Rabobank expects an OCR of 3.25% in July next year - with forecast 'risks' (Source)

Rabobank is forecasting the OCR to be at 3.25% in mid-July next year. However, they say there is some uncertainty around how fast the easing of the interest rate cycle will take.  

Along with other economists from other banks, Rabobank is expecting an OCR cut of 50bps in November to bring the OCR to 4.25%. The ultimate goal they see is that the RBNZ will be looking to shift the OCR to a neutral position which they believe is closer to 3.25%. 
 

Having looked at New Zealand’s mortgages, Rabobank says an unusually large share are currently referenced to variable interest rates and fixed rates with a remaining term of less than nine months. This may cause any changes in monetary policy to have an impact faster, which may encourage RBNZ to proceed carefully. 
 

Our View: 3.25% by mid next year may very well be the case. With it being nine months until July 2025, other factors may come into play beforehand such as global impacts, war, US elections and natural disasters. However, the tipping point will come with the housing market when we shift from a buyer’s market to a seller’s market. The question is how soon this will occur. There have been reports of a more positive sentiment in the market, and investors are starting to look beyond bank term deposits to invest.  

Five years for 'wiped out' first-home buyers to get back on track (Source) 

CoreLogic head of research Nick Goodall says it could take five years for recent first-home buyers to regain the equity in their homes if they had it wiped out by falling prices.
  

3500 houses were purchased at the peak of the market and these homes are now worth approximately 20 percent less than their purchase price, and in a lot of cases this drop has wiped out the buyers' deposits.  

With a projected rate of 4 percent annual house growth this means it could take five years to get back to where they started, a similar situation to the GFC.  

Our View: Any smart first home buyer would have considered the market cycle when making their purchase. Many are just looking for a stake in the ground and will sit it out until they can make a good return on their investment.

Fewer new homes being built in Auckland as building work dries up (Source) 

Over the last few years Auckland’s backlog of building work built up and it is now reported to be drying up, leaving some tradies looking for work.  

Consents peaked in 2022 and in the first half of 2023 creating a large pipeline of work for the building industry, more than it could handle, leaving a backlog of work. This backlog kept builders busy during the downturn, but now the pipeline of work has slowed.  

According to Auckland City Council, in August consents were down 26.5% compared to July and June was also low.   

Our View: If Auckland building work is drying up, once the current excess housing supply is sold, the market may see a shift due to the lack of newbuilds leading to less housing availability, and in turn increased house prices. How soon this will be remains to be seen, but the pattern is there.  

AFR property survey: 'Be careful what you wish for' in property tax reform (Source) 

In Australia there is a national debate over the merits of changes to negative gearing and capital gains concessions, with analysts polled inferring a ‘careful what you wish for’ approach.  

According to experts, changes to current tax concessions for property investment would lead to increased rents as investors backed out of the housing market.  

AMP chief economist Shane Oliver has pointed out that lowering the after-tax return to investors, winding back of negative gearing and capital gains tax concessions would lead to a fall in investor demand for housing and could reduce house prices by around 3 – 4%.  

This would only give the desired impact for a short period before less investor participation led to less new homes being built and higher rents and house prices returning.

House sales creep higher, but no market boom in sight (Source) 

According to CoreLogic’s latest housing report house sales are increasing but there is no market boom in sight yet, with buyers still cautious.  

Affordability remains an issue at present for some potential buyers, with factors such as job losses and debt to income ratios playing a part in their ability to get a loan. We are however in a buyer’s market with plenty of listings available, and vendors are more receptive to meeting the market. Those who currently are not well positioned to buy may find their luck changes in due course as interest rates track downwards.   

Mortgaged multiple property owners make up more than 22% of all purchases, their highest level since mid-2022, with Mum and Dad investors more active in the market than larger investors.  

Have a relaxing long weekend!

From the team at Erskine Owen.