The market has shaken off the effects of the original lockdown with a strong return, as it continues to shake off any fears around the current lockdown, with sales in auction rooms continuing to climb. Economist at the country’s largest banks also predict that the OCR could drop into the negatives in 2021.

Here’s what you need to know: market holds strong in face of lockdown

It seems that the Auckland market is holding resilient in the face of another lockdown, with Barfoot & Thompson’s auction activity not feeling an adverse impact from the decision, in fact it was quite the opposite, with the number of properties auctioned by the agency and the number sold both up on previous weeks.

In the week from 10-16 August (the first week of lockdown), Barfoots auctioned 136 residential properties, up from 115 the previous week, with sales achieved on 88 of them compared to 63 the previous week.

That took Barfoot’s overall sales rate to 65% last week, up from 55% the week before, which suggests the market may actually have strengthened further during the first few days of the lockdown being implemented.

But what has surprised experts even more is that is seems that “spring has arrived early” with the latest numbers from experts suggesting that the market has now fully recovered from the effect of the main COVID-19 lockdown in March and April, and is now significantly more buoyant than it was at this time last year.

But it is not just the number of properties going to auction that is rising. The number being sold is also increasing, with sales achieved on 181 of the auctioned properties monitored by interest.co.nz over 10-16 August, meaning two thirds of the properties auctioned found new owners. In the equivalent week of last year just 98 of the 175 auctioned properties monitored were sold, which gave a sales rate of 56%.

Prices have also remained strong, with 87% of selling prices being above the corresponding rating valuations in the week of 10-16 August. Economists predicting OCR will drop below zero in 2021

The Reserve Bank’s announced that it intends to keep the official cash rate (OCR) at 0.25% in August, fulfilling its promise that it would not make any cuts over the next few months, but following some not-so-subtle hints in the announcement, bank economists are now predicting that the official cash rate would be dropped below zero early in 2021.

Westpac was the first to formally predict a negative OCR, with ANZ and ASB quickly following suit. ASB economist Mark Smith said the bank had been warning for some time that the current OCR was unlikely to be enough to boost the economy given the hit posed by Covid-19.

Economists at BNZ said on Tuesday that they were currently reviewing the bank’s prediction, hinting that it was likely to follow a similar path in predicting a negative OCR. BNZ head of research Stephen Toplis stated that, “It now looks highly likely that they will go negative.”

The predictions follow statements from the Reserve Bank last week expressing a preference for a negative cash rate, along with a new “funding for lending programme” which would lend money directly to the banks in order to ensure that a lower benchmark rate would be passed on to customers.

Keep in mind that a negative OCR does not mean borrowers will be “paid” for taking a mortgage, as banks need to maintain some margins to cover their overheads as to earn profits. Banks borrow money not only from local depositors but also from Overseas investors.

How much Mortgage Rates can go down is difficult to guess, but it seems certain that Rates will stay low for reasonable time in future – and that is good news for first time buyers and those looking to invest in the market.

-by Ravi Mehta, from Professional Financial Solutions