Another month has flown by, which means it’s time for our latest market update.
Here’s what’s been happening with the economy, interest rates, and the New Zealand housing market over the last few weeks.
Let’s start with all the craziness happening overseas. What does the volatility coming out of the US mean for New Zealand?
US politics certainly makes for riveting watching at the moment. Every day, it seems, there’s a new (often outrageous, sometimes scary) Donald Trump soundbite making headlines.
I feel very grateful to be tucked away at the bottom of the world in times like these.
In my eyes, the single biggest risk for New Zealand, is that Trump’s policies (particularly his aggressive stance on global trade) have the very real potential to tip the US into recession. We’re already hearing reports of softening consumer demand in the US, and Trump’s trade tariffs have (largely) only just come into effect.
Reduced consumer demand would likely have an impact similar to that which we’ve endured over the last two years. And because the US is such a big player in the global economy, this would, of course, have a flow-on effect for the rest of the world.
There are some mitigating factors which should help to somewhat cushion the blow for New Zealand.
We have a relatively low-growth economy, fundamentally built on food and commodity exports, and that will partly insulate us from the impact of what’s happening overseas. People always need to eat.
And the hard yards we’ve put in over the last couple of years should also help to shield us from the impact. We’ve already felt the pain from a recessionary perspective, and consumer confidence and spending is already low.
So, while a broader off-shore recession wouldn’t be great news—adding to the low-growth environment we expect over the next few years—it’s nothing to be too afraid of.
What’s been happening with New Zealand interest rates?
It’s been a long time coming, but our most recent Official Cash Rate (OCR) cut was enough to finally tip (some) rates below 5.00%—with most banks now offering a two-year fixed term rate of 4.99%.
The one-year rate is still a little higher than that but should continue to track downwards in the coming months, as further OCR cuts occur.
We’ve got our next OCR announcement coming up in a few weeks’ time, on 9th April. That’s expected to bring a 0.25% reduction—taking us down to 3.5%—which should help bring the one-year rate closer to that 4.99% mark.
With all the uncertainty going on in the world at the moment, coupled with the fact that we’re (hopefully) now out of recession, I’m not expecting to see mortgage rates get much lower than that.
So, if you can fix your mortgage at 4.99%, I’d say that’s a good deal.
Over to the New Zealand housing market…
Oversupply is still the name of the game in the housing market.
Demand is certainly picking up as lower interest rates attract more and more buyers back into the market, but all that’s doing is helping to restore a bit of balance to the supply and demand equation.
As transaction levels increase, that will help clear the market somewhat, but I’m not expecting to see any meaningful lift in house prices this year.
Any real recovery is unlikely until at least 2026, maybe 2027, depending on what happens with the US and the flow-on effect for the global economy.