Mortgage rates are now expected to "peak higher and earlier" than previous forecasts, say ASB economists.
In ASB's Economic Weekly ASB Future Me graduate Mikey Trifunovich and chief economist Nick Tuffley say long-term mortgage rates have risen the most over the past year but could be nearing a peak.
However: "Short term rates still have quite a way to go and are expected to lift the most over 2022, as the RBNZ keeps lifting the OCR," they say.
The comments follow the decision of the RBNZ to accelerate its interest rate hiking cycle by slipping in a double-jump rise in the Official Cash Rate to 1.5% from 1.0% previously. The RBNZ is still signalling a likely peak in the OCR of 3.4% in 2024.
Mortgage rates have already been moving up aggressively - at a faster pace than the OCR moves. Just over a year ago (March 2021) average new 'special' one-year fixed rates were at 2.3% and the five-year rate was 3%. As of now (and using ASB's rates as an example) the one-year is 4.19% and the five-year is 5.99%.
"Our forecasts and comments are based around our expectation that the RBNZ’s strategy of tackling the inflation challenge with swift OCR increases now means mortgage rates will peak higher and earlier (2022/2023) than our previous forecasts, before easing to around 5-6% over the longer term," Trifunovich and Tuffley said.
The ASB economists are now anticipating a follow-up 50 basis-point OCR hike in May, followed by a sequence of 25bp hikes to a 3.25% OCR peak in early 2023.
"The RBNZ face a tricky balancing act. Either they tighten too aggressively and create a ‘sharper than needed slowdown in economic activity’ or they do not act quick enough and face the longer run costs of entrenched high inflation and inflation expectations," Trifunovich and Tuffley said.
But what goes up must come down, eventually, they said.
"High interest rates are like having the brakes on constantly, and eventually that slows things down too much. 3.25% is considerably above the neutral OCR of 2% that is consistent with the economy sustaining steady momentum.
"At some point, when the RBNZ is confident inflation is under control, it will start reducing the OCR. The timing of that is even harder to predict than where the OCR will peak.
"At this point, our stab in the dark is mid-2024 for the RBNZ to start lowering the OCR," the economists said.
Meanwhile Westpac economists are still "comfortable" leaving their peak pick of the OCR at 3%.
In Westpac's Weekly Economic Commentary, acting chief economist Michael Gordon pointed to falling house prices, with REINZ figures showing house prices having declined almost 5% from their peak.
He expected to see a further decline in prices when the April figures come out.
"Property owners are coming under increasing pressure: the cost of living is rising rapidly, pay rates aren’t keeping up, mortgage interest payments are rising, and the house is no longer doing the saving for them.
"These forces will have a significant braking effect on consumer spending, and ultimately the extent of demand-driven inflation pressures in the economy," Gordon said.
"Both we and the RBNZ were already expecting house prices to fall as mortgage rates rose. But the last few months show that this is happening a little sooner and faster than expected.
"That’s crucial to the outlook for interest rates – we’ve always placed more emphasis than the RBNZ does on the housing channel for monetary policy, and we think that as the year progresses the RBNZ will be pleasantly surprised at how much traction it’s getting.
"For that reason, we’re comfortable with keeping our peak OCR forecast at 3%, rather than moving towards the RBNZ’s higher estimate."
42 Comments
It feels good doesn't it.
When you bring the 7 UP everyone is your friend.
The narrative is extremely important to the Vested Interest Brigade ( VIB ). Because without it they have Nothing. Smoke and Mirrors. So they protect their carefully crafted illusion like their lives depend on it, because it kind of does.
These people have very low Emotional Intelligence, they get angry very quickly, hide behind fake accounts to do their dirty work, give themselves more upticks, give others more downticks in hopes to show the mood. These are typical narcissistic traits to manipulate others in the hopes it will further their money making agenda. But like all manipulation it eventually comes to an end, the party is over, the Pendulum Swings, the Bubble Bursts and it's time to Pay the Piper. But then the tantrums start. If you see people on this site acting more irrational than usual then just remember the VIB, Vested Interest Brigade.
The VIB must be hating me more than usual at the moment with the MSM watching our comments.
"and commentators speculating interest rates could hit 7 per cent very soon"
https://www.stuff.co.nz/opinion/300566646/hello-buyers-market-goodbye-savings
The VIB have kindly put together another song for us to listen to. The Housing Market is Burning.
https://www.youtube.com/watch?v=gH-AxXNJ0GA
7% interest rates this year, Guaranteed. Very Soon. -30% Crash in Home Prices by December.
10% interest rates soon enough, it's going to get messy.
I haven;t seen the old 'got to get in quick, these historic low-interest rates are the new normal. Won't rise in the foreseeable future. Secure your property now at any cost, the risk is low, interest rates are low and will stay low, and property prices are increasing quickly. move now or you will miss out....blah blah blah'.
Buy property when real estate agents are driving for Uber. That is when it is time to buy property.
Do you get paid by the word? There's some valid albeit a tad waffly observations in there.
But a couple of specific questions, so as to understand your point:
1) Which is the narrative are you decrying? The article? Isnt the article saying expected rates are higher and earlier than expected?
2) Which specific rate term are you saying 7% is guaranteed. 5yrs, floating, or the core 1yr one? I see you have been asked this a few times and never responded. If you believe it go ahead and be more specific. I think that is where some commentators might disagree. Odds on for advertised 5yr and floating rates getting to 7% by close of 2022. But are you saying other terms?
7% for 5 year rate and maybe floating at 8% by end of 2022. Most of others will be mid to late 5's I suspect, but with someone coming off a 2.6 or 3% rate to those fiqures with a mortgage over 500k I think they need to plan now as doubt a small pay rise will offset the increase in outgoings.
And the joy of it is that the specuvestors will be joining home owners by having interest a non deductible expense.
and oh bugga...the increasing interest means we have an actual loss requiring tax paid income to prop up the regional bargain specuvestor s##t box...... but for tax purposes a profit and accompanying tax bill!
Make way for the FHB's.
Excellent.
Have you read their fine print? I looked at it once for my new build, and it's 1% off floating (=4.54% after discount). The fixed discount is 0.70%, but off their carded, not their special rate = 4.45% ... higher than 1 year specials at other banks. Sure it's worth it?
7% interest rate is nothing. You need at least 10-15% interest rates to really crash the market. I look forward in seeing the see-saw impact when 'inflation' reverses and economies worldwide crash because of negative economic growth.
Do we then go back to 1-2% interest rates overnight and overreact? Only time will tell :)
-7
Totally agree with 7jai. If you can't afford a 7% loan, you probably weren't ready to become a property investor in the first place.
My tenants pay all my interest.. up to about 7%. I'm still all salivied up for a crash though, think of all the bargains to be bought in time for the next boom.
I hope the Reserve Bank is not going to carry trough with their target of 3.4% cash rate in 2024. Already now, at 1.5%, we are facing the beginning of what looks like a property market crash. If that becomes 'entrenched', this overindebted and property-dependent economy could be facing total collapse.
On the other hand, consumer price inflation will become 'entrenched', no matter what. The money has been 'printed' in prior years and is not able to be mopped up again.
I hope they come to their senses and leave the cash rate where it is. Anything under 2% used to be called expansionary. I think this is no longer the case in an economy already saturated with debt.
The current rate of 1.5% is not expansionary, evidenced by significant property price reductions. The central bank needs to stop raising rates to avoid a breakdown of the system.
The actions of the PM, RBNZ, Finance Ministers across successive Govts would suggest that it was being run that way. It's just a case of 'tough shit' if you aren't old enough to cash out, or even worse trying to get a start in life, as it is with most things in this overpriced hellhole.
Because businesses can’t actually afford it! Their customers can’t pay the extra required to cover that cost so either businesses go under and people lose their jobs or they find more creative ways to deliver value like outsource to cheaper places or find materials that are cheaper.
We need more smaller banks per Richard Werner: QE Infinity https://www.youtube.com/watch?v=xkGZH1IMr_I
ASB economists say short term fixed mortgage rate rises 'still have quite a way to go' this year.
Of course economists are known for being extremely accurate. The US Fed is pretty good as well!
"After getting inflation so wrong, can the Fed now get it right?"
I am facing an increase in rates from my current 1.94%. I have notice already that I have stopped spending and the rates doesn't come off for quite sometime. Interesting times for sure.
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