Tony Alexander says fixing mortgages for two years could be the best bet, believes Chinese buyers may return to property market in second half of next year

Tony Alexander says fixing mortgages for two years could be the best bet, believes Chinese buyers may return to property market in second half of next year

BNZ chief economist Tony Alexander thinks fixing mortgages for two years could be the best bet for borrowers as we head towards the New Year.

In his final BNZ Weekly Overview newsletter of 2015 Alexander said further cuts to the Reserve Bank's Official Cash Rate were unlikely. "The chances of additional cuts in the NZ Official Cash Rate from 2.5% are very low given the support to growth coming from construction, migration, non-dairy exports and now easing fiscal policy," he said.

"US monetary policy is likely to be slowly tightened through 2016, applying mild upward pressure to fixed interest rates for two years and beyond.

"All up the incentive to fix long term is low."

Alexander said he has recently become a borrower again for the first time in many years and had chosen to fix his mortgage for two years.

Looking at the housing market Alexander said there was potential for Chinese buyers to return to the New Zealand market in the second half of next year.

"What happens with Chinese buyers is anyone's guess as we do not feel certain about what growth will do in China," he said.

"Eventually the restrictions on capital outflows will ease and the buyers will return to the rest of the planet.

"That happening, or anticipation of that happening will... provide potential for a new lift in Auckland perhaps in the second half of 2016."

Here's a link to Tony Alexander full Weekly Overview: PDF iconWO-December-17-2015.pdf

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Oh I thought the story was that they were coming back in March?

That was a crystal ball malfunction. Tony has upgraded his model to the "Wishful Thinker XL2000" so he's probably right.

'The Chinese are coming back' story sounds weaker and more desperate every time I hear it

"Many people will then in turn make the mistake so many have made of looking at house price valuation gauges which take as their base the bad old days when mortgage interest rates were in double figures, when the RMA did not exist, when banks rationed credit, when the government subsidised first home buying and construction, when migration flows were weak or negative, when only one person in a household was working, when cities were much smaller and less demanding of their infrastructure, and so on"

Tony, the change in these things is what matters. For prices to keep rising, interest rates need to keep falling, banks need to ration credit even less, migration needs to continue to outpace construction, etc. Newsflash, interest rates may have bottomed, prudential standards are not likely to get looser, the effect of dual income households has been and gone.

Unless we get hit by an outbreak of foot and mouth, the chances are that in the next five years average house prices will rise at paces exceeding income growth, inflation, and interest rates because of rapid population growth, sustained low interest rates, rising construction costs, wobbly sharemarkets, foreign buying, and capitulation-buying by all those people who listened to those forecasters who said they should rent rather than buy. Durrr.

Durrr indeed. So Auckland will reach a median multiple of somewhere around 10-11 and a median of about $1m+ over the next five years, making it probably the most overvalued housing market in the world. Population growth - not all migrants can afford to buy, many can't. Sustained low interest rates...maybe, let's see. Wobbly sharemarkets, huh? Foreign buying, yep. Capitulation-buying....are there really lots prospective buyers with 20%+ deposits lining up waiting for 'the crash'? I doubt it.

A few nice little jabs in your note Tony, keep your gloves up and your mouth guard in.

I came across this gem the other day:

While it is specifically targeted at Australia, much of its wisdom could also be applied to Auckland.

ah Tony Tony, he used to give me the best Lotto numbers when he was running the dairy down the road...