Will falling inflation directly affect mortgage rates? Key developments property investors should watch

01  Is inflation steadily declining?

The most important official economic release last week was undoubtedly the third-quarter consumers price index (CPI). On Tuesday, Stats NZ said New Zealand’s headline inflation rate had slowed from 6% in the second quarter to 5.6% in the third. This included easing price growth in both “tradable” inflation imported from overseas, such as imported petrol, and domestically generated “non-tradable” inflation, such as rent. The Reserve Bank of New Zealand can be expected to be particularly pleased with the decline in non-tradable inflation.

For interest rates, the decline in headline inflation is likely to put paid to an increase in the official cash rate (OCR) on 29 November, the Reserve Bank’s final monetary policy announcement this year, and should help stabilise mortgage rates at the major commercial banks. Even so, CoreLogic chief economist Kelvin Davidson said the outlook did not warrant excessive optimism. Inflation remains far above the Reserve Bank’s target range of 1–3%, and cuts to the OCR and mortgage rates remain a long way off.

02  Are first-home buyers still the market’s main force?

CoreLogic’s latest buyer classification data shows that first-home buyers accounted for a record 27.6% of purchases in September. This reflects substantially lower house prices than at the peak two years ago, less competition from other buyer groups, particularly investors, and more favourable loan-to-value ratio (LVR) rules than those applying to other buyers.

With the National Party coming to power and tax deductibility rules being progressively relaxed, more investment buyers can be expected to return to the market. However, given the continued low yields on investment properties and high mortgage rates, a large-scale investor buying spree is unlikely.

03  Will more properties be newly listed for sale?

Weekly new listing data shows that the market has entered its normal spring and summer upswing, but sales volumes remain below the average for previous years. As property sales recover, the number of homes available to prospective buyers is gradually falling. In these conditions, upward pressure on prices will re-emerge, and a return to a buyer’s market would be unsurprising.

04  Will mortgage lending by the major commercial banks rise again?

This Thursday, the Reserve Bank of New Zealand will release mortgage lending figures for September. Driven by continued growth in lending to first-home buyers, mortgage lending showed signs of a steady recovery in August, recording its first annual increase in nearly two years. With the housing market continuing to recover over the past month or so, particularly given the positive impact of the election result, Thursday’s figures could show another substantial increase.

05  The risk of recession is receding 

This Friday, ANZ will release its consumer confidence index report for October, while Stats NZ will publish its New Zealand Activity Index report for September. Consumer confidence has continued to improve in recent weeks, helped by the election result. Stats NZ’s earlier figures for July and August have already indicated that positive third-quarter economic growth could mean we avoid another recession. This would help ease concerns that New Zealand’s economy could slip back into recession.

Article information sourced from the internet