RBNZ expected to cut another 50bps in November (Source)

This was always going to drive the news this week, the OCR dropped 50bps to 4.75%, the lowest since February last year.

To achieve and maintain low and stable inflation the Monetary Policy Committee agreed to reduce the OCR by 50bps. This drop, they believe, will also help avoid unnecessary instability in output, employment, interest rates, and exchange rate.

The drop has meant that banks have also commenced lowering home loan interest rates.

Bank chief economists from both ASB and Westpac are forecasting a further OCR reduction next month by 50bps, with Abhiji Surya, an economist for Capital Economics in NZ and Australia believing a couple more 50bps cuts are likely over the next few months.

Our view: Don’t forget that earlier this year the banks were forecasting no rate drops till 2025 and the RBNZ made noises about further rate rises. We said this was farcical. Actually, we didn’t say that – but we did point to evidence that the back of inflation was broken and that RBNZ needed to stop flagellating the economy and start dropping the OCR before 2025.

How soon will OCR cut lift economic gloom? (Source) 

Following the reduction in the OCR this week to 4.75%, Infometrics principal economist Brad Olsen states that the Reserve Bank realised the economy was weak and did not require so much interest rate restraint. Therefore, quick cuts were needed to normalise interest rates.

Infometrics also predict it will take nine months or so for interest rate cuts to have an impact on real economic activity.

According to the Employers & Manufacturers Associate, the rate cuts mean things are moving in the right direction and anything that takes the pressure off the cost of borrowing for businesses of all sizes is welcome.

National median rent unchanged at $600 a week since February (Source) 

According to bond data from Tenancy Services, the housing market has seen little if any rental growth this year, with the national median rent unchanged at $600 per week for the months between February and August.

For the main population centres, rents remained flat in August with Auckland rentals fluctuating between $650 - $660 since Sept 2023.

Wellington rents sat between $600 and $623 since March and in August sat at $620, while Canterbury rents had a tight range of $540 - $550 per week since November last year.

Will vendor optimism be matched by buyer enthusiasm in the spring housing market? (Source) 

There was an increase in homes for sale in September according to real estate websites Trademe Property and Realestate.co.nz, meaning lots of choice for buyers at present.

Vendors are relatively optimistic they will achieve a good price with both real estate sites reporting an increase in asking prices in September.

Only time will tell if vendor optimism will be matched by buyers' enthusiasm. According to Auckland-based real estate agency Barfoot & Thompson, the average selling price in September was down 2.4% compared to August, with the median selling price also down 1.9%.

Our View: We are seeing signs of demand lifting. We are seeing multiple offers on residential stock and properties selling for more than what recent comparable sales would suggest could be supported. This is anecdotal – but enough anecdotal data becomes a trend.

Sydney, Melbourne house prices: Investor demand outstrips supply (Source) 

Data from CoreLogic shows that fewer property investors are dropping out of housing markets across the combined capital cities with expectations being interest rate cuts will boost capital gains.

According to CoreLogic, property investors may be encouraged to hold their properties off-market as the properties are now more serviceable. Demand for investment properties is currently outstripping the number of properties being sold off.

According to the Bureau of Statistics, investor loans surged to $11.7 billion in August, up 34% from a year ago, the second highest on record. During this time, investor listings dropped 3.8% across the combined capital cities.

Our view: The ‘lucky country’ hasn’t got the doom/ gloom feeling NZ has. We suspect the OCR drop, the promise of more to come, spring, and summer holidays will give Kiwis a boost and we’ll see more people coming into the market.

Have a fabulous weekend!

From the team at Erskine Owen.