time” again either “I don’t think house prices aregoing to runaway on people so they have time to save that deposit,they can sort of start to have abit moreconfidence about the market in terms of making those decisions again.”

CoreLogic’s own research is in line with the Reserve Bank’s projections which expect sales activity to pick up in spring when house prices will also flatten

“She’s asteady as she goes market in 2024.”

Opes Partners resident economist Ed McKnight said the latest announcement shows thereis“light at theend of the tunnel” andispositive for mortgage borrowers, potential buyers and people who purchased at the peak of the market and arehoping that price increases will recover to those levels.

“They arenow forecasting that theyare going to bring it (the OCR) down earlier and faster than what they previously signalled.”

While theprojections for whenthat will start tohappen is stillmorethan 12 monthsaway,he said,having interest rates drop soonerisgood newsfor borrowers

When the interest rates finally do drop, he expects they will end up at a“morenormal level of around 4to4.5%” in the next coupleofyears rather than goingback to the super low 2% interest rates.

The Reserve Bank’s forecast that property prices will not fall as much as they previously projected is also a step in the right direction, he added, and could start to change people’s buying sentiments.

“They aresaying, ‘hey look house prices still have a little bitfurthertofall’, but nowherenear whatthey have previously said.”

He said people areholding off purchasing properties, but once they starttothink interest rates areatthe peak then they will start to buy again

“It’s not going to be atotal bounce back, but it might see the capacity for maybe 5% increases in 2024 in terms of house prices.”