by Paul McBeth
There are still some cuts to come in mortgage rates this year, as inflation comes under control and the dollar (we hope!) recovers. Here's a look at what's been happening along with some projections for residential property and interest rates.
Consumer and business confidence may have shot up recently, but at least part of that's probably just a backlash to last year's doom and gloom. BNZ economists are currently saying that a realistic picture for 2001 is that the New Zealand economy will improve but mostly in the second half of the year, leading to annual growth of around 2.5 per cent.
What's new for floating mortgage rates? Well, these and the shorter term fixed rates are influenced by the Reserve Bank's Official Cash Rate, which it's left unchanged since last May. Right now, the main trading banks are offering 8.5 per cent, with most other lenders 8.2 to 8.4 per cent and a handful below eight per cent (see our rates table for more detail).
Bancorp Economist Stuart Marshall says these rates aren't going to be directed so much by the New Zealand influence this year but more by the US. It sounds perverse, but if the US market has an influence on the NZ dollar (and makes it go up) then there's less need for local interest rates to remain high. That means 2001 could be the complete reverse of last year (which saw the RB increase the OCR over the first half of the year and the dollar fall).
Marshall also points out that the futures market is already pricing in interest rate cuts, with the 90-day rate at 6.5 per cent now and at 6 per cent in five months' time. He's picking rate cuts of 50 to 100 percentage points, depending on how much the dollar goes up.
Longer-term mortgage rates, those three years and out, are more influenced by the US bond market than the RB's actions. Longer-term wholesale rates have already fallen around 100 percentage points so far this year and are probably close to bottoming out. They're expected to hit their lows somewhere around the middle of the year.
In the housing market, any price rises should still be restrained by a continued oversupply of residential properties. Just over 4,600 dwellings were sold in December, the weakest December since 1991, but some improvement is tipped for this year. The number of building consents (for dwellings) was also down last month (a seasonally adjusted 8.9 per cent) and a pick-up of numbers isn't expected until maybe mid 2001. Real estate agents contacted in Auckland and Wellington have reported brisker sales and more upbeat sentiment from buyers over January.
If you're borrowing, what should you do? Bancorp's Stuart Marshall says that it's more a question for most homeowners right now of how much debt they can continue to have - "people are reluctant to take on more debt". He suggests hanging on for as long as you can for rates to come down (they're likely to bottom around mid year) and then locking in for three to four years. However, that's going to depend on your own personal circumstances and whether any savings will be wiped out by transaction fees or other costs.
Meanwhile, BNZ economists, in their latest weekly report, suggest that retail borrowers should look for long-term fixed rates close to 7.0 to 7.25 per cent later this year and then lock in (most mortgage lenders have their three year rates on 7.30 to 7.40 per cent at the moment).