Further rate rises likely in New Zealand: CoreLogic

Rising inflation in New Zealand will likely mean more interest rate rises ahead according to CoreLogic.

CoreLogic NZ Chief Property Economist Kelvin Davidson said the fact that inflation had not yet slowed down and that the Reserve Bank of New Zealand considered the case for a 0.75 per cent rise should indicate further tightening ahead.

“The past few weeks have been a timely reminder that global uncertainty and the inflation outlook are far from settled – meaning that mortgage rates may not have peaked yet, especially if the Reserve Bank needs to keep the Official Cash Rate (OCR) rising beyond 4 per cent next year,” Mr Davidson said.

Mr Davidson said monetary conditions still need to tighten ‘at pace’, which will continue to make life difficult for mortgage holders.

“From a borrower’s perspective, clearly the increases in mortgage rates over the past year or so have produced considerable challenges, let alone any further rises in the coming period,” he said.

“However, it’s also worth pointing out that there may be less to fear around the ‘refinancing wave’ than was previously thought.” 

Mr Davidosn said in June last year, 66 per cent of existing mortgages were fixed and due to reprice, however, many have now been worked through.

“With low unemployment helping households adjust to the ‘new norm’ for their repayments without widespread problems – we now have 44 per cent of debt fixed and due to reprice over the next year,” he said.

“That’s the lowest share since March 2018 and, if anything, below normal.”

According to Mr Davison, the next release of Stock Price Index on the 18th of October shapes up as a huge marker. 

“If the inflation rate has slowed, this might just start to sway a view that the OCR will peak at 4 per cent in this cycle,” he said.

“But further signs of strong inflationary pressures would likely lead to an OCR peak above 4 per cent, with rises continuing into next year.”

Mr Davison said he expected the falls in home values were not about to come to a sudden halt. 

“There are some signs that certain buyer groups – such as first-home buyers – are becoming a little more comfortable to return to the market, perhaps aware they won’t necessarily be able to buy perfectly at the floor but that the falls already seen are ‘good enough’ for them,” he said.

“A bit of extra demand, in turn, sets the scene for property values to potentially stop falling in the first half of next year, provided that unemployment stays low.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.