Today’s decision from the Reserve Bank of New Zealand (RBNZ) to leave the official cash rate (OCR) unchanged at 5.5% will have surprised very few people.
It’s the first time they’ve held the OCR steady since August 2021’s meeting, the last one prior to this tightening cycle, which began in October 2021.
The RBNZ clearly indicated at their last meeting in late May that they’re now in a ‘wait and see mode’ – and that course of action was reinforced today. It’s also important to note that recent data has generally been moving in line with what they want to see, that is signs of actual inflation and inflation expectations dropping further, and some hints of a loosening in the labour market, with migration helping to alleviate skills shortages across a number of sectors.
There is unlikely to be much direct impact from today’s decision on the housing market. After all, little if anything has changed in terms of the anticipated future path for the OCR – which is set to be ‘higher for longer’ – while the RBNZ’s commentary on economic conditions was also as expected.
As such, mortgage rates appear to be at a generalised peak, and this will allow households to quantify their ‘worst case’, with some starting to make property decisions again. However, just because the OCR may have peaked, this doesn’t preclude some modest changes to actual mortgage rates by individual banks. After all, their pricing decisions can be affected by many factors, not least offshore wholesale rates, which feed into longer term fixed mortgage rates in NZ. Recent headline-generating tweaks to rates by most banks are a good reminder of this.
To be clear, we still think that this housing market downturn is almost over – for better or worse, depending on your perspective. With net migration pretty strong and employment still rising, at least for now, there’s also been early signs of an increase in property sales activity, which will eat into stock availability, and possibly eventuate into near-term price pressure.
But the next property cycle may remain pretty muted by past standards. After all, with inflation still well above target, albeit slowing, the OCR may not be cut until later in 2024, leaving mortgage rates elevated for longer too, and keeping a fair degree of strain on housing affordability. Potential caps on debt to income ratios for mortgages (both new and existing) from March/April next year are still hovering in the background too.