1. All eyes on the Reserve Bank
The Reserve Bank’s first OCR decision of 2025 will be announced on Wednesday. It’s likely to be a 0.5% cut, taking the cash rate to 3.75%, which the bank flagged in its last statement of 2024, in late November. With inflation projected to stay at around 2% for the foreseeable future, the bank can focus on giving the underlying economy more much-needed support through lower interest rates.
Of equal importance to Kiwis will be the accompanying Monetary Policy Statement, which will set out the bank’s forecasts for key variables such as GDP, inflation, and employment, as well as the OCR. The current consensus view is that the pace of OCR cuts will slow after this week’s decision and possibly stop at 3.25%.
What about mortgage rates? There’s always potential for floating and some of the shorter-term fixed rates to drop after the decision, but the banks have been cutting many of their rates fairly steadily in recent weeks, so the instant reaction on Wednesday or Thursday could be a bit more muted than some might be anticipating.
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2. A little less pain and a bit more gain
The latest CoreLogic Pain & Gain Report was out last week, which added to other tentative evidence that the property market has largely stopped falling, although a strong upturn is not yet on the cards either. The share of resales in Q4 2024 made for a price higher than the owner originally paid went up from about 90% in Q3 to 91%, with the median gain sitting at $289,500.
Those gains might still seem large to would-be owners, and they are. But it’s worth pointing out that hold periods play a huge role – even after the weakness for values in the past three years, hold periods of 10, 20, 30 years will inevitably mean a gross profit. And of course for most owner-occupiers it’s not a cash windfall, with the equity just going straight back into the next purchase.
CoreLogic chief economist Kelvin Davidson: "There’s always potential for floating and some of the shorter-term fixed rates to drop after the OCR decision." Photo / Peter Meecham
3. Borrowers weren’t as keen to float in December
The Reserve Bank’s split of new mortgage lending in December (not covering existing loans going to new rates) by the terms chosen showed that the strong popularity of floating rates in November – which was ahead of the Reserve Bank’s OCR decision late that month – didn’t last into December, as entirely expected (given that floating rates are much higher than fixed).
Indeed, after spiking to 47% of new loans in November, floating terms fell back to a more normal figure of 24% in December. That said, there was still a preference to stay towards the shorter end of the curve, with six-month fixed rates rising from 15% of loans in November to 40% in December. It’s going to be really interesting to see if/when at some stage this year people decide to move back towards longer-term fixed rates again – especially with sub-5% offers now out there in the market.
4. Economic data still a bit patchy
Just quickly on some macro data last week, electronic card spending was sluggish in January, but manufacturing activity recorded its first rise in nearly two years. All in all, further signs that the economy remains patchy, although there are emerging hints that it might be starting to turn around slowly. Of course, nothing here to prevent an OCR cut on Wednesday.
5. Migration flattening out?
After a significant fall from a very high peak, there have been signs in the past few months that the net migration balance could be finding a steadier level of around 30,000 on an annual basis. It’ll be interesting to see if that becomes clearer in Stats NZ’s next update of the figures for December on Monday this week. Either way, the drop in migration has already dampened property rents.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
