NZ Mortgage Rate Forecast 2010

Two arrow signs pointing in opposite directions

For the past 12 months mortgage rates have been at historic lows. There has been talk for some time that rates will eventually increase and 2010 has been slated as the year that will happen. Some economists have talked about as early as April whilst others are still talking September.

Timing aside, rates will go up.

The real debate is by how much and how quickly. My long-held view is that the market is overcooking the extent of mortgage rate increases. We seem to need to worry about something all of the time - we are either worried about the world coming to an end or we are worried about missing out! The media plays to this. On the greed side there is some suggestion that property prices could go up 10% this year. The worst example yet was an assertion by one commentator that coastal property will come back strong. Yeah right!

On the fear side of the equation, last year we had headline predictions of a 30% slump in house prices that never eventuated. Would a headline “2010 set to be boring” sell papers or get people to your web site? From what I can see the best prediction of the future is exactly the opposite of what is predicted in the mainstream media. I still think those who had the cojones to buy in early 2009 got the best deals. And so my prediction for 2010 is “slightly boring” and that extends to mortgage rates. Yes, they will go up, but not enough for you to stay awake at night and break into cold sweats. Here is my forecast versus what ANZ thinks. (My view is that ANZ National has the best economics team amongst the banks.) Even if ANZ is right with their forecast, the one-year rate at 7.60% isn’t all that terrifying. The reason fixed rates won’t move too much is that (1) most of the rate increases are already priced into the longer-term fixed rates and (2) bank funding costs will increase more slowly than the official cash rate.