Inflation is currently a critical concern in NZ and globally, which has knock-on effects on the housing market via a higher official cash rate (OCR) and increased mortgage rates. However, while there’s no doubt that all of this presents significant challenges for our property market – and materially affects investor’s sums – some key points need to be made.
Firstly, let’s not confuse a high level of consumer prices with inflation – the latter being the rate of change in prices. You can still have things costing a lot (e.g. $3 for a litre of petrol), but if they’ve been flat at that higher level for some time, inflation/rate of change will naturally slow. And if that broadens out across a range of goods and services in the economy, slowing overall inflation can give the Reserve Bank headroom to start pondering OCR cuts.
Now, that’s not really on the horizon yet. Indeed, we still have a high level of consumer prices and a high rate of change (inflation). The Reserve Bank could increase OCR by at least another 1% (maybe even 1.5%) before we hit the first half of 2023. My point is this: monetary policy is concerned with the rate of change in prices (not the level). As inflation (hopefully) starts to slow over the next 12-24 months, it’s not out of the question that the OCR could begin to come down again towards the end of 2023 or into 2024.
Consider also that mortgage rates may not be that far from a peak. Sure, another 1-1.5% increase in the OCR would put upward pressure on retail mortgage rates in the coming months. But don’t forget, a lot of the anticipated/speculated would-be OCR increases have already been ‘priced in’ to the current rates. If inflation...
