Market update: Has buyer confidence started its slow return?

There aren’t any major legislative or regulatory changes to report back to you guys this month, so this is a market update in its most pure and simple form.

We’ll take a look at what’s happening around levels of activity in the market, the world of interest rates, and some of the key economic forces playing out globally that could have an impact on where the OCR gets to.  

Buyers starting to dip their toes back into the market

It’s something I’ve talked about quite a bit this year – this phenomenon that’s seen lots of buyers just sitting and biding their time, waiting out the chaos of rising interest rates, and hoping to snap something up for bottom dollar as prices continue to fall.

But it wasn’t going to last forever, and it seems like things are starting to shift.

Although activity in the market was undeniably slow during June, July and even August, we’ve seen more prospective buyers stepping in off the sidelines in recent weeks.

It’s the owner-occupier part of the market in particular that’s really starting to pick up, including both first home buyers and existing homeowners looking to upgrade.

I suspect this has a lot to do with the fact that we’re seeing more and more evidence of interest rates starting to stabilise, and a growing awareness (finally!) of the choice and quality out there, and the chance of scoring something for a good, fair price.

Overall, prices are definitely down 10 to 15 per cent from what they were at market peak, but that hasn’t quite trickled through to the official stats as yet.

There’s been some mild volatility, but overall, it still seems interest rates are settling

There’s some interesting stuff happening on this front.

Midway through last month we had the Reserve Bank (RBNZ) announce its fourth consecutive double-increase to the OCR, taking that up to 3.0 per cent. We didn’t see much of a reaction to this on the fixed mortgage rates front, with the increase already largely priced into the rates out there in the market.

More recently, though, the RBNZ has announced it’s expecting the OCR will need to get as high as 4.25 per cent, rather than 4.0 per cent where it had previously been tipped to land.

That – combined with expectations that global inflation stats could be higher than they’ve turned out to be – has translated to a bit of a spike in short-term wholesale rates in the last couple of weeks.

As a result, we could see 1- and 2-year fixed rates creep up ever so slightly in the next little while, from that 4.95 per cent level up to around 5.25 per cent.  

Will the OCR actually get as high as the RBNZ is predicting?

This is the really crucial question. And there are a few factors that seem to suggest that no, it won’t.  

Looking offshore, the ongoing situation in Ukraine – and its flow-on effect on energy prices in Europe – is still having an inflationary effect, of course. As is this tightness in the labour market that’s being felt in the States, Australia and here in New Zealand.

But on the flip side, there are some quite strong deflationary forces coming out of China that are helping to bring a bit of balance to the equation.

The slowing Chinese economy has really helped to drive down commodity prices of late, with things like iron ore, nickel, copper, lead and even Brent oil all well down. It’s also helped to ease some of the severe supply chain constraints that have plagued the global economy for the last little while, around things like shipping and supply levels.

So, while this period of inflation hasn’t exactly done its dash, we are starting to see more forces helping to ease the situation.

As a result, the forecast for global inflation in the latter half of this year has fallen to 5 per cent, and there’s starting to be a more widespread sense that inflation could be down quite a bit come 2023.

With all of that thrown into the mix, I think the Reserve Bank will start to ease in its approach sooner rather than later, as more signs start to appear that inflation is being brought under control, and that the NZ economy has slowed.

My expectation is that we'll see the OCR settle somewhere between 3.50% and 4.00%, probably closer to the latter - but I don't think it'll get to the 4.25% the Reserve Bank has suggested.

That’s my view, anyway.

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