ANALYSIS: The introduction by a major bank of a 4.99% three-year fixed mortgage rate seems consistent with a general improvement in competition between the banks for mortgage business which I have picked up in the monthly broker survey I run with mortgages.co.nz.
Would 4.99% be enough to encourage me away from fixing one year or less if I had a mortgage to manage at the moment? Yes. I am concerned about underlying inflationary pressures in the economy and see limited scope for interest rate falls after next week’s 0.5% or 0.25% cut from the Reserve Bank.
Excluding the silly 2019 to early 2022 period, the 4.99% rate has been bettered in only 19 of the 336 non-deflation/pandemic months since the three-year option appeared in late 1993.
Will 4.99% be the low this cycle? Maybe not – but it doesn’t feel too far away from whatever it will be.
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On the economic side of things, it is good to see that the Government has a pro-growth agenda and is introducing and considering policies which may make some contribution towards improving New Zealand’s increasingly weak economic performance. Will the policies announced and in planning make much difference? No.
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It wasn’t until the early to mid-1990s that the reformist policies from 1984 had their greatest impact. So, the first thing to recognise is that changing the playing field and improving incentives for effort and innovation take a long time to deliver any meaningful payoff.
The second thing to note is that we have not now just embarked on a reform period bearing any resemblance to that of 1984-92. The changes are minor and appear driven by a belief that there are thousands of people and billions of dollars eager to get into our country but some simple-to-remove barriers stand in their way. No there aren’t.
We are a very small country with high costs well removed from global trade routes. We rely on a limited range of largely commodity-based exports with some very nice IT frills and a lowly productive tourism sector. We have a record of closed-then-open-then-closed doors to foreign investment and a strong opposition party replete with those who will wind back deregulatory policies once returned to power.
There is not a popular mandate for substantial change to be introduced to our economy or the role of government in it, and we do not have conditions or cultures which would deliver success by replicating policies used in some other countries such as Ireland or Singapore.
Independent economist Tony Alexander: "Changing the playing field and improving incentives for effort and innovation take a long time to deliver any meaningful payoff." Photo / Fiona Goodall
Therefore, when it comes to the general focus maintained in this column, my presentations and various writings, there seems no need to alter the outlook I have for the next one to three years regarding housing, interest rates, and our likely pace of economic growth.
Or, to put it another way, I fail to see anything realistically coming along which will make young Kiwis stop and think twice before hopping across to the multitude of opportunities and higher incomes available in Australia. Frankly, more may be encouraged to go if they think the door may be opened a bit more to foreign buying of houses, no matter the price range because such things have trickle-down effects on lower price brackets.
Having said all of that, it still seems reasonable to expect that as we progress through 2025 and especially into 2026 the economy will become healthier. There will be assistance to growth from lower average interest rates, better dairy sector incomes, more infrastructure spending, a focus by businesses on raising productivity levels (hopefully), and a slightly lower NZ dollar.
But it would be foolish to ignore the risks for our small trading nation from the developing global trade war, falling townhouse construction, weakening net migration gains, higher prices promised for electricity and council rates, shrinkage in the sheep and beef sector, and the need for extra efforts to rein in the Government’s deficit.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
