Is the worst of the interest-rate hiking cycle over? 6 things to watch in the property market this week

①

Reserve Bank holds the OCR at 5.5%

The Reserve Bank of New Zealand held the Official Cash Rate (OCR) at 5.5% last week. This was unsurprising, as inflation and labour market performance in New Zealand had not deviated from its expectations since mid-August. What was unexpected, however, was that its latest monetary statement appeared to place somewhat less emphasis on the need for further OCR increases, contrary to analysts’ expectations and the direction of financial markets. The widespread expectation was that the Reserve Bank would probably raise the OCR again at its final monetary policy meeting of the year on 29 November.

With the general election here, the Reserve Bank of New Zealand may simply want to hold the OCR at its current level to maintain political neutrality. But whether or not it raises rates at the next meeting, the latest consumer price inflation figures due on 17 October will be crucial. CoreLogic chief economist Kelvin Davidson believes these market developments will have only a limited effect on commercial banks’ mortgage rates for borrowers. This is because the steepest phase of mortgage rate increases has already passed and, with unemployment currently low, the market has already absorbed much of the negative impact. Davidson also stressed that borrowers should not expect mortgage rates to fall soon.

 

②

Are borrowers favouring shorter fixed-rate terms?

{ad}According to the latest lending data released by the Reserve Bank of New Zealand, 70% of new lending in August—including new home loans, refinancing with another bank and top-up loans—was fixed for 2 years, well above the average of 62% over the past two and a half years. This means that, after favouring loan terms longer than two years, people are again opting for shorter fixed terms. Davidson’s explanation is that the 2-year term currently offers the best rates available in the market while also reducing borrowers’ risk of overpaying.

 

 

 

 

 

③

New Zealand’s recession is probably over, but is that true of every region?

CoreLogic’s latest New Zealand House Price Index shows that national average house prices were unchanged month on month in September. This was the first halt in the housing market’s decline since March 2022, potentially signalling that the downturn has ended. Regionally, prices rose in Auckland, Christchurch and Dunedin in September, while continuing to fall in Hamilton and Tauranga. With mortgage rates set to remain high for some time, Davidson expects these uneven regional movements to continue, restraining rapid growth in overall house prices.

 

④

Construction activity continues to slow

According to figures released by Stats NZ last week, applications for new-home building consents in August fell 30% compared with the same month last year. This brought the annual total down to around 42000 homes, compared with a peak of 51000 in May last year. While clearly unwelcome for builders, this may be good news for prospective new-home buyers. It points to smoother supply chains for building materials, more orderly growth in industry capacity and effective relief from rising construction costs, potentially putting the industry on a healthier footing.

 

⑤

Construction company liquidations remain high

Centrix data shows that construction and hospitality businesses are more than twice as likely to go into liquidation as businesses in other industries. Construction company liquidations increased 55% year on year. Correspondingly, credit defaults in the construction sector rose 18%, while average credit scores were also declining.

If you work in construction or trade with construction businesses, it is important to protect your cash flow. For example, you can:

• Check for changes in your customers’ payment behaviour
• Obtain credit reports on customers you are concerned about
• Address overdue invoices promptly
• Establish comprehensive terms and conditions of trade
• Register on the PPSR to protect your business’s interests in the event of liquidation

 

⑥

Growing net migration puts upward pressure on rents

The key release to watch this week is Stats NZ’s latest net migration data on Wednesday, followed by the latest rental price figures on Thursday. Over the past year, strong growth in net migration has created an imbalance between rental supply and demand, and rent increases have inevitably begun to accelerate. Will this week’s figures reflect the same market conditions? We will have to wait and see.

 

Sources for this article: OneRoof, Centrix