The five things you need to know about the housing market this week.
1. 2.75% looks likely on Wednesday
The most important economic news this week will be the contents of the Reserve Bank’s monetary policy statement, delivered at 2pm on Wednesday. Looking increasingly likely is an increase in the OCR from 2.5% to 2.75%. Nothing’s ever guaranteed, but the Reserve Bank has clearly signalled in July an intent to get the cash rate back to neutral (perhaps 3%) sooner rather than later and to then reassess the lie of the land from there.
Nothing has really happened in the meantime to put too much doubt around that. True, inflation hasn’t perhaps run away as much as might have been feared. But the risks of second-round price pressures haven’t disappeared. And there are just some hints that the economy might be slowly perking up too. As such, an OCR increase probably remains the option of least regret.
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For mortgages, an OCR rise this week would probably see floating rates increase. But fixed rates beyond the one-year term have already been rising in recent weeks, probably in anticipation of an OCR rise this week, so they may not necessarily react too much.
2. The lending slowdown is now clear
Speaking of mortgages, after a sustained period of growth, lending activity fell by a fair amount in July, down annually from $1.2 billion to $7.9 billion, the sharpest drop since April 2023. House purchase loans have eased, as has bank switching activity – although it remains pretty high by past standards, as existing borrowers with loan flexibility still chase fresh cash-backs.
Both owner-occupiers and investors have cooled, although first-home buyers and investors are still taking advantage of low-deposit options – 54% of FHB loans in July were done at less than 20% deposit (although only 17% across all owner-occupiers), while 5% of lending to investors was done at less than 30% deposit (i.e. high loan to value ratio), probably right at the limit of what lenders are comfortable with – given they like to keep a solid buffer between actual activity and the 10% cap.
3. The economy might just be turning around
The general tone of last week’s economic data was encouraging, with the NZ Activity Index still rising, filled jobs also showing a lift in July, and ANZ’s consumer confidence measure holding pretty steady in August. Uncertainty remains high, and some other indicators remain more sluggish, but there does seem to be a growing body of evidence that the economy is turning a corner.
Cotality chief economist Kelvin Davidson: “Fixed rates beyond the one-year term have already been rising in recent weeks.” Photo / Peter Meecham
4. New dwelling consents about to turn down again?
On Wednesday this week, look out for Stats NZ’s data on new dwellings consented in July. These figures have continued to trend higher lately (from an already decent level), but with mortgage rates now rising and construction costs also lifting on the back of the US-Iran conflict and fuel prices, a drop in consents would not be a surprise at some stage soon.
5. Will the one-year rate become more popular again?
Then on Friday, the Reserve Bank will publish July’s lending data split by the terms chosen by new borrowers. Many have recently been taking longer-term fixes (with the two-year rate pretty popular), and more of the same seems likely in the July figures as people seek some insurance against potentially even higher rates later. That said, the gap between two-year and one-year rates has widened lately, so it’ll be interesting to see if people simply start to look again for the cheapest option now (e.g. one-year fixed), even if there’s a risk of having to re-fix again later at higher rates.
- Kelvin Davidson is chief economist at property insights firm Cotality
