Private property issue #68 - Interest rates peaked

Yesterday the Reserve Bank and Stats NZ released new data that will impact the NZ housing market.

It was a data dump... and Ed, our economist, was like a pig in mud.

Here’s what you need to know.

The Reserve Bank stopped raising interest rates

First, the Reserve Bank held the OCR at 5.5%.

This will likely put an end to the OCR hikes we've seen over the last 2 years.

To be fair, this is what many commentators predicted.

And staying put is what the Reserve Bank said they'd do.

If they continue doing what they say they'll do, this is the OCR's peak. The next move will be downwards.

What does it mean for my mortgage interest rate?

The evidence is mounting that interest rates are at (or near) their peak.

Yesterday’s decision backs up that idea.

But whether interest rates have peaked or not depends on which rate you're talking about.

The 5-year rate peaked 6 months ago.

The 1-year rate is only peaking now.

Over the last 6 months, the average 5-year mortgage interest rate has fallen from about 7% to 6.4%.

And over that same period, the 1-year interest rate has done the opposite, moving from 6.4% to 7%.

What happens tomorrow is anyone's guess. Because the OCR isn't the only factor banks look at when setting interest rates.

But the long-term trend is clear. Interest rates are likely to come down over the next few years.

As interest rates fall, more Kiwis will engage with the housing market. This will help end the market downturn and nudge house prices upwards.

But the OCR was only half of yesterday's data downpour.

More people are moving to New Zealand

Yesterday, Stats NZ also released their net migration numbers.

Over the last 12 months, 77,810 more people moved to New Zealand than those who left.

About 181,000 moved to New Zealand, while 103,000 people left.

That's how we get to the 78,000-ish net migration number.

But many of those 181,000 people who moved to NZ will settle in Auckland.

Though Auckland makes up a third of NZ's population, around 45% of migrants move to Auckland.

While people move overseas from all parts of the country, Auckland gets more than its fair share of migrants.

This will increase demand for housing driving up rents.

These two factors (migration and topped-out interest rates) will help the property market.

But it will have a particular impact on Auckland.

We are witnessing the death of the downturn.