Monthly Property Insights

Just when we thought the world was stabilising again after the pandemic and that NZ’s economy was re-emerging into a growth phase, President Trump and his import tariffs have gone and upended that new-found confidence. In a brief article such as this it’s difficult to cover all of the possible effects and implications, but here are a few points to note.

Tariffs ‘can’t be good’ for a small trading nation

Starting with the prospects for inflation in NZ, the outcomes are not necessarily clear-cut. In the US, tariffs will tend to be inflationary (at least in the short term), because consumers simply have to pay more for the same products and services. In turn, that might exert some upwards pressure on US interest rates and the greenback, implying a weaker NZ dollar and higher import costs here. On the other hand, however, we may enjoy a spike in the availability of imports (at lower prices) if large global exporters such as China or Japan look to divert some of their wares here instead of the US.

Turning to the real economy and GDP growth, however, it’s difficult to see how this can be good for NZ – as a small trading nation reliant on exports for a large chunk of our prosperity. Sure, at least our 10% tariff rate into the US is a lot better than many other countries, and a lower NZ dollar would also help soften the blow. But tariffs are still an extra headache for exporters that they could do without.

What about interest rates?

In terms of the official cash rate, mortgage rates, and NZ’s property market, then, what might eventuate in the short to medium term? On this point, it was fascinating to read the Reserve Bank’s commentary as part of its latest Monetary Policy Review (which duly lowered the OCR to 3.5%), and particularly the hints that ultimately the tariffs – through the negative effect on NZ’s economy – could result in our cash rate going lower than previously thought.

If that did become reality and the banks also continued to fight fairly hard for market share, it wouldn’t be a complete surprise to see mortgage rates fall further, perhaps at the longer durations as well as the short end of the curve. That said, there’s just so much uncertainty at the moment that it would pay to tread carefully with any interest rate projections.

The housing market itself is turning around

But if we just put all of that aside for a moment, it’s also becoming increasingly clear that on the ground the housing market has turned a corner. The CoreLogic Home Value Index has now risen for two months in a row, and each of the main centres looks to be past the trough, alongside a high share of provincial areas too. Of course, it’s early days for the emerging upturn and the chances of an outright house price boom still remain low; given such factors as economic uncertainty, abundant listing, and the lurking restraint of debt to income ratio caps.

Another fascinating aspect of the market at present is the delicate decision for borrowers (and their advisers) in terms of which loan duration to choose. Indeed, a split might already be emerging – the Reserve Bank’s figures for February showed that 41% of new lending (which excludes existing loans rolling onto a new fixed rate) was on a floating rate, 39% fixed for 6-12 months, and the remaining 20% fixed for longer than a year. That last figure was at a seven-month high, suggesting that the longer-term rates might finally be coming back into vogue again.