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Private property issue #61 - OCR raised

The Reserve Bank has raised the OCR. Again. But, before you start cursing Adrian Orr, the Reserve Bank Governor, you need to know. This was a good news announcement...


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The Reserve Bank has raised the OCR. Again.

But, before you start cursing Adrian Orr, the Reserve Bank Governor, you need to know. This was a good news announcement.

Here’s what you need to know.

Good news #1 – Interest rates won't go up (much)

Some economists worried the government's big-spending budget would cause more inflation.

More inflation = higher interest rates.

If there's more inflation, the Reserve Bank would respond by hiking the OCR even higher.

That means you and I are paying even more for our mortgages.

But that didn't happen.

The Reserve Bank said they don't think the budget will cause extra inflation.

In their words, "the government is more friend than foe."

That's why the Reserve Bank did what they said they'd do months ago. A 0.25% rise in the OCR.

Because banks expected that increase, it's already priced into current mortgage rates.

So the Reserve Bank says that this OCR increase "supports" current interest rates. They don't think they'll increase (much).

Good news #2 – Interest rates will come down faster

Inflation won’t go as high as the Reserve Bank thought.

Their last forecast had inflation going up to 7.3%.

Now they say inflation has peaked and will go down.

See how the first forecast had inflation hanging around. Now the Reserve Bank sees it falling away faster.

That means one thing. If inflation goes down faster, interest rates will likely come down faster too.

It won't happen overnight or within the next couple of months.

But it's a move in the right direction.

See how they plan to bring the OCR down faster than they did 3 months ago.

Good news #3 – House prices are almost at the bottom

The Reserve Bank also updated its house price forecast.

3 months ago, they thought house prices would fall a total of 22.8% (from the peak to the trough).

Now, they think it'll be a total drop of 16.8%.

If they're right, house prices will fall 6% less than what they used to think.

That also means the Reserve Bank thinks we're closer to the bottom of the market.

They now say that house prices will drop by 3.5% from today. Rather than the 8.8% they thought 3 months ago.

Before you get too excited, remember that house prices are hard to forecast. Their numbers won't be 100% right.

But they're heading in the right direction. We're close to the bottom of the market.

What's going to happen to the OCR next?

So … is this it? Have we finally reached the end of the OCR hikes?

The Reserve Bank seems to think so.

The Reserve Bank didn't even discuss a 0.5% increase in the OCR. The debate was between the 0.25% increase we got ... and no increase at all.

If you look at their forecast, we are at the top of the OCR. The next time they move it, it'll likely come down.

Is now the right time to buy?

If you're looking for evidence that we're at the bottom of the market. This is it.

We're within that last couple of percentage points.

So if you want to invest in property, now is the time to engage with the housing market.

Be warned: Don’t get caught up on wanting to wait for that last 2% to drop.

As Tony Alexander said in a recent Property Academy Podcast:

“Don’t get greedy. In the grand scheme of time, that [2%] gets completely lost in the wash. It really doesn't matter”.

If you want to invest in property, you can book a free call with a financial adviser from Opes Partners.

But of course, there are other property investment companies too.

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Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.

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