After three months of slashing, are the biggest mortgage rate cuts behind us?

1. All eyes on the Reserve Bank

Clearly, the biggest event on the economic and property calendar this week is the Reserve Bank’s latest Monetary Policy Statement at 2pm Wednesday. My expectation is that the RBNZ will deliver a 0.5% cut to the Official Cash Rate, which is what the financial markets and almost all other analysts are also anticipating. That’ll mean we’ve had 1.25% of monetary policy easing in just three months, although further OCR cuts still look likely in 2025 too, off the back of the continued weakness in the economy – especially in light of the falls in employment that are now coming through.

However, the pace of OCR cutting could well be slower and smaller than those seen to date, and there’s also a sense that a lot of those possible future cuts have already been priced into mortgage rates. In other words, we may not have reached the floor for mortgage rates just yet, but equally the fastest and largest falls could already be behind us (especially for those longer-term fixed rates in the three- to five-year horizons).

2. Confirmation of continued economic weakness

Just to quickly confirm why the Reserve Bank is in an easing phase at present; it’s clear that a wide range of real-time economic activity indicators remain subdued (alongside the headline CPI inflation rate now being back within the 1-3% target band). For example, last week’s BNZ-BusinessNZ Performance of Services Index was in negative territory for the eighth month in a row in October, with the wider-ranging NZ Activity Index from Stats NZ also continuing to just tick along.

This weakness points to further downwards pressure on inflation in the coming quarters and, as strange as it might seem at first glance, negative inflation (or falling prices) can be just as damaging as rapid price growth. After all, if people expect lower prices tomorrow, they stop spending today, and that can bring about significant economic problems too.

CoreLogic chief economist Kelvin Davidson: "Negative inflation can be just as damaging as rapid price growth." Photo / Peter Meecham

3. Plenty of lending data to keep analysts busy

As a spreadsheet fan, my Wednesday afternoon will be a happy time, with the OCR decision followed up an hour later by a large amount of mortgage lending data for October from the Reserve Bank. The overall lending total will be of interest (likely showing further gradual growth), but my main focus will be on any signs that high loan-to-value and debt-to-income ratio lending is becoming more prevalent (as mortgage rates fall and confidence slowly returns), and also whether bank switching activity has remained elevated.

4. More soft labour market data?

There are also some important figures to watch on Thursday, with Stats NZ releasing the filled jobs data for October. These figures have perhaps been a little more resilient than expected in the past couple of months, but we know more generally that the labour market is still subdued. A fall to some degree in filled jobs in October’s data wouldn’t be a surprise, and it highlights one of the key reasons for caution about the housing market’s prospects in the next 6-12 months.

5. What are firms’ hiring plans?

Speaking of jobs, ANZ will publish their business confidence survey results for November this Thursday too. One of the key sub-measures worth watching in this survey is employment intentions; the sooner that starts to pick up, the more confident we can be that this period of labour market weakness will promptly come to an end.