Anticipated trends for 2014
There are a few themes that we expect to see in 2014:
- House prices will likely keep rising in Auckland and Christchurch, and construction should also start booming in response to strong demand
- Many young home buyers are struggling to enter the property market, and are turning to their parents for support
- The NZ Dollar is likely to stay relatively elevated this year
- World growth will improve, but with continued uncertainty
- Interest rates will almost certainly continue to rise this year
Over the last month we have seen both the floating rate and the fixed rates increase. I expect that the Reserve Bank will increase the OCR again at the next OCR meeting on the 24th of April.
NZ is right in front with the recent policy tightening process. What we can expect is that there will probably be a start-stop style sort of economic tightening over the next few years, and you can bet that the Reserve Bank will be keeping a very close eye on the effects of their policies, as we are one of the very first developed economies that have started with the tightening policy.
What we might see happen is a repeat of the 2004-2007 scenario that saw floating rates rise. During that time, people swapped to fixed interest rates, which muted the impact of the floating rates rise. Fixed rates don’t tend to rise as much since they are so closely tied to the monetary policies of other countries. At the moment, central bankers overseas are purposely sending out strong signals that they won’t raise interest rates anytime soon. They’re afraid that by raising interest rates, they will risk stopping emerging upturns in business investments. Business investments have been a key part of the recovery of the worldwide economies since 2009. In short, offshore rates should remain low, and we expect our own fixed rates increases not to be as severe as the floating rate increases.
In an election year such as this, I have no doubt that these issues will be highlighted further down the track by the different political factions.
If you have any questions about what I’ve discussed this month, just let me know! I’d love to have a chat with you about how Loan Market can help you.
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