The RBNZ keeps hiking the OCR. So why have home loan rates been coming lower?
There are two issues at play here.
1. Although the OCR rate and hikes do impact Home Loan rates, what is of greater impact is the wholesale interest rates market.
Wholesale interest rates (ie. the yield on NZ government bonds) peaked in mid-June and have softened since, particularly true in 5 year and 10 year rates (see chart below).
Essentially, the market is becoming more comfortable that the OCR will top out just shy of 4% in mid-2023.
2. The quick rise in home loan rates over the last 6-9 months has brought the housing market to a shuddering halt.
Property values are coming lower and borrowing costs are double what they were a year. This has seen a dramatic reduction in house sales and therefore new lending for the high street banks.
Less demand for home loans means the banks are having to step up and compete to win business. That means either offering cash incentives, or reducing their lending rates to house buyers.
Where to from here?
The next OCR decision date is 17th August and the interest rates market is pricing in a 80+% chance of a 50bp hike.
So that 50bp hike is more or less priced in, so if that's what the RBNZ do, then you could expect the hike itself to have little impact on home loan rates.
What we think is worth watching for is the RBNZ’s guidance on where the OCR is going, when and what level it will peak, and when they forecast it to come lower.
Their last statement in July had the OCR peaking at around 4% in June 2023, before coming lower in the second half of 2024.
What happens to those dates and levels will be the catalyst for the next move in home loan rates.