1. Float or fix?
Last week’s lending data from the Reserve Bank was really interesting and it seems to show what I had been expecting: that February’s discounting of fixed mortgage rates by the banks would start to drag some people back to longer terms again. Indeed, 20% of new loans in February were on fixed rates of 12 months-plus, which is the highest share since July last year. Note that this relates to house purchases, bank switches, and top-ups; not those people rolling over their existing fixed loans (although I suspect the behaviour would be the same).
However, 41% of lending in February was done on a floating rate, meaning 39% fixed for 6-12 months - the lowest since December 2023. In other words, it seems that people are hedging their bets. Some are floating in the hope they’ll lock in the lowest fixed rate possible at some stage soon, while others are possibly deciding that the trough for rates has pretty much already arrived and want repayment certainty. That’s always a delicate decision, especially when you add the US tariffs and global economic uncertainty into the mix.
2. OCR down again, and likely more to come
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Speaking of which, last week’s Official Cash Rate decision from the Reserve Bank made for fascinating reading. The decision itself – to drop the OCR by 0.25% to 3.5% – was fully expected. But it was more interesting to get the bank’s take on tariffs and how they might impact our economy and inflation in the short to medium-term. Largely, the RBNZ took a measured tone – it’s early days, the inflation impacts could be up or down, but generally this can’t be good for GDP growth in a small exporting nation. The overall conclusion has to be that the OCR might ultimately go lower than the 3% figure previously expected, but it’s going to be a case of just waiting to see how things evolve.
CoreLogic chief economist Kelvin Davidson: "The overall conclusion has to be that the OCR might ultimately go lower than the 3%." Photo / Peter Meecham
3. Inflation still under control?
On that note, Stats NZ publish on Tuesday the partial/monthly inflation measure (hopefully with rent prices included after a few months of suppression) and then on Thursday the benchmark quarterly CPI. This will get a lot of focus, with the expectation being that headline inflation is under control at around the 2% mark, albeit with the split between tradable/imported (low) and non-tradable/domestic (too high) still concerning, especially if US tariffs lead to a bit of near-term pressure on tradables.
4. Residential construction costs remain pretty flat
That said, one reason to think that overall inflation stayed subdued in Q1 is a flat picture for residential construction costs. CoreLogic’s Cordell Construction Cost Index showed only a 0.3% rise in the costs (across materials and wages) to build a standard dwelling in NZ in Q1, for a 0.9% annual lift – that’s well below the long-term average growth rate of 4%. Clearly, the wider slowdown in building workloads and probably some spare capacity is keeping a lid on costs.
5. Net migration might be stabilising
February’s net migration numbers from Stats NZ are released today and worth interrogating. The long downward trend in these figures – as arrivals have fallen and departures stayed high – seems to have petered out a bit in recent months, with the annual running total for net migration sitting at around 30,000. That’s a lot lower than the peak, but not too far away from the long-term average. The migration slowdown helps to explain why property rents have also flattened out over the past year or so.
