The Reserve Bank of New Zealand (RBNZ) has dealt a mortal blow to New Zealand’s housing bubble, hiking the official cash rate (OCR) for the second consecutive month by 0.5%.
The move has lifted the OCR to 2.0%, up from the record low 0.25% in August 2021.
In delivering its decision, the RBNZ stated that it needs to “act as a constraint on demand until there is a better match with New Zealand’s productive capacity”. It also noted that “expected increases in mortgage interest rates are likely to contribute to falls in house prices” and that “house prices are now headed toward a more sustainable level”.
ASB senior economist, Mike Jones, said the RBNZ was “more hawkish than expected”:
“We thought the RBNZ would came out swinging, but today’s statement was still more hawkish than expected. The OCR was lifted 50bps as we and the consensus expected. But the RBNZ’s new OCR forecast profile implies both a higher OCR peak than we’d expected, and a more rapid pace of tightening to get there”
Indeed, the RBNZ’s ‘forward track’ released with its Monetary Policy Statement was far more bullish than economists expected. It shows the OCR at 2.7% by September of this year, 3.4% by December, then 3.7% by March and peaking at 3.9% in June 2023.
This would send mortgage rates to around 6% – more than double their pandemic low:
In turn, the RBNZ expects “house prices to fall by about 14% by early 2024”:
Given New Zealand house prices are already down 5% from their peak nationally, the RBNZ’s forecast seems optimistic given its bullish OCR forecast.
