Source: Commentary by Chief Property Economist Kelvin Davidson, Cotality
The Reserve Bank’s Monetary Policy Committee cut the official cash rate (OCR) by 0.5% today, taking it down to 2.5%. There was no debate about whether we’d see a cut today. The only question was the size and, in the event, they opted for ‘front-loaded’ easing.
This was a Monetary Policy Review month, as opposed to the full Statement with accompanying in-depth commentary and forecasts, but even so we still got enough detail today to show that economic weakness and spare capacity remain the key concerns – running the risk that inflation undershoots the 1-3% target band sometime down the track.
As such, the bigger, front-loaded 0.5% cut was probably seen as the least-regrets option, rather than a more ‘wait and see approach’ of only cutting by 0.25%. Note that the Committee discussed both options but reached a consensus for the larger cut. We’ll need to see how the economy evolves over the next few weeks, but another fall on 26th November is possible too.
The immediate, direct housing market effects from today’s decision aren’t likely to be massive. After all, the banks had already been cutting their mortgage rates in advance, particularly for one-year fixed loans. And although the effects of this will progressively flow through to borrowers in the coming weeks and months, the subdued labour market is the key restraint on the other side of the equation at present – and it will be slower to start improving; maybe not until next year.
All in all, it’s taking a lot of work to get this economy turning around and today’s decision will hopefully be the ‘shock treatment’ required to get everyone back into gear. The recent green shoots we’ve been seeing should emerge fully in 2026, and as unemployment starts to drop again, it seems likely we’ll see house prices rise next year.
But the debt to income ratio caps are one reason to be cautious about the size and speed of medium-term growth in property values.
