Should homeowners pin their hopes on Nov 27 rate cut after housing market’s ‘dead cat bounce’?

1. Still waiting for rate cuts

The big one for this week comes at 2pm on Wednesday, when the Reserve Bank announces its Official Cash Rate decision. This will get a lot of attention, but the reality is that the OCR is very unlikely to change, and the Reserve Bank’s commentary/tone probably won’t shift or soften much either. Borrowers who are waiting for rate cuts may not find much comfort just yet.

However, the full Monetary Policy Statement on August 14 looms pretty large. By then we’ll have the all-important Q2 inflation and unemployment figures. Given the likelihood of continued weakness in the economy, I wouldn’t be surprised if the RBNZ used August’s statement to start laying the groundwork for an OCR cut down the track, with that first move in the cycle possibly coming on November 27 this year.

2. A dead cat bounce?

Animal lovers should quickly just skip to item No.3, but for others, this is a widely used analogy in financial markets: if you drop a dead cat, it’ll bounce a bit, before you realise it’s still dead. It may well be the best way to describe the mini-upturn in house prices over late 2023 and early 2024, which has now petered out. Indeed, the CoreLogic House Price Index showed a further 0.5% monthly decline in national average values in June, with Auckland down by a heftier 1.2%, although Christchurch and Dunedin were flat (and Tauranga only edging down by 0.1%). Clearly, high mortgage rates remain a significant handbrake for the housing market, while the elevated levels of available listings are giving active buyers plenty of choice and also subduing prices.

3. The labour market continues to soften

Part of the reason for the recent weakness in house sales and prices is the softer labour market (and reduced job security), with the latest Stats NZ figures showing that filled jobs were unchanged in May. That left them up by only 0.9% from a year ago, the smallest rise since March 2021 (0.5%). This doesn’t come as much surprise, given that the economy is struggling and business confidence is low.

CoreLogic chief economist Kelvin Davidson: "I wouldn’t be surprised if the RBNZ used August’s statement to start laying the groundwork for an OCR cut down the track." Photo / Peter Meecham

4. Dwelling consents are still falling

Also on a downbeat tone, dwelling consents dropped by 15% in May compared to the same month last year, simply a continuation of the downwards trend of the past 18-24 months. The annual total now stands at around 34,850, compared to the May 2022 peak of about 51,000. However, roughly 35,000 is still a pretty good figure in a long-run context, and we’re also just detecting little snippets of information suggesting that the downturn for consents might be approaching its finish line, which would obviously be good news if we want to avoid housing shortages again.

5. A better kind of flooding

Speaking of construction, last week the Housing Minister, Chris Bishop, unveiled a range of new measures intended to increase the supply of land available for new houses over the long term, with the aim of limiting land/property value growth, and improving affordability. He calls it “flooding” the market with new land.

Key measures include forcing councils to zone/plan their land supply pipelines 30 years in advance, preventing councils from imposing hard boundaries around rural land, removing minimum size requirements for apartments, and pushing for more intensified developments close to existing infrastructure (e.g. train stations) in the main cities. In the end, anything that can improve housing affordability is a great step forward, but we’ll just have to wait and see how it plays out in reality.

- Kelvin Davidson is chief economist at property insights firm CoreLogic