Rate cut expectations

ASB chief economist Nick Tuffley is expecting two cuts in the official cash rate this year. Photo / Chris Rudsdale.

ASB chief economist Nick Tuffley says population growth in New Zealand accounts for much of our current economic growth (such as it is) - which is perhaps why the government is not keen to cut migrant numbers and take the pressure off the demand for housing.

Around 5000 people settle in New Zealand every month, with many spending money on housing, furnishings, clothes and cars. Tourism is masking the downturn in dairy income.

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But it is the push for economic growth that's key here, and lower interest rates is one way to achieve that. In line with many economic commentators, Tuffley expects the Reserve Bank to cut the OCR in June to 2.25 per cent to boost economic growth - that should translate into cheaper loans as the floating mortage rate should drop in tandem.

Tuffley also says any slowdown in the Auckland housing market due to investor loan-to-value ratio restrictions and tax rules was caused by a knee-jerk reaction.

Having got to grips with the new rules, investors - foreign and domestic - are easing back into the market. As I mentioned in a previous column, the first quarter of this year is a window of opportunity for first time buyers.

Over at the BNZ, its chief economist Tony Alexander says pressure on Auckland housing will continue for the foreseeable future with the population growing 3 per cent a year, and housing construction failing to meet demand.

He is 50-50 on whether the Reserve Bank will extend the 30 per cent deposit rule for investment properties outside Auckland. It all depends how hot the regions get.

Fixed rates

In my opinion the current crop of fixed rate deals from the larger banks are pitiful. The best two-year rate is from the TSB, offering 4.29 per cent.

HSBC has the best five-year rate of 4.99 per cent and it has also just announced a rate of 3.95 per cent for 18 months - but there are strings attached.

If you are looking for a stop gap six month rate, the ASB is among those offering 4.85 per cent.

All up, the current fixed rate deals are higher than they should be, the banks can do better.

January sales

There were 5048 residential sales across New Zealand in January, up 4.3 per cent on January last year according to the Real Estate Institute.

The national median price for the month was $448,000, down 3.7 per cent on December's figure. Strip Auckland sales out of the data and the national median price falls to $361,250.

The institute's CEO Colleen Milne says first time buyers are heading to Hawkes Bay and Taranaki to get more for their money.

Canterbury

Fewer people are looking for rental properties in Canterbury, according to Nick Tuffley of the ASB. He says rebuilding work has peaked, and "prices are settling".