Retail banks slashed mortgage rates yesterday as the strength of the Auckland property market continued to cause concern.
The Reserve Bank cut its official cash rate from 3.5% to 3.25% prompting the ANZ, ASB, Kiwibank and Co-operative Banks to all immediately drop their floating rates.
ANZ managing director retail and business banking Fred Ohlsson said the new rates would be welcomed by home buyers, particularly first-home buyers.
Westpac chief economist Dominick Stephens said the rate of house price increase in Auckland was frenetic in May, with the price index rising a seasonally adjusted 5.3% in the month and now up 25.6% on a year ago - the fastest annual increase since 1994.
The number of Auckland sales with a sales price of $1 million or more increased in May by 120% to 843 from 384 in May last year.
Commenting on the latest Real Estate Institute figures, also released yesterday, Mr Stephens said price action elsewhere remained much more muted, though prices have also been rising modestly in other parts of the North Island.
Excluding Auckland and Wellington, North Island prices are 5.4% higher than a year ago. Canterbury prices were up slightly in May but were now broadly trending sideways, reflecting a gradual easing of earthquake-related supply shortages.
In other signs of rising demand in a tight market, house sales continued their recent upwards trend, and the average number of days taken to sell a house was at its lowest since late 2013.
''While this data was stunningly strong, it's worth keeping in mind that it gives no insights into the likely impact of the impending policy changes around lending restrictions to Auckland property investors and the tax treatment of investor properties, both of which were only announced in mid-to-late May,'' he said.
Reserve Bank governor Graeme Wheeler said house prices in Auckland continued to increase rapidly and increased supply was needed to address the problem.
The proposed Auckland loan-to-value measures and the Government's tax initiatives planned for October 1 should ease the impact of investor activity.
A reduction in the OCR was appropriate given low inflationary pressures and the expected weakening in demand and to ensure medium-term inflation moved towards the middle of the central bank's target range, he said.
The Reserve Bank aimed to have inflation about 2%. It was now less than 1%.
Mr Wheeler expected further easing of the OCR might be appropriate but it would depend on emerging data.
Economists were picking the next cut in the OCR to 3% would come in September but ASB chief economist Nick Tuffley said a rate cut next month was a real possibility.
New Zealand First leader Winston Peters took the cut in the OCR as an admission by the Reserve Bank that it had been wrong all along.
''The hands-off approach has not worked. The chronically overvalued dollar has made life tough for our exporters, particularly industries adding value, including farming and sawmills.
''This crippling period of inaction from the Reserve Bank has led to a crisis in provincial New Zealand. There's been closure after closure, many being the fault of the high dollar.''
Confronted with bloated Auckland house prices, much of it driven by mass immigration and offshore house buying, the Government and the Reserve Bank had done nothing to stop Auckland house prices soaring while punishing producing provincial New Zealand, he said.
At a glance
• OCR cut to 3.25%
• Retail banks cut mortgage rates
• NZ dollar falls sharply against Australian, United States and United Kingdom currencies
• Another rate cut likely in September
