What a lower OCR means for residential housing in New Zealand
While the lower OCR is positive news for New Zealand’s property market, it could be some time before the full effects of the decrease flow through to the property sector, according to the managing director of leading real estate company Bayleys, Mike Bayley – especially as more than 80 per cent of New Zealand home mortgages are on fixed terms.
“Interest repayment levels are just one consideration in the decision-making process involved with buying residential property – alongside such other factors as general economic confidence, household debt levels, business forecasts and job security,” Mr Bayley said, following this morning’s 150 base rate point cut by the Reserve Bank.
“Lowering the OCR is certainly the first step in redressing what has been a declining property market in both sales volume and prices throughout 2008, however these other factors, along with raising immigration levels, need to be stabilised before we will see any major correction in property prices. And it could be well into the second quarter of 2009 before those other areas are brought back into line.
“However, a lower cash rate will be the primary stimulus to help redress these factors.
“The news is certainly an early Christmas present for prospective residential property owner-occupiers and comes at a time of increasing personal disposable incomes - with the effects of lower tax rates and lower fuel prices adding more money into household budgets.
“In another dimension to the market, I think residential property investors will be weighing up the undertones of the general economic environment before entering the buying cycle to any large extent, and this may place some constraints on rejuvenating sales activity.
“Potentially accelerating the rebalancing of residential property investment will be the fact that lower interest rates for term deposits and a collapsed share market, will once again make property investment a more attractive long term option. This would be an obvious driver to lift market volumes.”
Mike Bayley said the effects of the Reserve Banks’ 150 base-point slash would only really be felt by the public when mortgage rates were consequently lowered by retail banks – with some of the lower OCR already been factored into current fixed and floating mortgage rates.
“We certainly hope the commercial banks will respond as quickly to a falling OCR as they did when lifting their mortgage rates when the OCR was rising,” Mr Bayley said.
“But don’t expect to see the banks dropping their floating rates immediately by a corresponding 1.5 per cent.”