Rate hike won’t derail housing market

However economists say the likely rate hike is unlikely to totally derail the housing market because the majority of households have fixed rate mortgages, and this dampens the effect of monetary policy.

January dwelling consents indicated that the housing construction pipeline will remain supportive of the housing market, which is proving resilient to higher interest rates. Migration data is also supportive of the pipeline of work, and the fact that residential construction firms have become more confident in recent months corroborates the story of continuing strength in the housing market.

Economists expect the OCR to be lifted by 0.25% to 7.50%, ending a record run of 15 months without a change.

Expect a strong reaction in financial markets, with the currency likely to drop sharply and interest rates to move sharply lower if the RB chooses to ‘wait and see’ instead of raising the rate, says Brendan O’Donovan, Westpac’s chief economist.