OCR: Reserve Bank cuts Official Cash Rate to 5.25% (source) 

I am going to say it...I told you so. They saw fresh data which meant they had to change tact. I’d say they had the indicators all along and they were holding out as long as possible before signaling rate cuts because once they do, they historically have to keep going until we come out of the shit. Yes, yes, we have heard it a lot, inflation is not our friend. But it is also really painful being bludgeoned with high interest rates for many sectors.

Regardless, it now signals the start of the next phase of the property cycle...the upward part. If you are sitting on the sidelines poised to buy...then what are you waiting for?

RNBZ kicks off easing cycle, governor relieved (source) 

It's not about the cut, it's about the forecast. 25 basis points doesn't move the dial that much on a mortgage. But 1% does - which should be with us early next year. The RBNZ knows that the stimulus is now required - so the cuts will keep coming until the NZ economy improves. 

"Speculative market positioning has been net received for some time and will be encouraged by this decision. While some profit-taking is possible, we would expect the downward trend in swap rates to continue," Westpac Bank head of NZ strategy Imre Speizer said. 

It is the trend, RBNZ sentiment that will have as much impact as the actual rate drops. Watch out for our next market commentary for more on this. 

Material Matters: Building downturn not all doom and gloom (source) 

The gap between building and buying is reported to be at its widest ever, with a $200,000 difference. However, according to CreditWorks the housing construction sector is simply experiencing a correction, not a collapse, and is reflective of 2018 levels.

With insights into the construction sector, CreditWorks report that concrete and steel sales are a good indicator of the construction market and although down 2.8% year-on-year, they are at a similar level to 2023, with Christchurch reporting a lift of 18%, which would indicate some growth in that area.

The lag between consents and sales of construction products has widened to around 15 months. With consents being valid for two years some homeowners will have been waiting for the OCR announcement yesterday so they can look forward to lower interest rates before making use of their consents. If this is the case, and given the banks' response to the OCR reduction yesterday was to lower interest rates there may be positive movement ahead for the construction sector.

Houses 'more affordable', while rents tack the other way. (source) 

Due to the recent protracted mortgage rate cycle, vendors have been more inclined to meet the market of late leading to more affordable prices for buyers.

Looking at housing affordability it is reported that it is at its lowest since Q2 2020 and while the ratio has tracked down, home values still exceeded household income growth.

Renters are experiencing a more challenging situation with rentals accounting for 28% of gross household income, with Tauranga being the least affordable main centre with a value-to-income ratio of 9.0, with Auckland just behind at 8.2 times. Outside the main centres, Queenstown Lakes is the most expensive for tenants.

The OCR change will also impact the above scenario, with lower interest rates already announced, investors will feel more confident to purchase, increasing rental supply. The offshoot of more investors in the market is also a steady increase in house prices due to demand. Is 2024 a good time to purchase a property? It's always a good time to buy – that 3-bed, full site we bought at the peak of the market in April 2007 just before the GF for $390k looks very cheap now.

From the team at Erskine Owen.