New Zealand's housing market has been dealt a 5 per cent blow in additional wholesale borrowing costs since November 2021. Photo / Getty Images
New Zealand's housing market has been dealt a 5 per cent blow in additional wholesale borrowing costs since November 2021. Photo / Getty Images
Home owners rolling off fixed-term interest rates should look to fix again, but not for more than two years, to potentially make the most of rate cuts to come soon, according to ASB chief economist Nick Tuffley.
Speaking on the Herald’sStock Takes podcast, Tuffley said he was placing his bets on the Reserve Bank of New Zealand making cuts to the official cash rate (OCR) around mid-2024, compared with the likelihood of further increases to it.
Although he wasn’t prepared to declare victory for the Reserve Bank in its war against inflation yet.
“We do think they are [done], we just to have to be mindful to never say never.”
ASB chief economist Nick Tuffley is forecasting cuts to the official cash rate in mid-2024.
The Reserve Bank monetary policy committee is widely expected to keep the OCR on hold at 5.5 per cent on Wednesday next week, following a small 0.25 per cent increase in May.
If that happened, it would be the first pause on rate movements in 18 months and a welcome relief to borrowers, who had endured a nearly 5 per cent total increase to the wholesale cost of borrowing since November 2021.
Such scale of action was unheard of in the past three decades of central bank inflation targeting, according to Tuffley.
“To put it in comparison, we did see, in the global financial crisis, some dramatic cuts. But even then, we didn’t see the cash rate from the top to the bottom move as much as what we’ve just seen on the way up.”
The hikes had caught up with New Zealand’s economy, which officially entered a technical recession in the first quarter of this year. However, its relative resilience was “astonishing”.
The number of non-performing residential housing loans rose in the month of May to $1.23 billion. However, that was only 0.4 per cent of New Zealand’s total mortgage book.
The majority of New Zealand mortgages are on fixed terms, compared with floating terms. Source: RBNZ
Tuffley put the lack of widespread defaults to date down to low unemployment, with continued work and higher wages helping New Zealanders maintain their mortgage repayments.
“We’re all moaning about the fact that everything costs a lot, rather than having a widespread moaning about loss of jobs.”
A number of borrowers were also yet to roll off their existing fixed-term rates and on to higher rates.
In this Stock Takes episode, Tuffley reflects on how the hikes altered even his own assumptions about monetary policy, and how our central bank’s decisions compared with those in Australia and the United States.
Stock Takes is available on iHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every Wednesday and are brought to you with support from Fisher Funds.
