Mortgage rates likely to rise
ASB Bank chief economist Anthony Byett gives his opinion on where interest rates might be heading.
Wednesday, February 13th 2002, 11:17PM
The usual proviso: what interest rates will be next year or the year after is unknown. Nonetheless, borrowers are regularly faced with the decision about whether to float or fix loan rates and, if fixing, for how long?
The situation will differ for each person.
The following notes put aside these personal issues and offer an opinion about what might happen to loan rates.
Be warned however. Economic events can unfold in many ways and interest rates will respond to each new situation.
The key driving force to interest rates at present is the global slowdown and probable recovery. Short-term or variable rates have been pushed to low levels, especially offshore, to stimulate flagging economies. These cuts will be temporary. The contentious issue, though, is how temporary? Central banks will push short-term rates back closer to the average of recent years when they believe each economy has regained a growth momentum.
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Pricing for 2-year to 5-year rates
already include anticipations that these moves will come
around mid 2002. If correct, the issue then becomes how high
will central banks push short-term rates? |
At this stage, the more probable scenario is global recovery and higher rates. It is not unusual for the variable home loan rate to rise around 1-2% in the early and middle stages of an economic growth surge. That is, the ASB Bank Variable Home Loan rate could well be in the 8-9% region (ie: close to the long-term average) by the end of 2002.
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The following graphs and comments highlight some of the key trends and factors with 1, 2, 3 and 5-year ASB Bank fixed home loan rates.
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The 1-year fixed rate, although
higher in recent weeks, is low. Rates above 7.0% are more the
norm. The current low 1-year rate is a direct result of slow
global growth. ASB Bank economists believe that economic
pickups are imminent and that interest rates will
rise. |
 |
The 2-year rate is priced
consistent with a modest New Zealand growth phase in late
2002. |
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Also relatively low, the 3-year
rate prices in economic growth but not necessarily much chance
of strong New Zealand growth. |
 |
Fixed 5 year rates have typically
offered good value on the occasions that they are below 8.00%.
Rates at present at close to this mark, suggesting the
'bargain' levels have gone. |
The last word: nobody knows the future. The above notes hopefully help with the decision about fixing loan rates. They at least provide an historical and economic perspective to your decision. They do not, unfortunately, indicate what will happen.
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