Auckland still a good bet - Alexander
HOMEOWNERS and buyers about to fix their mortgage rates should opt for the two - or three-year terms, BNZ chief economist Tony Alexander says.
‘‘If I were borrowing at the moment I would be severely hard pressed to be convinced that fixing longer than two years or at a discounted three-year rate was worth it,’’ he writes in his Weekly Overview newsletter.
‘‘Especially as the global interest rate cycle has probably peaked.’’
The Reserve Bank of NZ doesn’t expect to lift the Official Cash Rate of 1.75 per cent until 2021 and it’s possible there may be a cut before then due to lending costs rising because of the Australian banks having to boost their capital levels, Alexander says.
‘‘If increased bank capital costs push mortgage rates up, then the RBNZ will cut the official cash rate to offset such rises.
‘‘Were they not to do so, then there would be unintended downward pressure on the pace of economic growth and eventually inflation.’’
He says the Reserve Bank moves the OCR to maintain an average level of mortgage rates that will keep inflation between 1 percent and 3 percent. But the influence of this beyond floating rates and one- or two-year fixed terms is minimal.
Alexander warns if banks’ capital costs do rise, so, too, will medium-tolonger term rates.
‘‘The attractiveness of fixing three years or more will collapse.’’
Given the unsettled economic outlook internationally, where should investors look to maximise their returns? Alexander believes Auckland’s flattening housing market offers opportunities ahead of the next cyclical rise in a few years.
‘‘Why? Because nothing is appearing in front of me to suggest that the relative attractiveness of New Zealand to potential migrants is going to deteriorate in the next few years.
‘‘Migrants go where migrants have gone and where the jobs are. That is predominantly Auckland.
‘‘Sure, with the aging population there is some movement to the regions.
‘‘But while that may cause some more cafes to open up, it’s not going to drive new entrepreneurial attitudes and boost regional business growth …
‘‘So if I do decide to boost my housing investment because interest rate returns look like staying low for decades and because share prices might be stretched, it is to the large centres that I personally would look.
‘‘Two-to-three years ago my stated preference was for the regions in order to ride their lagged catch-up to Auckland.’’