OCR cut in line with expectations

OCR cut in line with expectations

Today’s reduction in the Official Cash Rate appears to be in line with expectations in the property markets, the Chief Executive Officer of the Real Estate Institute of New Zealand, Colleen Milne, says.

Ms Milne notes that a 25 basis point reduction (to 3 percent) was signalled in the last Official Cash Rate announcement, in June, and has been priced in to rates since then.

“The Institute does not speculate on future property price movements, but several observations can be made on factors that may influence the market going
forward,” Ms Milne says.

“The most important consideration for property markets in terms of interest rates seems likely to be the extent of any further reductions over the next few months. Our soundings indicate that there are expectations that the official rate could come down to 2-2.5 percent.

“In the short term lower interest rates would tend to put upward pressure on prices – particularly in Auckland, and perhaps also in regions where recent feedback suggests there has been some involvement from Auckland-based investors.

“Demand pressures remain high in comparison with the build rate for new dwellings.”

Ms Milne notes, however, that these factors must be balanced against the extent to which lower interest rates are taken to indicate economic headwinds and the extent to which that affects buyer confidence.

“In addition, the recently-introduced restrictions on Loan to Value Ratios and the Inland Revenue requirements for overseas-based purchasers appear to be having some effect.

“Finally, about two-thirds of the population lives outside Auckland and their perceptions of market prospects can change. The reduced dairy pay out, whilst not a key factor in the Auckland market, may be influential in the other regions.”

The Real Estate Institute of New Zealand reports monthly sales data that provide the most up-to-date picture of the residential property markets, normally in the second week of each month.

Ends.

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