The Reserve Bank's interest rate cut yesterday is expected to keep price pressure on Auckland's heated market, with more cuts in the pipeline this year.
The Reserve Bank cut the official cash rate (OCR) by 25 basis points to 3% yesterday, with most banks immediately moving to cut mortgage rates, and analysts expecting the OCR to end the year at the previous record low of 2.5%, or even down to 2%.
The effects on the heated housing market have been the main concern of the Reserve Bank for the past two years, but the dairy glut and plunging prices and inflation are now in sharper focus.
Real Estate Institute of New Zealand chief executive Colleen Milne said the most important consideration for property markets regarding interest rates was the extent of OCR reductions in coming months.
''In the short term, lower interest rates would tend to put upward pressure on prices, particularly in Auckland and perhaps also in regions where recent feedback suggests there has been some involvement from Auckland-based investors,'' Ms Milne said.
BNZ senior economist Craig Ebert said that overall, wholesale interest rates had ''fallen markedly over the last month or two''.
This allowed banks to trim many mortgage rates to new lows, with many fixed-term mortgage rates now lower than during the depths of the global financial crisis, so they were ''easily the lowest in a generation, if not two''.
''It's part of what's shunting house prices to levels unjustified by economic fundamentals. And not just in Auckland. The [Reserve Bank] can't wash its hands of this,'' Mr Ebert said.
While data shows Auckland prices have risen 53% since 2007, and 17% on a year ago, many regional areas have had only single-digit increases.
A recent example reflecting Auckland's super-heated market is a 12m by 31m section in Ponsonby which is expected to fetch around $840,000.
Quotable Value's average Auckland house price in June was more than $800,000, up 17% on a year earlier, whereas in Queenstown Lakes it was up 8.3% and in Dunedin the rise was only 2.3%.
Ms Milne said: ''Our soundings indicate that there are expectations that the official rate could come down to 2%-2.5%''.
While Auckland prices, and those in neighbouring regions, could be affected, that had to balanced against the extent to which lower interest rates indicated the presence of economic headwinds and how much that would affect buyer confidence, she said.
While the reduced dairy payout was not a key factor in the Auckland housing market, it might be influential in other regions, where two-thirds of the population lived, Ms Milne said.
The recently introduced restrictions on loan-to-value ratio bank restrictions and Inland Revenue's requirements for overseas-based buyers appeared to be having some effect, she said.
