Prediction #2 – House prices will only go up 3.4% in the year to December

The Reserve Bank also updated its house price forecasts. They now think that house prices will be up 3.4% by the end of the year compared to last December.

That is slightly less house price growth than they expected 3 months ago. They have revised their forecasts down. Instead, they expect that prices will start to climb more quickly over the next few years.

Pay little attention to this forecast. It is just a guesstimate. Over the last 4 years, the bank’s house price forecasts (like everyone else’s) have been totally off. On average, the Reserve Bank tends to be 4.6% off.

So when they say that house prices could climb 3.4%, the actual figure could easily range between -1.2% and 8%.

Prediction #3 – “We should be seeing the banks working hard to win against one another.”

While not a formal forecast, the Reserve Bank’s announcements did bring welcome news for borrowers.

Commentators and some mortgage brokers have speculated that the Reserve Bank has had a private word with banks. Some thought the central bank was wielding its big stick, urging them to keep their rates high. The Reserve Bank has quashed that thought.

Answering a question from Jenée Tibshraeny from the NZ Herald, the Reserve Bank Governor said he is comfortable with mortgage rates decreasing. “Yes, it’s a competitive environment … banks will compete with each other on their pricing.”

He added, “I really do hope it’s competitive out there because I imagine it’s in a low-volume market as well. We should be seeing pricing pressures. We should be seeing margins tightening up. We should be seeing the banks working hard to win against one another.”

This is worth paying attention to. If the banks lower their interest rates, that won’t necessarily cause the Reserve Bank to worry about inflation.

That will bring some comfort to anyone with a mortgage.

All interest rates have fallen (by a small amount) over the last 3 months.

ASB cut their rates this week. Their 18-month rate dropped from 7.15% to 6.89%. That saves $20 a week on a $500,000 mortgage. It’s not much, but it’s a start.

It also comes after BNZ lowered their interest rates last week and Westpac a few weeks before that. These are small changes, but they show the direction of travel over the next year.