Speaking at TMM’s Better Business conference this week, Tony Alexander told advisers that – despite flattening out in terms of activity - the housing market has held up well over the last year.
That’s with assistance from a rise in new house construction, falling mortgage interest rates, good strength in the regions, and net migration inflows falling only slowly.
He expects that, over the coming year, housing market turnover may be similar to the past year because the main factors influencing housing activity are not threatening in any large way.
Yet the outlook for the housing market is inevitably going to be associated with interest rates and whether they go up or down, he says.
“Since 2009, there have been economists saying that interest rates have to go up, but economists have been 100% wrong about interest rates over this time.
“And now we are unwilling to predict that interest rates will go up until we can see it happening right in front of us.”
Traditional economic patterns no longer apply and this means that interest rate predictions have simply gone out of the window in recent years.
Alexander says the upshot of this for interest rates is that there is no way he can say they will be raising because inflation will be going up.
“The economy remains well supported by a range of factors, including a lower exchange rate, slightly stimulatory fiscal policy and underlying growth in sector like tourism and house building.”
This means that he thinks the Reserve Bank will wait until 2020 before they raise the OCR again, as they have previously indicated.
“I don’t have any dire predictions and I don’t think we are looking at an interest rate rise shock coming.”
However, there is a chance of over 50% that when the Reserve Bank release their Financial Stability Report in November they will again announce a small easing of the LVR rules, Alexander adds.
“Last time they cut the minimum investor deposit from 40% of the purchase price to 35%. A cut to 30% might occur this time.
“Last year they also gave banks more space to lend where the deposit is less than 20% for owner-occupiers. That rule might also be tweaked a bit as an experiment.”
