Today the Reserve Bank (RBNZ) kept the official cash rate (OCR) on hold at 1.75% for the 13th consecutive time. Along with yesterday’s figures showing that new lending flows are still slowly rising, the property market implications are positive.
CoreLogic Senior Analyst Kelvin Davidson comments:
Today’s OCR decision was no surprise. Inflation remains well contained and the labour market is strong. In other words, the RBNZ’s dual mandate is being met with the OCR at its current level.
To our minds, there was little in the statement to alter the expectation that the OCR will be on hold until 2020 with the next change being a rise. However, an OCR cut earlier than 2020 is still a possibility, particularly if the most recent tick-up in business confidence went into reverse and overall sentiment stayed at a low level, perhaps triggering a further slowdown in GDP growth.
When the eventual first OCR increase actually comes through, it may carry a degree of “shock and awe”. If it doesn’t happen until the second half of 2020, it would be six years since the previous time it was raised, in July 2014.
Yesterday the RBNZ also published new lending data for August. The most interesting figure was $5.4bn of gross new lending, nearly $300m more than a year ago. Both owner-occupiers and investors borrowed more in August this year than last year. This was the fifth consecutive month of rising lending activity (in fact the seventh month out of the past eight), signalling that banks might be just slightly loosening the purse strings (but are still operating well below the LVR speed limits).
The property market implications from these combined announcements are positive. Although there’s a risk that higher overseas funding costs eventually flow through to rises in NZ mortgage rates, for now we’re reasonably comfortable with a central expectation that mortgage rates here will be low and stable for at least another 6-12 months. That will help to support property demand. Meanwhile, the signs of slightly easier credit availability will bolster demand and values too.
Looking at Auckland in particular, this period of stability for mortgage rates and property values is giving households some timely breathing space in which to bolster their balance sheets. For existing borrowers, low rates provide an opportunity to raise their repayments and clear their mortgage faster. For aspiring new borrowers, they’ve had a bit more time to boost their deposit without prices running away again.