The three most important words for house prices and interest rates right now

The five things you need to know about the housing market this week.

1. All eyes on second-round inflation

The biggest property news last week was undoubtedly the Reserve Bank’s official cash rate review. Not so much the decision itself (the OCR was held at 2.25%), but more the associated commentary about the risks that might lie ahead.

The Reserve Bank plans to look through (i.e. ignore) the initial inflation effects of higher fuel prices. But the record of last Wednesday's meeting also covered both sides of the medium-term debate; on one hand, the risks that second round inflation eventually becomes more embedded (meaning raised inflation expectations and higher wage bargains); and on the other hand, the risks that the economy slows sharply, which will lower inflation.

On balance, the concerns seemed slightly more tilted towards the first scenario. In other words, the chances we’ll see an earlier and/or sharper OCR rise have grown. That rate rise could come in September, rather than December, as was previously expected. Much seems to depend on the two-week ceasefire between the US and Iran holding, and the success of peace negotiations reopening the Strait of Hormuz, through which 20% of the world's oil is transported.

Last year's rush to fix suggests borrowers were already positioning themselves for rising interest rates, so arguably nothing much may change. But as for house sales and prices, it’s not difficult to imagine all of this causing fresh restraint – especially with buyer and seller sentiment already so cautious.

2. At least house-building costs remain controlled - for now

For the time being, at least one thing the Reserve Bank doesn’t need to worry too much about is the cost of building a new house, with the Cordell Construction Cost Index showing only a 1% rise in Q1 and a 3% increase from a year ago – below the long-term annual growth rate of around 4%.

Of course, we’ve already heard a lot of stories of higher fuel/transport costs being passed on to construction firms, so the Q2 CCCI could show a bigger acceleration if builders raise their prices too. That will certainly be an issue for households pondering a new-build project.

Cotality chief economist Kelvin Davidson: "The chances we’ll see an earlier and/or sharper OCR rise have grown." Photo / Peter Meecham

3. Borrowers prepared for rate rises

Meanwhile, last week’s mortgage figures from the RBNZ showed that even prior to the Iran conflict breaking out, households were already keen to fix longer, no doubt as insurance against further rate rises in the coming months and years. Indeed, 54% of new loans in February were fixed for longer than a year, with the two-year term very popular – its 31% share was the highest since January 2023.

4. Will net migration rise further?

This week Stats NZ will publish February’s net migration data, and it may well show another rise, with better expectations for the NZ economy driving slightly higher arrivals and also reduced departures. Of course, it’s starting from a low base. And the latest figures will still pre-date the Iran situation, so take care with any conclusions from the figures, as they might change shortly.

5. Watch out, March’s economic data is out

This week, we'll start to get a lot more economic data relating to March, including services sector figures, and the electronic card spending and selected price indexes. It would not be a surprise to see the services and overall spending data decline (although fuel expenditure will be up), and inflation figures ramp up again.

- Kelvin Davidson is chief economist at property insights firm Cotality