The cash rate tumbles

This just in: The Reserve Bank has come out swinging! After months of humming and hawing, the bank has taken an axe to the official cash rate, chopping it by 25 basis points to 3.25 per cent in the early hours of June 11. Surprised? You're not alone! It's been a roller coaster couple of weeks for the property market, from the new rules for investors to the budget and everything else in between. Without a crystal ball, it has been hard to figure out what's going to happen next.

One thing's for sure: This is going to get tongues wagging! After all, it's the first cut since way back in January 2011. So what did the Governor Graeme Wheeler have to say about the decision? For one, he noted that low inflation, falling dairy prices and slower demand meant he needed to make a move now – and that's not the end of it. Mr Wheeler even gave us a big, juicy hint that another rate cut could be on the way.

"We expect further easing may be appropriate. This will depend on the emerging data," he concluded. 

Many people thought that Auckland's spiralling property market would be enough to keep the cash rate steady, something that hasn't turned out quite as planned. What's more, data fresh off the press from the Real Institute of New Zealand shows that the median price of a home in Auckland has jumped by an astonishing 20 per cent over the past year to May. 

Mr Wheeler pointed out that new LVR measures should help keep a lid on enthusiastic property investment activity, so will this be enough? CoreLogic NZ Director of Research Jonno Ingerson seems to think so. 

"The move by the Government to apply capital gains to properties re-sold within two years also looks to be a smart one that will primarily impact the Auckland market," he said.

"I still believe that Auckland values will continue to rise for the next couple of years but at a slightly slower rate."

In the end, we could actually get the best of both worlds – a grip on the 'bubble' and a pinch of growth for good measure. Sounds like a tasty recipe for a financially stable residential investment portfolio to me!

Here's to your financial independence!

Daniel Carney
Authorised Financial Adviser / Investment Property Expert

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