So the big news today: the OCR didn’t change!
I picked that, just quietly. A drop wasn’t needed right now and we’re better to keep our remaining powder dry. Borrowing rates are already pretty damn low and we’re noticing some warmth coming back into what was a frigid Auckland housing market.
Back during the global financial crisis, eternal optimists always looked for green shoots. There’s no better time to look for green shoots than in spring, so what’s going on?
From my perspective, nothing has really changed. House prices are high, interest rates are low, and Donald Trump is still causing chaos around the world. Central banks have pumped the world with unprecedented stimulus and yet the economy is still limping along.
It’s natural that humans can only stay pessimistic for short periods of time. History is quickly forgotten, and past sins are rationalized away. Housing is fundamentally driven by confidence. More than that, eventually people need to get on with life.
Since the GFC, we’ve seen fairly wild fluctuations in confidence with buyers often sitting on the fence for extended periods of time, only to eventually come back to the party when the world doesn’t come to an end. Auckland in particular has had a very slow housing market for the past two years with house sales on a per-capita basis down around anaemic GFC levels.
A couple of years of fairly stable house prices, and now very low interest rates is seeing buyer sentiment improve. At 3.30% there is $634 of weekly interest on a loan of $1 million. Conversely if you had $1 million sitting in the bank, you’d be lucky to earn $345 per week in net interest.
As long as there is little risk of house prices falling, then this market will gradually warm up. The rest of New Zealand never really got as heated as Auckland, so I think it’s still got room to increase. I’m still of the view that Auckland has done its dash, but at the very least might start turning over again.
Over the ditch, Australia was looking pretty sick last year with house prices down about fifteen percent. What a difference a year can make. Easing credit conditions and historically low housing rates below 3.00% have added fuel back on the fire and house prices have recovered all of last year’s price drop.
Turnover is a good thing. It means we are getting on with our lives and it makes it easier to move homes without risking a heap of money in the process. You’d still have to be an optimist to think prices can go much higher, but I’ve been wrong before!
This article was originally published on 5 November 2019, and updated on 13 November 2019.