The Reserve Bank of New Zealand’s latest rate cut is set to boost market confidence and there is likely more easing on the way.
The RBNZ cut the Official Cash Rate (OCR) by 0.50 per cent on the back of a growing concern about economic indicators and inflation risks.
CoreLogic NZ Chief Property Economist, Kelvin Davidson said that the Reserve Bank appears to be acting swiftly to adjust monetary policy.
“There’s a sense in the Reserve Bank’s commentary that they feel a need to act fairly quickly to get monetary policy back towards a more neutral setting (or even stimulatory), rather than the restrictive territory it’s been in for quite some time now,” Mr Davidson said.
Mr Davidson said this decision will have implications for the housing market, particularly through its effect on mortgage rates.
“The key point is that mortgage interest rates are likely to continue to drop too,” he said.
This could easily produce a short-term lift in confidence and a more active housing market as we hit the normal Spring uplift anyway
However, he cautions against expectations of a dramatic upswing in house prices.
“Although house prices may well stop falling in the near future, there are also plenty of reasons why they are unlikely to surge upwards either,” Mr Davidson said.
He said there are several factors that could restrain house price growth, including stretched housing affordability and elevated listings.
Ray White New Zealand chief executive Daniel Coulson said the rate cut will help the property market.
“I think it’s clearly going to have a positive impact,” Mr Coulson said.
“We saw this with the initial rate cut in August, which was 0.25 per cent, half of what we’ve just seen now.
“There was an immediate uplift in inspections, auction participation, and home loan pre-approvals. All the indicators pointed to increased activity.
“While it may not bring completely new buyers into the market, those already considering a real estate decision will be more motivated to move forward.”
Mr Coulson said the move also dramatically boost sentiment.
“Sentiment plays a significant role, both economically and in real estate,” he said.
“Right now, buyers are in a unique position—they’ve had very little price pressure for the past 18 months to two years.
“Buyers today have the opportunity to purchase at today’s prices and lock in tomorrow’s lower interest rates.
“That window only lasts so long.”
According to ANZ Research, this week’s rate cut is likely to be the first of many, with a follow-up 50bp cut in November now on the cards.
Looking ahead, Mr Davidson said he predicts only modest growth in the housing market.
“It wouldn’t be a surprise to see limited growth in house prices in 2025, as mortgage rates drop,” he said.
“Keep in mind that lower rates will simply bring forward the timing for the debt-to-income restrictions to start biting; another reason to be cautious about the speed and duration of the next housing cycle.”
