Well, it’s been a year—and one that’s prompted a lot of questions.
Did the Reserve Bank hold rates too high for too long? Have the banks passed on the interest rate reductions adequately and in a timely manner?
The answers will vary depending on who you ask, and I’m sure will be discussed at length in ECON 130 lectures in years to come.
How are things tracking in terms of inflation and the economy?
While restrictive monetary policy has done the trick—as inflation edges ever-closer to the midpoint of the Reserve Bank’s (RBNZ) 1%-3% target range—it’s come at a cost (as many of us know all too well).
Those hoping for a quick recovery will be feeling disappointed, although not for a lack of trying from the RBNZ’s decision makers.
New Zealand isn’t special in this regard. Europe, Asia and the Americas all faced material headwinds, with many now at a similar stage to us, but with slightly different obstacles to overcome.
Special shout out to Argentina, where inflation peaked at 300% in April—and is expected to drop to 119% by the end of 2024. Different set of circumstances of course, but speaking to a contact there, employees were spending their pay-cheque as soon as they received it, as prices were likely to be higher by next payday! Self-fulfilling inflation!
What’s happening with house prices?
Property prices and interest rates usually operate on a seesaw—with the net result of recent rate cuts being a stabilisation of house prices, further aided by the recent introduction of debt-to-income ratios on new lending.
Some will be wishing for further house price falls, and others will be hoping for growth, but I think stability is the least we deserve after the turmoil of the last few years.
Wellington is of course its own eco-system
The Capital has borne the brunt of the Government’s austerity measures. Recent data shows job numbers throughout the region have fallen 11.6% over 2024, with possibly more to come.
This has been reflected in the Wellington housing market, with the average asking price down circa 3% YoY, and new listings up circa 10% year on year—meaning it’s very much a buyers’ market.
The rate of sale bucks the trend, with the national average time to sell sitting at 23 weeks compared to just 13 weeks in Wellington. Good properties, priced right, will sell.
So, what does the future hold?
The Reserve Bank has said that on the current trajectory, we will see another 50 points come off the Official Cash Rate come February. Beyond that, many are reluctant to predict.
There are several variables that could shape how things unfold over the next year:
- With inflation back within the RBNZ’s target band, will it see fit to take its foot off the pedal with regards to further reductions?
- Increases in council rates, insurance premiums, food prices (potentially) and climate related expenses could be inflationary.
- New debt-to-income ratios will provide little incentive for banks to reduce interest rates further (at least not for housing reasons, anyway).
- A man by the name of Donald Trump, whose proposed introduction of various trade tariffs are likely to be inflationary for the US—potentially prompting increases to the Fed interest rate to keep the impact at bay. Would the NZD need to keep parity, creating upward pressure on the OCR?
- Gross Domestic Product (GDP) declined by 0.20% in the June quarter, and will likely be a contraction in September. Interest rates are usually reduced to stimulate economic activity / growth.
All of the above may provide a bit of volatility in the short to medium term.
For now though, it’s time to take a breather, and enjoy the holiday period – we’ve all certainly earned it! Go well, stay safe, and catch you on the flip side!