Private property issue #120 - Interest rate predictions

Interest rates are on their way down. But how fast will they fall?

Here are my latest interest rate predictions.

How fast will interest rates fall?

Back in February, most banks were advertising 7.39% for the 1-year rate.

6 months later, it’s now about 0.5% lower.

Those interest rates are fast falls.

Here’s a story for you. A couple of months back, I spoke to 150 property investors in Nelson.

Before I gave my speech, I called up all the banks’ economists.

I wanted to see where their heads were at. Where did they think rates would be by the end of 2024?

Most of them said 7%.

Interest rates are now already below that.

So, the economists have all just released a new set of forecasts.

ANZ now reckons that the 1-year rate will keep falling throughout 2024.

They’ve pencilled in that the 1-year will be down to 5.3% by June next year.

That’ll shave about 1.5% off the 1-year rate.

I’m a bit more conservative.

My best guess is that the 1-year rate will sit at 5.5% by June next year.

We’ll probably see most of the interest rate falls in the last half of this year.

That’s because as soon as the Reserve Bank cuts the OCR, the markets will react. They’ll start ‘pricing in’ further OCR cuts.

The markets will get ahead of themselves. You’ll see the mortgage interest rates come down faster than the OCR.

So, we’ll see big cuts to mortgage interest rates in 2024.

Then, we’ll see big cuts to the OCR in 2025.

When I polish up my crystal ball, here are my latest interest rate forecasts:

Just remember – economists are (almost) always wrong.

So if you’re choosing your mortgage interest rate, don’t just think: “Well, that’s what Andrew Nicol thinks. He must be right.”

Because the interest rates won’t work out exactly like this.

What is this going to do to house prices?

When interest rates go down, house prices usually go up.

I’ve seen some people say, “For every 1% drop in interest rates, house prices could go up by 10%.

I’m calling bulls**t on that.

I wish it was true. That would make me lots of money.

But as Judge Judy says, “If it smells bad, I’m not eating it.”

And that doesn’t pass the sniff test.

Because interest rates went up from 2.3% to 7.3% (an increase of 5%). When that happened, house prices only fell 18%.

So, by their logic, a 1% decrease in interest rates = a 10% increase in house prices.

But a 1% increase in interest rates = a 3.6% decline in house prices.

And banks are predicting a 2% fall in interest rates across 2024/25.

But house prices will likely increase only a tad in 2024.

Then, in 2025, here’s what the banks are predicting:

• BNZ says 6.9%
• ANZ is a bit more conservative at 4%
• Westpac is saying 6.1%.

So, house prices might rise 4-7% depending on where you live over the next year or so.

That’s a more realistic estimate.

What does all this mean?

Most of us thought 2024 would be the year of recovery.

That now seems like 2025’s job.

The good news is that lower interest rates aren’t just on the horizon. They’re happening now.

Yup, interest rates are still high. But, now they’re falling.

So, is it a good time to invest?

The best time to invest is when the bank will give you the money.

You never know when they will change their mind.

But if these predictions become reality, there’s an opportunity for property investors.

Right now, I’m buying properties off-the-plan.

So, signing a contract to buy a property at today’s price.

But then, I won’t have to take out a big mortgage and lock in an interest rate until 12-18 months in the future.

Over that time, interest rates could come down, and house prices will likely go up. So I can make money while the property is being built.

It’s not guaranteed. But I’m willing to take the chance. After all, these are the most promising predictions the banks have put out in a while.

If you want to use this strategy, too, you can always book a meeting with my team of financial advisers here.