Current Interest Rates
Indicative rates current at 25 November 2015
|Fixed 6 months||4.85|
|Fixed 1 year||4.35|
|Fixed 2 years||4.39|
|Fixed 3 years||4.75|
|Fixed 4 years||4.89|
|Fixed 5 years||4.99|
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Market Commentary – November 2015
This Commentary has been brought to you by one of New Zealand’s Top Financial Journalists, Bernard Hickey:
“Automatic Stabilisers Kicking In”
New Zealand’s economy and housing market are coasting into the summer in a more stable fashion after the winter’s dramas over the dairy payout have given way to robust consumer spending, the spreading of Auckland’s housing boom and a bumper crop of tourists.
Business and consumer confidence took a dive through May, June and July as dairy prices slumped and after the Reserve Bank and Government announced a double-pronged attack on Auckland’s housing market.
But since then the automatic stabilisers have kicked in and both consumers and businesses are more upbeat heading into the Christmas party and spending season, and the autumnal house sales season.
The Reserve Bank cut the Official Cash Rate by 75 basis points through June, July and September, which helped drive the New Zealand dollar down almost 10 USc to around 65 USc. That also led to average fixed mortgage rates falling by almost 1% to around 4.5%.
Meanwhile, the Auckland housing boom, which kept humming through July to September, clearly spread out into the Waikato and Bay of Plenty during the spring. Continued record high net migration and surging tourist arrivals from China and America have also kept the tills ringing ahead of the summer break. Tourism spending is set to hit record highs for the 2015 year and is set to surpass dairy as New Zealand’s biggest export earner – albeit in part because of dairy’s slump.
House price inflation in Hamilton and Tauranga barreled along at annual rates of 18% and 14% respectively in September as Auckland investors spread their wings, and ahead of the Reserve Bank’s loosening its high LVR speed limit outside of Auckland from November 1.
However, Auckland’s housing market is cooling, at least for a few months. The anecdotal evidence of falling auction clearance rates and a slowdown in sales turned into harder evidence in the Real Estate Institute figures for October. Sales volumes fell 19.4% in Auckland in October from September and the median house price fell 3.0% to NZ$748,250 over the month, although it’s still up 16.8% from a year ago.
The spillover from Auckland was also clear in the figures, with new record high median prices in Northland, Manawatu/Wanganui, Wellington and Nelson/Marlborough. The national median house price excluding Auckland rose to NZ$370,00, which was up 1.4% in the month and up 8.4% from a year ago.
However, the officials are still saying it’s too early to say the fire in Auckland has either burned itself out, or that the moves by the Government (bright line test and new reporting requirements from October 1) and the Reserve Bank (limiting Auckland investors to 70% LVR from November 1) have doused the flames.
Reserve Bank Governor Graeme Wheeler made the point when talking about the October figures at his November Financial Stability Report news conference that it was too early to say if the cooling would last. He said he would like to see the figures for February first, given the autumn is when the market often hits its straps after Christmas. He also said the fall in Auckland volumes in October from September may have reflected a last-minute surge of activity through August and September as non-resident and local investors rushed to get into before the new rules applied.
Meanwhile, net migration galloped on to a fresh record high of 61,200 in the year to September, with about a half of those going to Auckland. Governor Wheeler made the point that the 8,900 new homes built over the last year in Auckland barely covered the new migrants, let alone reduced into the current shortage of 15,000 to 20,000 homes.
The potential for even lower interest rates also remains there to help drive demand in Auckland and beyond. Fixed mortgage rates have already built in the prospect of a fourth cut in the Official Cash Rate to 2.5% on December 10 when the Reserve Bank publishes its December quarter Monetary Policy Statement. But two of the four big banks (ASB and Westpac) are now openly talking about the prospect of further cuts towards 2% in 2016 because inflation and wage pressures remain so weak. Employment and consumer price inflation figures through October and November were both weaker than expected, reinforcing the expectation of very weak wage and price inflation.
The bottom line:
- Auckland’s housing market cooled a bit in October, but the jury is out on whether it continues slowing or gets a second wind through the summer, given record high net migration, record low interest rates and still-insufficient new building.
- Most economists expect the Reserve Bank to cut the Official Cash Rate to 2.5% on December 10 as inflation remains well below the bank’s 2% target. Fixed mortgage rates could fall below 4% in early 2016 if the central bank is forced to cut the OCR to 2%, as some expect.
- The Reserve Bank is taking a wait and see approach to the fallout from its new November 1 LVR restrictions in Auckland before it decides on any new measures, which some have suggested could include limiting loan to income ratios.
By Bernard Hickey
(Market Commentary sourced from NZFSG Adviser Services, 16 November, 2015)