Where interest rates and house prices are headed over the next couple of years

Posted in Opinion /July 20, 2011 / Bernard Hickey / http://www.interest.co.nz

Excerpt— Economists and the Reserve Bank broadly expect the Official Cash Rate (OCR) and floating mortgage rates to rise around 2% over the next two years, while house prices are expected to rise in line or slightly below inflation of around 2%. Fixing or floating is seen as a close call and is dependent on a borrower’s view on how quickly interest rates rise and their desire for certainty.

The Reserve Bank itself forecast in June that the 90 day bill rate, which is typically around 0.2% above the OCR, will rise around 2% to 4.6% by end of 2012. That would imply floating mortgage rates rising to around 7.7% within the next two years from around 5.75% now. The Reserve Bank next comments on interest rates on July 28, but is expected to leave the OCR on hold.

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