Private Property issue #131 - New inflation data

Great news – inflation just dropped to 2.2%.

It’s a massive deal.

Think back 2 years (June 2022). Times were terrible. Inflation had just peaked at a staggering 7.3%.

Today, we’re (finally) within the Reserve Bank’s 1-3% target range. It’s the first time that’s been the case since March 2021.

Now that inflation is down, interest rates can fall. And as you’ll see soon, house prices have started to rise.

But let’s start with what’s happening to interest rates.

All major banks have cut their interest rates over the last 2 weeks.

All large banks have cut their rates. The latest was ASB, just yesterday. 

Their 1-year rate has fallen from 7.39% at the start of the year to 5.99% today.

That saves $107 a week on a $500k mortgage. Assuming it’s being paid off over 30 years.

Interest rates will probably keep falling.

But keep in mind that the 1-year rate has fallen around 1.4% over the last 10 months.

I don’t expect we’ll see the same cuts in the next 10 months.

Are we going to see more interest rate cuts?

Rates will likely fall. But not at the same rapid pace.

Especially as competition heats up between the banks.

Though the market is changing rapidly.

Last week, ANZ was offering a 1-year rate of 5.59%. They stopped that earlier this week.

Now, BNZ is jumping in and offering that lower rate.

What a wild week it’s only Thursday.

Most of these falls have come because the Reserve Bank is lowering the OCR much earlier than we thought a year ago.

So, markets are now ‘pricing in’ the future OCR cuts that are to come.

The next OCR review is on November 27. Some economists are calling for a massive 75-basis point cut.

Whether that happens or not, I’m not sure. But with this latest data – I’d say half a per cent seems likely.

This is still a good news story, of course. It brings confidence back to the market, and house prices are rising again.

House prices are now rising

New data out on Tuesday showed that house prices rose in September.

Remember, the market tends to heat up in Spring and Summer. But it’s not just warmer weather that’s impacting prices. It’s the interest rate cuts, too.

To recap the rollercoaster we’ve been on:

• Property prices peaked in November 2021.
• They then fell 17.8%, bottoming out in May 2023.
• They rose around 5% until February this year.
• Then they started falling again.
• And over the last few months, we’re starting to see a turnaround.

The signs of recovery are becoming clearer. We now have:

• Inflation in the target band
• Rapidly falling interest rates
• The seasonal effects of Spring and Summer that push prices up

These are the ingredients that will push the property market into recovery.