A surprise from the Reserve Bank of New Zealand: could interest rate cuts still be a long way off? With the Budget imminent, here are this week’s key events for property investors

1

 

With the First Home Grant scrapped,

will the Budget bring more surprises?

 

This week’s main event will be the Budget from Finance Minister Nicola Willis, due to be announced this Thursday, 30 May. First-home buyers were shocked and disappointed by the Government’s abrupt scrapping of the First Home Grant scheme last week. However, Housing Minister Chris Bishop also announced the future direction of Kāinga Ora last week, which may suggest that the housing market will not be the main focus of this Budget.

 

Housing Minister Chris Bishop announced last week that the First Home Grant would be scrapped

 

It is estimated that two in every five first-home buyers have recently received a grant. However, with the deposit now required often far exceeding the grant and potentially around NZ$150,000, the First Home Grant was not the main source of deposit funding for many buyers. Grants or subsidies also tend simply to push up house prices, so they may be a relatively inefficient way of helping buyers.

 

CoreLogic chief property economist Kelvin Davidson believes removing the grant may slightly dampen first-home buyer enthusiasm, but his instinct is that it will not bring demand to a standstill. First-home buyers can still draw on KiwiSaver and banks’ low-deposit mortgage allowances, while benefiting from lower house prices, stronger bargaining power than before and less competition from other buyer groups. The market’s experience over recent decades suggests that the most valuable help for first-home buyers may be a sustained supply of new homes over the long term, offering more choice and relatively lower prices.

 

2

 

A longer wait for mortgage rate cuts?

Another major development last week was unwelcome news for many mortgage borrowers. The Reserve Bank of New Zealand reportedly considered raising interest rates before announcing on Wednesday that it would leave the Official Cash Rate unchanged. Its exact words were: “Against a backdrop of persistent domestic inflation, weak productivity growth and uncertainty over the pace of normalisation in wages and prices, the Monetary Policy Committee discussed the possibility of raising the Official Cash Rate at this meeting.”

 

OCR movements from 2013 to the present

 

Ultimately, members decided to hold the OCR at 5.5%, but warned that interest rates “may need to remain at restrictive levels for longer than anticipated… to ensure the inflation target is met”. This suggests that the first official rate cut may not be possible until the second half of next year, at least 12 months away. The key issue is that inflation remains high. Although the economy is under pressure, an OCR cut is highly unlikely before inflationary pressures are brought under control.

 

Davidson noted that the OCR is not the only factor influencing market mortgage rates; competition between banks and offshore funding rates also matter. In his view, regardless of these factors, a substantial fall in mortgage rates is more likely in 2025 than in 2024, as many had hoped.

 

 

3

 

Could owner-occupier movers gain market share?

 

Over the past 12 to 18 months, owner-occupiers have been moving home less frequently than usual, possibly because of limited choice, difficulty obtaining loans and persistently high interest rates. However, CoreLogic’s latest buyer classification data shows that owner-occupier movers increased their market share in April. Kelvin Davidson said demand trends among these buyers deserved close attention. With the availability of listings no longer an issue and people’s lives continuing to move forward, there is likely to be considerable pent-up demand to satisfy.

 

CoreLogic chief economist Kelvin Davidson says scrapping the First Home Grant will delay some first-home buyers’ entry into the market

 

4

 

Will job numbers fall?

 

This Tuesday, Stats NZ will release employment data for April. Recent figures have been reasonably solid, but with a number of jobs being lost, employment numbers may also fall. We will have to wait for Tuesday’s figures to see how the market has performed.

 

5

 

Will building consent numbers fall further?

 

Stats NZ will also release April’s figures for new dwelling building consents this Thursday. Unfortunately, the figures are almost certain to be negative, with consent numbers potentially falling further. On the positive side, the risk of a housing shortage driving a surge in house prices has also diminished.