Source: Cotality – Analysis / Commentary by Chief Property Economist Kelvin Davidson.
Today’s decision to raise the official cash rate by 0.25% to 2.50% wasn’t universally expected, but seems to reflect the Committee’s view that increases back to a more neutral level (perhaps 3%) were inevitable at some point so they may as well start now – even though fuel prices have eased and second-round inflation risks have probably receded too.
As opposed to the 3-3 split on the Committee last time around, this was a unanimous rise. The associated commentary with the decision also noted that further OCR increases will probably be necessary, but the timing is uncertain right now, depending on how the incoming data evolves and obviously whether the US-Iran peace deal proves to be lasting.
We had been leaning towards a hold today, on the basis that there doesn’t seem to be immediate pressure to curb inflation and delayed rate rises might just give the economy more time to get going again. But an OCR rise was never going to be a total shock either, given the RBNZ had been signalling increases even before the Iran conflict broke out.
For the housing market, it’s really just (subdued) business as usual. On one hand, the US-Iran peace deal has already seen lower fuel prices and a boost to consumer confidence, as well as falls in mortgage rates (although these may not run any further).
A continued economic recovery in the coming months, even if/when the OCR rises again, would tend to bolster sales volumes and property values too.
But a fresh boom seems very unlikely. Indeed, listings remain elevated, giving buyers the balance of power on pricing. The election – and potential tax changes – appears to be dampening investors’ moods too.
Meanwhile, a mindset shift also seems to be underway, with a lot of questions being asked about long-run capital growth prospects in a world where new housing supply looks to have taken a permanent step higher.