Tony Alexander’s analysis indicates that house prices in New Zealand are expected to rise before the end of the year, following a recent drop in annual inflation to 3.3%. The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate by 0.25 points to 5.25%, with further reductions anticipated, potentially dropping below 4.5% by mid-2025 and reaching around 3% by the end of 2026. This suggests that fixed mortgage rates could fall to about 5% or slightly lower by the end of 2026.
Just three months ago, the RBNZ had indicated it would not cut rates until August 2025 and even considered raising them. The rapid shift in policy is attributed to the RBNZ over-tightening monetary policy after previously loosening it during the pandemic. The economic outlook has worsened, with a projected contraction of 0.6% instead of the previously expected growth.
Despite this, business pricing plans remain high, with a significant percentage of businesses indicating they plan to raise prices. The RBNZ hopes that economic weakness will lead to adjustments in these pricing plans, although recent surveys show an increase in businesses not planning to raise prices.
As borrowers can look forward to lower mortgage rates, the housing market is beginning to show signs of recovery, with increased buyer interest noted in surveys. However, challenges remain, including a 33% increase in property listings compared to last year, job insecurity, declining net migration, and weaknesses in the rental market. While house prices are likely to rise again by year-end, improvements in employment and credit access will take time to materialize.
Source from oneroof.co.nz: https://www.oneroof.co.nz/news/tony-alexander-the-reserve-banks-rate-cut-gamble-why-the-sudden-change-of-heart-46032
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