The Reserve Bank's cutting of the official cash rate to 1.5 per cent makes the scenario of Auckland's housing market dropping sharply more unlikely, according to experts.
BNZ chief economist Tony Alexander says that on its own, the Reserve's decision is unlikely to stimulate new market activity in Auckland, "but it is one of several factors that will help underpin current activity in the city".
"Over the past three months we have had three positive developments for the housing market: no capital gains tax, fixed interest rates dropping below four per cent and net migration rising again," he says.
"The decision makes the scenario of Auckland's housing market dropping sharply more unlikely."
Start your property search
Auckland house prices have been slowing tracking down for the past two years after a boom from 2010 through 2017. The rate of growth has also started to slow throughout the rest of the country.
OneRoof.co.nz property commentator Ashley Church says the cut is a mixture of good news and bad news for the market. "Good news, because a lowering of rates will be good for borrowers, but bad, because the cut suggests there are concerns about the state of the economy," he says.
He adds: "I don't think the OCR will have a direct impact on mortgage rates, as the banks seem to be already looking to reduce their rates independent of decisions around the OCR.
James Wilson, Valocity’s head of valuation innovation sees the drop driving increased rate competition between retail banks, which may fuel more market activity with some buyers.
“However, given the RBNZ indicated downward pressure during the last announcement, some retail banks had already moved to price lower rates, so the impact may already have been priced in.”
He also suspects that the full cut may not be passed on, as banks face direction from the Bank on capital adequacy ratios as well as dealing with pricing of offshore funding.
“There are other headwinds at play at the moment in the housing market, which are subduing values in the main urban centres, giving a lack of ‘heat’ in the market. This ‘wait and see’ approach is expected to continue for some time,” he says.
Bayleys head of residential Daniel Coulson says that the move is good for sentiment among buyers.
“However, the reality is that lending has been relatively affordable for quite some time now and interest rates are just one of the many factors that influence the market," he says.
“As well as this, for the OCR to have any material impact on borrowers, it would be reliant on lenders passing these cuts on to borrowers.”
Barfoot & Thompson CEO Peter Thompson is not sure that the change will add a huge amount to the market.
“We’ve already had low interest rates for some time, but it will give a bit more confidence in real estate. We’ve got building going on in Auckland, the capital gains tax is not going ahead, so these are positive moves," he says.
“We might see a few more first home buyers as the rates make it more affordable, and then that will push up the market and might bring bit more activity in volumes. I wouldn’t say it will set off another boom, but it will bring confidence in the market.”
Thompson expects that some homeowners will use the lower rates to refinance, advising that owners are better to use that to pay off large loans rather than spend on upgrades. He advises caution, and still says that vendors thinking it will bring higher prices have got to be realistic.
“It’s a positive move, but don’t over commit as [interest rates] will go up again at some point.”
While his patch is at the higher end of the Auckland market - Ponsonby and Herne Bay - Ray White Damerrell’s head Gower Buchanan says any stimulation to the first home buyer segment will have a flow-on effect.
“Firstly, it will help with housing affordability, a critical issue for New Zealand society, so that’s a positive for our housing market. But weighing against that is that the Reserve Bank taking steps that signal some uncertainty in the market, that we are up against global headwinds.
“The Reserve Bank making bold steps to ensure there’s stability in the housing market, that is good to see.”
Westpac chief economist Dominick Stephens says the cut will reignite the market. "We think the consequence will be an upturn in the housing market, starting in the second half of 2019," he says.
OneRoof.co.nz editor Owen Vaughan says: "Rewind to last year, and the mood was that rates would go up. The cut is good news for first home-buyers and those who are in a position to renegotiate their mortgage.
"And with CGT now off the table, the Reserve's move may spark more activity in the investor market, which had been subdued."
The Reserve Bank would not be keen to see house prices soaring again - but has weighted the balance of risk towards the other end of the economy.
Previously it has used its regulatory powers to introduce restrictions on bank lending (LVRs) to cool the market.
As part of its financial stability brief the RBNZ monitors New Zealand's private debt levels closely and has regularly cited them as cause for concern.
The rate of growth in mortgage debt has slowed in the past two years but remains at relatively high levels by global standards.
In its decision, the Reserve Bank cited concerns about slowing global growth and the domestic economy.
It noted that inflation was still subdued and that despite low unemployment there was some slack in the job market.
"The Monetary Policy Committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit," the newly minted committee - which includes three external members - said in the statement.
It said the lower OCR provided a more balanced outlook for interest rates, without indicating whether further cuts were needed.
