Where has the year gone?!?
Whether it’s the old “only X number of days to Christmas” comments from those office colleagues, or Mariah Carey coming out of hibernation in the retail stores, the signs are all there: we’re officially on the slippery slope to the holidays.
It’s a good slope to be on though, particularly with the Official Cash Rate (OCR) on the downward track too!
We’ve already had 0.75% knocked off since August, and with one more review to come at the end of November, the question on everyone’s lips is how big will the Reserve Bank (RBNZ) go?
Will it be another half a percent, or will it let rip with 0.75% off? Given the RBNZ Governor likes to take a measured approach to these things—as we’ve seen previously—my money’s on the former.
The other pertinent factors to consider are as follows:
- The small matter of the US election, being a bit of an unknown with regards to how this will impact the wider financial market.
- The fact that 70% of mortgages in New Zealand are set to come off their fixed rate in the next 12 months—freeing up a bit of disposable income for many households. It may be an opportunity for Kiwi to reward themselves for making it through the tough times, but might not play all that favourably for inflation.
- Wholesale funding costs have somewhat stabilised—and could be set to increase slightly over the coming weeks. To be fair, this is overdue and will correct the current curve with long term rates currently being cheaper than short term, reflecting the fact that you pay extra for the certainty of long-term fixed interest rates.
What’s been happening with the Wellington housing market?
Thought I’d share some insights from various sources, which may be of interest:
- The number of homes for sale reached near decade highs in October, coinciding with the return of some optimism to the housing market. There were around 32,300 homes for sale last month, up circa 26% from the same time last year, and circa 8% up from September. This does align with usual housing cycles though (spring sales). The housing market downturn isn’t over yet—but it’s not far off (source: www.realestate.co.nz)
- The Wellington region recorded the second largest increase in houses on the market, up 52.9% compared to same time last year (source: www.realestate.co.nz)
- CoreLogic has noted median house prices fell by 0.50% in October. This has been a consistent trend in recent months, with prices down 5.1% since March.
- Wellington house prices are down 1.2% from last month.
- Overall, prices seem to be stabilising, which will provide a bit of confidence for those intending to enter the market. The drop in interest rates has, however, been tempered by redundancies in Wellington and reduced job security, along with over-supply. Optimism is creeping back.
Where is inflation sitting at the moment?
Inflation has been the talk of the town over the last few years of course, with the RBNZ relying heavily on increased housing interest rates as the only tool available to tame the beast.
(Don’t get me started on alternative approaches that could be considered - perhaps increasing enforced KiwiSaver contributions would have a more favourable outcome for all?!?! But that’s a discussion for another day.)
The last official numbers had inflation sitting at 2.2%, and that data is always dated, so it’s fair to say we’re at the intended level.
The reduction has mainly been due to deflation in imported “tradeables” (goods and services effectively). This unfortunately can’t continue though, and those prices will stabilise and possibly increase next year, increasing costs for businesses.
The pace of increase for "non-tradeables" (rates and insurances) will hopefully decrease though after the big leaps we’ve had, so we should hopefully gain some stability throughout these two measures.
This will see an overall stabilisation of interest rates, hopefully providing confidence for all.
What does it all mean for borrowers?
For now, borrowers are largely favouring short-term interest rates—and fair enough—but next time around, it’ll likely be worth considering some of those longer term fixed-rate options.
(All TBC, and dependent on one’s personal circumstances of course. Love me a disclaimer!)
From here, there’ll be one more check in this year just after the 27/11. For now, stay safe, look after yourselves, and each other. Things always gets a bit hectic leading up to Christmas, so make sure to take some time out for reflection – you’ve made it through a bloody tough year, so give yourself a pat on the back!
And feel free to reach out and shoot the breeze. I’m always happy to shout a cuppa.