Property Investment
2 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Yesterday, the Reserve Bank cut the OCR by 0.25%. That brings it down to 3.25%.
Yawn 🥱
But buried in their update was something far more interesting…
It’s everything else the Reserve Bank said.
Some banks reacted quickly.
Small cuts, sure. But if you’ve got a mortgage, any cut is welcome.
Westpac getting the scissors out to cut the 3-year rate surprised me.
It’s sharp. I’m keen to see how the other big banks react.
We’re deep into the interest rate cycle now.
Our largest bank (ANZ) has cut its 1-year rate 11 times. That’s over the last 18 months.
It’s gone from 7.39% to 4.99%.
A 0.25% OCR cut doesn’t equal a 0.25% mortgage rate drop anymore.
We’re not in that world anymore.
Markets look forward, not backward. So banks adjust rates based on where they think the OCR is going, not where it is today.
And most of the recent OCR cuts were already priced in.
Compare that to 18 months ago.
Back then, a twinkle in the eye of the Reserve Bank Governor was enough to get the market’s hopes up and interest rates down.
Yesterday’s OCR cut didn’t shock anyone. So ... the cut itself doesn’t really move the needle
What will bring interest rates down again? Surprises. Shocks to the market.
And one little surprise (for some) is the Reserve Bank’s new OCR forecast.
Their modelling now suggests that the OCR might bottom out at 2.75% rather than the 3% they thought just 90 days ago.
That might help interest rates come down
The economy is ... well, kinda stuck.
When the economy’s running slow … businesses can’t raise their prices. So inflation starts to fall.
3 months ago, the Reserve Bank thought GDP would go up 0.6% in the June quarter. Now? They’re thinking just 0.3%.
And for the next (September) quarter? They previously forecast 0.6% again. Now, that’s been revised down to a weak 0.1%.
They’re also thinking that inflation will be a tad lower. They think that imported inflation will be a lot lower than previously thought.
That means that interest rates can fall a little further.
Finally, the Reserve Bank had something to say about house prices, too.
Now, can we rely on the Reserve Bank’s house price forecast? … No. House prices are notoriously hard to forecast.
But for what it’s worth, they expect prices to rise 4.9% over the next 12 months.
That doesn’t mean it will happen. That’s just that they’re currently modelling.
It’s been a hard few years for property investors. Interest rates went up, and house prices came down.
This OCR announcement doesn’t fix all those problems. It won’t spark a boom. But for the first time in two years, investors have the wind at their backs.
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.
