If the property market was troubling Adrian Orr, it didn't show.
The new Reserve Bank of New Zealand governor was fairly clear in the language he used as he kept the cash rate on hold.
"The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down. Only time and events will tell," he said, leaving no room for misinterpration.
In the Monetary Policy Statement, Orr's mention of the housing market was relatively brief, and was more of a review of what has taken place, rather than what the Reserve Bank expects will happen. Nothing in the statement flagged any immediate changes to the LVRs.
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In fact, the statements were broadly positive in tone, concise and contained no surprises, with everything playing out much like most economists had predicted.
"If interest rates changed today, it would have been a shock for many," CoreLogic NZ’s Senior Research Analyst Kelvin Davidson says.
"Inflation remains low and looks unlikely to test the top of the target 1-3 percent policy band for the foreseeable future. Given low unemployment, the new labour market component of the Policy Targets Agreement (i.e. maximum sustainable employment) is not putting on any pressure to shift rates either.
"While the housing market may have slipped down the Reserve Bank’s list of key considerations, sales volumes are low and our ‘back of the envelope’ forecast suggests that turnover will tick along at 80,000-85,000 a year in both 2018 and 2019."
Property value growth remained subdued in the previously rampant Auckland market, Mr Davidson said, and the "national average increase of 7.6 percent in the year to April is probably within the comfort zone for policymakers. The loan-to-value ratio (LVR) speed limits, in conjunction with higher serviceability tests from the banks, have also done their job in terms of dampening investor activity."
Mr Davidson said first home buyers had been enjoying a less crowded market. "At 22 percent, our proprietary measure shows that first home buyers currently account for a higher proportion of property purchases than at any point in the last decade. The RBNZ may change the LVR rules again in the coming months, but this will be tinkering rather than wholesale changes.
"For now, any concerns that higher offshore financing rates may start to feed through to increased domestic mortgage rates seem to have receded, which is also one less headache for the RBNZ in formulating monetary policy. Even so, this remains as a possible risk and is something we’re watching closely. After all, about 90 percent of existing mortgages in NZ are either floating or will see the fixed-term come to an end over the next two years. Higher interest rates would be unwelcome for those fixed-term borrowers when their mortgage review rolls around.
"Overall, nothing in today’s statement suggests an expectation to alter the cash rate and it will likely remain on hold until at least next year. Thereafter, any increases will likely be slow and small. This should allow the property market’s controlled slowdown to run on."
