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Kelvin Davidson: Property Economist on OCR cut · The SME Stream

• 0:00
  Speaker 1: Being.
• 0:00
  Speaker 2: Today's OCR announcement has got us all thinking about what
• 0:04
  Speaker 2: impact it's going to have on the housing market. The
• 0:06
  Speaker 2: RB and Z' cut for the second time fifty basis
• 0:08
  Speaker 2: points this time round from five point twenty five to
• 0:11
  Speaker 2: four point seventy five. So when can we start to
• 0:14
  Speaker 2: see this flow on to home loans and the housing
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  Speaker 2: market at large. Core Logic's chief property economist, Calvin Davidson
• 0:21
  Speaker 2: is with us this evening ten arqua, good evening, good evening,
• 0:24
  Speaker 2: big win.
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  Speaker 1: Well it is. Yeah, if you're a mortgage borrow it's
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  Speaker 1: certainly a big one. We're going to see mortgage rates
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  Speaker 1: fall further. I mean they've already been declined, but probably
• 0:34
  Speaker 1: further falls from here. So I think a direct boast
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  Speaker 1: housing sentiments and probably a boast of house prices in
• 0:40
  Speaker 1: terms of bringing the recent downturned to an end. Yeah.
• 0:43
  Speaker 2: I'll ask about house prices in a second, because obviously
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  Speaker 2: that's one of the flow on effects from this. But
• 0:48
  Speaker 2: how are you expecting the banks to react? Already we've
• 0:50
  Speaker 2: seen a fair bit of action today. Are they going
• 0:52
  Speaker 2: to be trying to outdo each other in the coming weeks?
• 0:55
  Speaker 1: Yeah? Well, I think what we're really saying in the
• 0:57
  Speaker 1: housing market at the moment is it's fairly quiet. We're
• 1:01
  Speaker 1: not seeing many sales, it's quite quiet in terms of activity,
• 1:04
  Speaker 1: so banks are competing for that market share. It's about
• 1:07
  Speaker 1: trying to win market sharing relatively quiet market. So yeah,
• 1:11
  Speaker 1: I think we'll see some fairly good rates coming through
• 1:14
  Speaker 1: as those banks trying to win those customers. So I
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  Speaker 1: think if you've got to put a mortgage, there's a
• 1:19
  Speaker 1: good news head.
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  Speaker 2: Yeah, Calvin, there's a lot of debate over where the
• 1:23
  Speaker 2: neutral cash rate should be. But if next week's CPI
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  Speaker 2: data shows that inflation New Zealand inflation in New Zealand
• 1:30
  Speaker 2: is within the target band and somewhere nearer to two
• 1:32
  Speaker 2: percent than three percent, is there not an argument that
• 1:35
  Speaker 2: perhaps the OCI should be cut even further.
• 1:39
  Speaker 1: Yeah, well, that's possibly a narrative that's going to start
• 1:41
  Speaker 1: coming through because the neutral rate is estimated to be
• 1:44
  Speaker 1: about three percent. It's definitely not a precise science, but
• 1:48
  Speaker 1: if it is somewhere around there and where we're still
• 1:50
  Speaker 1: currently at four point seventy five, then I think there
• 1:52
  Speaker 1: is an argument to say you try and get there
• 1:54
  Speaker 1: as quick as possible, especially if inflation is coming down
• 1:57
  Speaker 1: quickly and perhaps running the rescue of even going below target,
• 2:00
  Speaker 1: So that could be a bit of commentary that starts
• 2:03
  Speaker 1: coming out. But also I guess the Reserve Bank just
• 2:06
  Speaker 1: want to observe the days. You've got to give these
• 2:08
  Speaker 1: things time to work their way through, so I'd anticipate
• 2:11
  Speaker 1: a steady path. But that argument might start.
• 2:14
  Speaker 2: Just how much pent up demand is there in the
• 2:16
  Speaker 2: property market.
• 2:19
  Speaker 1: There's probably a little bit. I mean, certainly from existing
• 2:22
  Speaker 1: in occupiers. We hadn't seen a lot of people moving around.
• 2:24
  Speaker 1: Likely there's been a lot of activity from first time buyers,
• 2:27
  Speaker 1: but existing in occupiers have been but quiet in the
• 2:30
  Speaker 1: normal and also investors have been a bit quieter than normal.
• 2:33
  Speaker 1: So as interest rates for finance and conditions get a
• 2:36
  Speaker 1: bit easier, we could start to see them coming back
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  Speaker 1: out of woodwork, and I think investors will certainly be
• 2:41
  Speaker 1: an interesting story in twenty twenty five. There's mortgagit rates
• 2:45
  Speaker 1: come down Brits, those rental fields improvement, but top ups
• 2:48
  Speaker 1: to keep these properties going shrink and they could start
• 2:51
  Speaker 1: to become a bit more interested again.
• 2:53
  Speaker 2: Yeah, to talk to us about that a bit more.
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  Speaker 2: How much more activity do you think we're going to
• 2:58
  Speaker 2: see from investors? Or where does the see our need
• 3:00
  Speaker 2: to be before investors start getting really interested.
• 3:04
  Speaker 1: The level will differ depending on each individual investor how
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  Speaker 1: much equally they have that sort of thing. But certainly,
• 3:11
  Speaker 1: if the ourcr keeps falling, where we see it fall
• 3:13
  Speaker 1: towards that three percent, forget in approach the next year
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  Speaker 1: or so, you can easily see mortgage rates down towards
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  Speaker 1: the five five and a half percent range, which I
• 3:21
  Speaker 1: think is probably where things would start to get a
• 3:24
  Speaker 1: lot more interesting for investors. Now. On the other hand,
• 3:28
  Speaker 1: we've also got lending rules in place there, and in
• 3:30
  Speaker 1: particular the debt to income ratio caps and faster mortgage
• 3:34
  Speaker 1: rates fall, the sooner those dtiyes will kick in, which
• 3:37
  Speaker 1: will tend to work in the other direction, and they
• 3:39
  Speaker 1: are they're range at the entire property market, but I
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  Speaker 1: think it probably will be investors who will feel dt
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  Speaker 1: eyes a bit more. So it's kind an interesting year
• 3:48
  Speaker 1: for investors. Low mortgage rates help, but at the same
• 3:50
  Speaker 1: time dtiyes might push in the other direction.
• 3:52
  Speaker 2: Yeah right, Yeah, you kind of got two competing forces there,
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  Speaker 2: the accelerator and the brake pail being hit at once.
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  Speaker 2: So what are you expecting in terms of house prizes
• 4:00
  Speaker 2: over the next week period.
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  Speaker 1: Well, I think what we've seen over the past five
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  Speaker 1: or six months is that prices have been falling. I
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  Speaker 1: suspect that could end pretty soon because we're seeing a
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  Speaker 1: sentiment boost already from lower morgitrates, not to mention the
• 4:13
  Speaker 1: direct impact on finances. So I think this little downturn
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  Speaker 1: will probably end pretty soon, but not necessarily sure that
• 4:20
  Speaker 1: turns into a major up turn either, because of course
• 4:23
  Speaker 1: jobs are being lost, so we can labor market. Certainly,
• 4:26
  Speaker 1: there's a challenge for the house of market. There's still
• 4:28
  Speaker 1: a lot of listings out there, so buyers do have
• 4:31
  Speaker 1: the pricing power, and then of course the debt to
• 4:33
  Speaker 1: incumb ratio restrictions kicking in as morgitraates fall, So I
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  Speaker 1: think preps the downturn ends, but also not necessarily an
• 4:40
  Speaker 1: upturn starting straight away either. So I fairly feel sort
• 4:43
  Speaker 1: of quiet tw our eighteen months.
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  Speaker 2: Yeah, right, when we look at the RB and Z
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  Speaker 2: commentary from today, I mean, only so much you can
• 4:50
  Speaker 2: read into for a November cup. Given November then goes
• 4:54
  Speaker 2: into what is almost three months before the next decision.
• 4:57
  Speaker 2: Where do you think we are sitting in terms of
• 5:00
  Speaker 2: the Reserve Bank's next move.
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  Speaker 1: Yeah. I think if the data involves as we think
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  Speaker 1: it will, if we still see some weakness out of
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  Speaker 1: there in the economy, we see inflation playing ball and
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  Speaker 1: behaving nicely and continuing to fall, then I think you
• 5:14
  Speaker 1: have to be looking at another point five percent cut
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  Speaker 1: in November gives that sort of relief over that Christmas period,
• 5:21
  Speaker 1: and they come back and assess in the new year.
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  Speaker 1: So I mean you're probably looking at another point five
• 5:25
  Speaker 1: percent cut, provided the data goes to plant.
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  Speaker 2: All right, Calvin, appreciate it. Thank you. Calvin Davidson is
• 5:31
  Speaker 2: Core Logic's chief property economist. Thirteen past six