1. OCR decision - something for everyone
There were few surprises in last week’s official cash rate decision, with the Reserve Bank holding the rate at 2.25% and giving no indication of a rise in the short term. Both will bring comfort to those who believe the economy is under pressure. However, the Reserve Bank also tinkered with the OCR forecast, suggesting that the first increase will be seen later this year, rather than the previous indication of early 2027. As such, giving support to people concerned about inflation.
On the whole, it was a balanced statement and shouldn’t change the conversation too much. Banks had already lifted mortgage rates in anticipation of an early OCR hike, so home loans may not change much in the near term. One more thing to note: the forecasts envisage house prices remaining flat in 2026 and rising by around 3% in 2027. We could quibble about the numbers, but the overall cautious tone for house prices is hard to disagree with.
2. Slower sales activity just a blip?
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There were around 4350 property sales in January, an annual drop of 11%, and only the third fall in the past 33 months. But December 2025 was unexpectedly strong, so I suspect that some deals may have been rushed through late last year. That could mean January's drop is just a blip and that we should expect sales to rise throughout the year, as the lagged response to previous falls in interest rates and the prospect of a rise in GDP and employment take effect.
Cotality chief economist Kelvin Davidson: "Banks had already lifted mortgage rates in anticipation of an early hike in the OCR, so home loans may not change much in the near term." Photo / Peter Meecham
3. The rental downturn is unlikely to have finished yet
Recently released figures from Stats NZ showed a spike in the flow/new tenancies measure of property rents, from -0.3% in December to +1.6% in January, driven by Canterbury and the wider South Island. Auckland and Wellington remained sluggish.
I’d be very cautious of this lift, not least because something similar happened around the same time last year, and then growth subsequently fell back again. In other words, January’s figures may have been impacted by some kind of abnormal seasonal increase. On top of that, looking at the fundamentals, net migration is still subdued, and rents are already high in relation to households’ incomes. On that basis, the outlook for rents still seems favourable for tenants, less so for landlords.
4. More good economic news?
This week, we’ll get the NZ Activity Index for January from Stats NZ and the results of ANZ's business and consumer surveys for February. I’d anticipate the general tone of these indicators to remain positive, and hopefully, the input costs/output prices/inflation expectations components to stay muted.
5. A quieter month likely for lending
The Reserve Bank’s figures on mortgage lending in January will be out on Thursday, and after the crazy levels of bank switching in December, we should see a much more normal set of numbers. There may be a lingering flow of switching/refi still to work its way through, but keep an eye on the loan-to-value-ratio split (have low-deposit investors continued to grow?) and the debt-to-income-ratio breakdown. For now, both of these lending controls are operating well below the speed limits.
- Kelvin Davidson is chief economist at property insights firm Cotality
