ANZ Bank's economists are now forecasting that the Reserve Bank will need to increase the Official Cash Rate (OCR) to 3% by April next year, compared to their previous forecast of just 2%.
The OCR is currently at 0.75%.
In their latest Economic Update, ANZ's economists say the spectre of domestic inflation and the tight labour market have changed their view on how much the Reserve Bank will need to raise the OCR.
That, in turn, would push up mortgage and other interest rates more than previously expected.
"Our updated view is not based on a belief that growth will be going gangbusters," the report says.
"The housing market appears to be coming to a very sudden stop, households are facing significant cost of living stresses and have subdued confidence, a shortage of workers and materials is hampering production and Omicron is knocking on our door.
"But the reality of of a prolonged negative supply-side shock is that even modest growth can stretch resources and cause inflation.
"The trade offs are unpleasant and there's no way around that," the report warns.
"Assuming no abrupt developments such as a sharp re-pricing of risk globally (which we consider a very real risk, albeit an unforseeable one), we now believe the RBNZ will need to keep on hiking right on through our previous forecast of 2%.
"We now see a peak in the OCR of 3%, with the RBNZ raising in steady 25 basis point [0.25%] steps to get there, which would take until April next year.
"On OCR at 3% might raise eyebrows, but it's half the current rate of inflation and well below household inflation expectations, currently running at over 5.5%.
"Thought about in real terms, an OCR of 3% is very modest.
"And while a 100 basis point upward revision to our forecast OCR endpoint might seem large, the fact is, a 1% upward surprise to CPI inflation would hardly surprise us at all.
"But all that is of course cold comfort to people with massive mortgages to service, particularly if the value of their house is going backwards," the report said.
You can read ANZ's full report here.
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127 Comments
Bank will soon have no business the way things are going.
Time to be creative and come up with some plans, maybe special lower rates to attract business?
Sellers might have to 'meet the market' ??..
..though I think it's more likely:
- The regime continues to bailout mortgage holders
- Non-property owners are effectively barred from landownership
- The wealthiest New Zealanders compete with the regime for ALL remaining property
- Equality is largely achieve through mass impoverishment and currency debasement
So more of the same really lol :p
Zack,
From the number of likes, you have support for your views, but I am somewhat sceptical.
On point 1, how will this be done if not through continuing very low interest rates?
On point 2, how does that differ from today? Why will prices not fall if the OCR was to reach 3%?
Point 3, I find meaningless.
Point 4, just how will 'mass impoverishment' happen? If house prices fall very heavily, then some will indeed be impoverished, but that would surely allow a number of those currently priced out of the market to get in. For those like myself with no mortgage, the value put on my home is of little importance. If it fell by say 30%, then so too would all other properties in the area and moving would leave me no worse off.
In conclusion, I think you have made some dramatic claims, but with absolutely no evidence to back them up
Dude! We are still on close to emergency rates
Have been for more than a decade though. The easy money era has become well embedded in our culture and political system, when was the last time you heard a minister discuss the need to raise taxes or cut spending? This is going to hurt.
Alas but what about MMT?
Trickledown,
MMT sounds wonderful, but why then are governments not falling over themselves to adopt it?
We've become a nation of beneficiaries rather than builders of productive businesses. Some relying directly on the taxpayer, others beneficiaries relying on easy money from the central bank.
I know, it's absolute boom times for anyone half motivated.
Have they revised their house price forecast?
An OCR of 3% would crash the housing market, likely falls of 25-30%.
I look forward to bank economists being once again proven to be fools.
An OCR of 3% would crash the housing market, likely falls of 25-30%.
Be quick!
If inflation is around 6% I think 3% OCR is still low more likely to be 5% and as I and others on here have said 30% crash is just the start.Normally OCR is 2% higher than inflation. NZ government can not do anything about it as NZD will just tank even more.
We won't see a 30% nominal value drop, maybe in real terms over a few years of high inflation as per the 1970s.
Nominal house prices are sticky due to psychological factors. I.e people just hold rather than sell at a loss.
A few people will lose out at mortgagee sales, but not in significant numbers.
Most people will be able to survive 6-7% interest rates, and many others will have fixed.
High inflation and flat house prices for a few years is probably the least disruptive way to get values back to a sensible level.
Yep 6-7% rates are not a problem, double digit rates back in the 70's of like 18% now would be catastrophic. Many people will be fixing for longer terms this year, don't expect a crash. I gave up on the housing market crashing in Sept 2020. As crazy as it sounds prices will probably still go up in 2022 if you look at the whole year.
High inflation and flat house prices for a few years is probably the least disruptive way to get values back to a sensible level.
That seems to assume inflation flows through to wage growth, though. Rather than importing more cheap wage slaves or simply seeing stagflation.
30% fall is very much needed
If 10% people have been stupid and over stretched themselves then it's not the fault of the rest 90%. So people got to live with their choices.
So we don't apply the same logic as for Covid where every last person has to be protected from falling ill or losing out (one's house) ?
a little bit of sick in my mouth...
That would intuitively seem to be as it should be, right?
Why would anyone equate right to health/life with a supposed right to have their investments protected from all risk?
Are we so accustomed to property being taxpayer-subsidised, tax-privileged, and protected from risk that any exposure to free market risk and price discovery cannot be computed?
We have had, at this point, two decades house prices outpacing incomes, and about a decade and a half of political parties of both stripes calling it a crisis while not in government, but doing nothing other than making it worse while in government. What is more, until very recently there was every indication that the government would continue to do nothing but make things worse, seemingly not giving a solitary shit about the impact on non-asset owners.
I don't think people who overstretched themselves to buy their own home were stupid to do so, given the above. Nor do I think those people- mostly younger people - should have to carry the can for the housing crisis which has been bleeding them dry their entire adult lives (in the firm of rents or house prices).
We need to drop this generalisation that people who have recently bought homes are stupid.
I know many people who were instead desperate - circumstantially unable to move, who had paused dreams of home ownership and family for 10+ years and just wanted the same things their peers enjoy. They will be suffering badly should recent data continue to reveal these decisions as mistakes. And it's not their fault, as the market has been so heavily distorted by government/RBNZ intervention that it's exceptionally difficult to forecast. Many of them have seen their friends seemingly abandon reason and buy at the 'peak of the market', only for it to rise 30% in a year.
NZ housing is an unprecedented scenario and we should stop with the, 'I knew all along' shtick. If we're all honest, none of us expected house prices to be where they are in 2022.
Exactly. Those people were not stupid. They had just lived through 2 decades of non-asset owners being treated as economic cannon fodder, with no indication that anyone who had the power to do anything about it gave a shit. A lot of people also forget that every major bank predicted a 10-15% house price drop at the beginning of 2020 - and look what happened. So the idea that somehow the 'smart' thing to do is to try and make predictions about the housing market and act accordingly, and that people who don't do this are somehow 'stupid' is ridiculous.
The experts/economists are still predicting that prices aren't going to decrease or by very little... If you listen to them, what's there to feel stupid about?
Sure - but the poster above stated:
30% fall is very much needed
If 10% people have been stupid and over stretched themselves then it's not the fault of the rest 90%. So people got to live with their choice
My point is that even if a 30% fall happens, simply saying 'oh well, those people who bought recently were stupid and should reap what they sow' is both wrong and cruel, given what's happened over the last 20 years.
What's more cruel is house prices being kept up just to protect the stupid.
And yes, going donkey deep into debt without knowing how to use a calculator to model the effect of interest rate normalization is stupid.
Rates were never going to stay at zero for the next thirty years.
I agree that house prices are crazy and need to come down. However, I don't see why the only two options are sacrifice non-asset owners or sacrifice recent first home buyers. Both are likely in the cohort whose interests have been repeatedly sacrificed in the interests of the 'majority' (older asset owners) for decades. Govt has repeatedly intervened to prop up plenty of other groups in the last few decades. I'm sure there are other solutions, but here's what I'd suggest - either recent FHBs get their equity position preserved, or get access to fixed rate lower interest mortgages or something, funded by creaming off some of the wealth from those who have benefited massively from decades of government policies that have effected a massive wealth transfer from the young to older asset owners. I don't see why we can't transfer some of that back to ensure that younger FHBs who have been screwed by accommodation costs for decades to benefit others are not the ones taking it up the ass for the good of everyone else yet again.
Because they actually have homes, and some people don't.
Just think of what you're saying, you're suggesting bailing out homeowners. After 20 years and countless reports of growing inequality between the haves and have-not's, you're actually suggesting helping the haves.
Sorting out inequality isn't part of a central banks concerns, that's up to elected representatives and the will of the voting public.
There's not a binary between the haves and the have nots. There's the have-a-lots, the have-a-littles, and the have-nots. I'm suggesting that yes, the non asset owners have really been given the shaft over the last 20 years, and a house price crash is needed. But recent FHBs, though they have a house, do not deserve to be financially ruined to achieve this, as they have also been on the losing side of a runaway housing market. People keep presenting this issue as though the choice is basically 'which group of millenials do we screw? The group who have just bought a house or those who haven't?' I'm saying that's a false dichotomy. Why can't those who've actually benefited from the massive property wealth transfer welfare scheme take a little bit of the pain just for once?
I'm all for some kind of wealth tax.
But if you offer free handouts to the mass of people in debt, you're either 1: going to make inflation even worse 2: give even more incentive to get into massive debt and not save your money.
I'm reminded of that Ricky Gervais joke of industrious mouse and lazy mouse. https://www.youtube.com/watch?v=FKxB7vdnego
Problem is that bailing out the unfortunate FHBs will just prop up the market and see the problem continue. An explicit government guarantee that you can’t lose out on housing! - Prices would skyrocket (more).
I'm sure I recall Michael Reddell (if I recall correctly) highlighting that a simple handout in a crash of (for example) $50k per adult could be used to help protect recent homeowners without unduly bailing out "investors" (where in investment risk is a fundamental consideration, so bailouts should not be expected).
The $50k could be used to pay mortgage payments, additionally pay costs during unemployment, or pay down debt. Someone with 10 houses would only receive $50k, just as someone with one house did.
I could be wrong about it being Reddell, and about the amount.
On this site people love conflating "hurr, the gummints protecting home owners and investors" with a wider problem facing mature economies that central banks everywhere have been trying to solve with increasingly lower interest rates.
Rates could very well stay low indefinitely, or central banks and governments revise how money works altogether. Something along the lines of what's being promoted, a digital, time limited currency that just gets dumped direct into people's wallets in times of crisis or shortage for them to use temporarily.
Everyone has a stiffie for talking about housing but it's only part of a much wider issue.
How all these "Stupid" people find the money to buy a house is a complete mystery to me. Perhaps its actually all the intelligent people that are earning enough money in good jobs that the bank will lend money to that are buying a house ? I'm sure some of them are stretched pretty hard but you have to draw a line somewhere.
House Mouse, sorry to blow your self ego, but I give your view absolutely no weight at all. Not sure at all how you come to make the assertion that a 3% OCR would “crash the housing market by 25 to 30%”- I’ve no faith in Ouija boards.
I look forward to the day hopefully when posters on this site accept reports such as this as a considered view only, look to reading a range of reports and not simply the headline comment, determine the rationales, and come to one’s own considered conclusion.
That is what successful people do, those that simply sling off are simply naive bunnies - not sure who these bunnies listen to but likely each other which explains a lot.
You're a work.
I would consider myself pretty successful btw. I earn close to 200k per annum.
You seem to have no tolerance for bearish views. Pretty narrow minded.
House Mouse
There you go - that really touched your ego. $200k wow!
Other than guessing or using your Ouija board, now explain / justify using your workings along with your vast experience as to why a 3% rise in OCR would collapse the market by the precise amount of 25 to 30%.
I need this, it’s just that your claim of 200k carries no weight.
You implied I was unsuccessful, I was merely refuting that with fact.
I mean, surely you can use a mortgage calculator. The maximum amount someone can afford to borrow at 2.5% is very different to what you can borrow at 6.5%. So if you can borrow 700k @ 2.5%, that is more likely only 500K @ 6.5%. Then there is the fact that 40% of investors use IO (which interest rates changes impact far more drastically).
So factor in NZ's high levels of debt, stretched affordability, and feedback loop caused by falling prices (and evaporating equity) it could easily result in the sorts of numbers housemouse mentioned. Whether this scenario would come to pass would largely be dictated by the actions of RBNZ and government, but its certainly plausible.
Printer 8 has descended to 100% troll territory as of late. He was always quasi-troll but has worsened.
He might be an agent. Or more likely has a huge amount of confirmation bias.
Respectfully, in this case printer8 has a good point. With incomes rising strongly I don't see an OCR of 3% to cause house prices to crash 25-30%. Not in nominal terms. In real terms, who cares?
Even if house prices “stay flat” for the next 3 years (which seem to be the predictions of the most optimistic), 5% inflation means a real loss of more than 15%. 25% loss in real value is more than likely IMO, I also think 40% is not unrealistic by any means.
I don't have the time or interest in explaining my full rationale to you.
But here's a teaser (let's see how clever you are) - what do you think would happen to the residential construction market if retail interest rates were 6.5-7%? (Rather than 2.5-3%)
That's circa $1100 pw on a 700k mortgage over 30 years. Throw another $100 on top for total weekly housing outgoings of $1200.
See how many FHBs / investors can afford or justify that for a 2 bedroom townhouse....
HM
So the explanation is that it’s the Ouija board then. :)
Cheers
If I had a mortgage I would be taking particular note of the ANZ - and other bank - reports rather than outright rubbishing them.
These are the guys that determine mortgage interest rates and their view will be influencing their current thinking on longer term rates.
Takeaway is that if one wants a bit of surety then current longer term rates could be attractive if one is rolling over a term or even considering the cost of breaking.
If one has a mortgage then one needs to carefully consider these reports. Earlier last year I posted a number of times that then BNZ 5 year rate of 2.99% was attractive and wouldn’t last . . . I did not refer to the Ouija board but rather was reading the bank and RBNZ reports.
House Mouse does a disservice outright rubbishing such reports.
House Mouse is right - for every .25% rates rise it take about 25K off what you can borrow - assuming the bank factors in the increasing rates in thir loan assessment and lifts the rate they are assessing you against in line with the OCR increases
A 3% OCR would mean borrowers would be only able to borrow 300K less than what they could borrow this time last year- so somebody with a current $800K borrowing limit would only be able to borrow 500K - (assuming their income is stagnant)
If the average house price in NZ is 900K - then that take 300K off the average house price and you get a crash of 25-30%.
All of the above assumes that the persons wages have not moved.
Thanks. All P8 is capable of is baseless insults.
As a result I have no interest in any further engagement with him.
And that's final.
House Mouse
Only one baseless insult was your opening comment “ . . bank economists being once again proven to be fools . . .” is bit of a double standard.
And holding yourself up as the all-seeing expert without providing any rationale . . . and seemingly not able to take a bit of robust debate without spitting the dummy.
I look forward to the day hopefully, when trolls on this site, troll their victims without the victims realising that they are being trolled.
That is what successful trolls do, those that simply sling off are simply naive bunnies - not sure who these bunnies learn from but likely each other which explains a lot.
P8 and HM...get a room.
He started it!!!! haha
Have to agree with you House Mouse,
View any chart of interest rates over the past 30 years and youll see where they are going.
The market will crash and rates will go back to zero. Credit has to get cheaper and keep expanding to keep the whole system from collapsing.
Everyone's a beneficiary now. Dependent on either free money from central banking or free money directly from taxpayers. Few are the productive.
Well, the drop of 1.5% in the OCR gave us 40% house rises. A 30% fall just takes us back to prices when the OCR was at 1.75%.
If I took this report seriously, I'd certainly add the possibility of a 30% fall in house prices into my risk assessment. Greg Ninness on this site proposes a 1% rise in interest rates correlates to a 10% fall in house prices, so pretty consistent with the Ouija board.
https://www.interest.co.nz/property/111056/rising-interest-rates-will-r…
The RBNZ are well aware of the link too
https://www.rbnz.govt.nz/financial-stability/financial-stability-report…
I think the printer ate your homework. I’m sure you have made some pretty unfounded house price increase claims over the years.
I don't think you understand how corrosive inflation is..
"But all that is of course cold comfort to people with massive mortgages to service, particularly if the value of their house is going backwards,"
Ouch.
If you didn't factor in increased interest rates when the printing machine is in overdrive and inflation was inevitable, you are just dumb
Noob question for the old hand financial geeks here: what is the rule of thumb for pricing retail mortgage rates per the official cash rate. I.e with a 3% OCR, what sorts of rates would the punter on the street be seeing for various term lengths?
Surely somewhere in the 6 -7% range depending on term.
It would not only destroy the housing market but also the whole domestic economy.
That is why I think it has next to no chance of eventuating.
Out of curiosity, if inflation continues unabated for at least another 12 months, what do you think they will do to curb inflation?
Raise the OCR, that's what this article is about
The thing is, I don't think it *will* continue unabated for the next 12 months. Or at least in terms of the demand-side (supply side is a different story).
I think already much higher retail interest rates plus another 0.75 - 1.0% lift in the OCR coupled with already high prices (limiting demand) and CCCFA will suck an awful lot of demand out of the economy.
We also need to remember that the starting point for our OCR is significantly higher than many other countries.
I agree w/r/t the appetite for rate raises, but I don’t think inflation will be transitory - I think it’s just getting warmed up for us in NZ.
I say that because I don’t believe it’s just about supply chains.
The global explosion in asset prices means there are a lot of people with paper wealth to spend and the same resources to spend on. So either the asset prices fall to reduce the amount money they can be exchanged for, or the money gets debased.
US has high inflation *and* a strong dollar - that proves they can continue to suck in resources and set the global price. (Which makes sense considering the enormity of global dollar-denominated debt). It’s true that it’s all - even NZ mortgage rates - in the hands of the Fed. They decide whether we get inflation or crash in the price of financial assets.
over the last 10 years the 2 year fixed rate has averaged out to be 320 basis points higher than OCR. If you go back from 2000 to now it is 254 points.
over the last 10 years the 2 year fixed rate has averaged out to be 350 basis points higher than CPI. If you go back from 2000 to now it is 430 points.
2 year interest rates of 6.0-6.5% are to be expected, which is what the banks should have already been stress testing against.
I wonder if the higher interest rate stress test, on mortgage application, is accompanied by any modelling taking into account less discretionary income due to inflation. Would be the most likely scenario to have caused the increased interest rates? The stress tests might overstate the borrowers ability to absorb higher mortgage rates.
Great Question: The Retail Banks make their money on the spread.
So some simplistic math:
Say the ANZ borrows at the OCR [RBNZ cash rate] of 0.75%.. then the ANZ loan to you for a mortgage [say: 3 year term] at 4.75% - the ANZ is making a 4% margin/spread.
4.75% - 0.75% = 4.00%
So for the ANZ to maintain their current 4% margin/spread, were the OCR to hit 3%.. ANZ's 3-Year-Term would need to be at 7%. HOWEVER.. banks over the past 7 months have already increased (percentage wise) their rates significantly, so in this example the ANZ may not wish to maintain a 4% margin/spread.. they've already 'priced in' an increased OCR.
Inflation also plays a part; how much does it cost to run ANZ? What are houses selling for.. if ANZ makes less of a spread but off lager mortgage loans, things even out [unless prices fall].
Almost all of that arithmetic is quite flawed. Bank net interest margins are on the public record, in their Disclosure Statements, and if they are too complicated to read, in the RBNZ Dashboard. (See P3.) ANZs is 2.0%, ASB's is 2.2%, BNZ's is 2.0%, Kiwibank is 2.1% and Westpac is 1.8%. Miles less than 4%. Your whole concept of how bank's fund mortgages, and how they lay off risk, is quite wrong. They don't lend-long (mortgages) by borrowing-short (OCR). If that is what they actually did, a) they would go broke quickly, and b) the first people fired would be their treasurers and risk officers.
I thought it is was reasonable paradigm to paint within. I agree long-term-mortgages aren't funded by borrowing-short the cash rate. Capital Ratios, NIM's and Legislation certainly factor, yet much of bank lending surely boils down to double-entry-bookkeeping.
exactly they match deps/loans daily/weekly.
Omicron is knocking on our door
It's not Omicron per se which is the threat here, but our government's likely response to it.
Yeah, judging by how RBNZ responded in 2020, they've messed up the market big time... I mentioned here on interest.co.nz last year, if they didn't take every opportunity to hike up OCR last year, they will need to do bigger hikes this year. This might be happening... Prepare for another round of interest rates hikes from banks...
Indeed chebbo, thank you for this comment
yes cheb , l think they could really make this a lot worse than
it needs to be . if they listen to other experts , not just there
paid ones , we could have a better outcome.
this gov has made so many poor choices and probs wont change
Precisely. New Zealand has uncovered a new wealth of experts and many of these are available free of charge in comments sections and Facebook. If only they'd listen to these people who know what's best after learning from the school of hard knocks and university of life.
I have added this to my list of things to check in the future:
'ANZ forecasted in mid January 2022 that the OCR will rise to 3% in April 2023.'
Might want to add the following sentence from ANZ's report to your notes:
Uncertainty about the outlook is currently extreme, and no one’s forecasts should be taken as gospel.
Sure. Note the caveat is around global risk, not local.
I can just see the tightening cycle for a year and then the un-wind will begin again...
Doesn't worry me. I fixed for 5 years at 3.39%, and will have 2/3 of the mortgage paid by the end of the 5 years if all goes to plan.
5 yr 2.99 for me and I am more successful than HouseMouse from the sound of it so not concerned either. Expect my 4m home to drop into the 3’s for a while but that’s ok. Probably will be 6m in 10 years and then I can retire in my 50s to the beach. If it drops further I will look to upgrade in the meantime.
50s is pretty old, you could do it tomorrow from the sounds of it.
Time is super valuable.
You don't know his net position. That's all that matters.
well done, yes the 5 yr fixed around 3 to 3.5 were the smart move,
Sounds like an assumption of continuing government and central bank policy to give you free money off debt passed to the next generations.
Consumers including mortgage holders are now protected and this shouldn't be a concern.
CCCFA allows you to apply for contract modification once every 4 months.
ANZ is subjected to CCCFA.
wow thats 2.25% in 14 months (assuming the first rate rise is in Feb 22) - thats 9 .25% rate rises over a 14 month period.
I
Seems unlikely right? Isn’t that more than the number of rate reviews?
Nasty Mix of Conditions … not sure anyone knows how it ends, especially someone who has been as consistently wrong as almost all local economists.
I think this is the most honest takeaway, we are simply in uncharted territory. Central banks have conducted a massive experiment in monetary policy since the GFC - somehow they believed they could fix the problems caused by excessive debt by just creating far more debt.
How does this end? There isn't really a playbook. At what point will they realise that debt can't keep being created at a rate that massively exceeds real economic growth? How far can will they go with currency debasement before confidence is lost for good?
These central banks could come out looking pretty stupid. The reason they are independent is so they just stick to the rules and don’t do stupid knee jerk stuff; unfortunately the GFC seemed to rewrite the rule books when it really shouldn’t have.
They seem to be forgetting the RBNZ also equally targets maximum employment( which will be a challenge if interest costs are doubling for everyone....
Interested to see how they balance it!
Their inflation target will be a higher priority if they are way outside it. They would only look at full employment if inflation was mostly under control.
All this money just for shelter, crazy huh.
https://www.newstalkzb.co.nz/news/business/prepare-for-war-rich-dad-poo…
Author of Rich Dad Poor Dad with heaps of properties issue Housing Warning.....as a matter of fact has been issuing warning since last few months and everyone laughed but now it seems that is and will be correct.
Yes, perhaps Ms Ardern should of read Mr Kiyosaki's book! (Or any Year 9 Accounting textbook tbh). A house is not an asset! (Rentals aside). A large purchase yes, but not an asset.
should of ?
If its not an asset what is it ? Seems to have been the best asset I have ever purchased, you can live in it while the value of it keeps increasing.
Old poor dad is just in the business of selling his product.
What's really going to happen is that central bank fiat currency gets revalued much closer to its intrinsic value - zero.
Yep just someone else getting rich by telling you how to get rich.
If there is going to a crash then surely he should sell all his current 8000 properties and be cashed up ready to buy!
100 basis point increase is a significant revision upwards indeed ! (though not a surprising one)
There is still plenty of room for upward revision...
The current problem is that real interest rates are negative, that is interest rate is lower than inflation. This is great for people with a mortgage as it erodes debt but bad for people with no mortgage.
If house prices aren’t keeping up with inflation it also erodes their asset (if I am allowed to call it that)
Sorry Yvil, I don't think your narrative is actually true. I feel sorry for people who would actually think this way.
Yes, the amount of mortgage is still the same. However, you forgot about the cost of servicing a mortgage. Even if OCR is lower than inflation, but the interest rate you are actually getting is normally higher than the inflation. The reasons is banks need to cover their cost to put their cost into mortgage rate. If they know the cost of living will go up 5%-10% next year. Would they keep the same interest rates the same next year? I don't think so. I wouldn't run my bank in that way...
Also if OCR goes up and inflation still stays high, banks will have more cost to cover. You wonder why when current OCR is at .75, but most banks' rates are already above 4%, hence they are more strict with their lending rules. So it's bad for people holding a mortgage in an inflation scenario.
coh, I hope you are open minded enough to reconsider your view. The fear of taking on a mortgage (probably indoctrinated into us by our well-meaning parents) is the number one reason why people struggle financially in life.
I pay 2.49% for 2 years & 2.89% for 3 years whilst inflation is about 5% and probably rising more soon. If you are financially literate, you will understand that your mortgage is not only free but it's actually making you money. At the same time the real value of the mortgage reduces by the inflation, so 5% pa before any mortgage repayment is made.
I am so, so, so happy to have mortgages in the current inflationary times!
I know you are very happy to have mortgages at the moment. And I hope you will still be happy in future.
But your case only can speak for yourself or maybe only small percentage group of people. You might be one of the lucky ones got yourself into market when price is low, amount of mortgage is low and you leveraged your portfolio through and got youself where you are now. And many people are not.
Your "This is great for people with a mortgage as it erodes debt but bad for people with no mortgage." can only misleads people in this current economy setting and cause people to make some serious financial lost and potential into bankruptcy.
I think both you and me know that this discussion is not about the fear of taking on a mortgage but about taking on a mortgage in an inflation scenario, which I clearly stated in my comment.
9 months ago I fixed 5 years at 3.05%. Wife wanted a bigger house, so we sold/bought. Fixed for 5 years at 4.95%.
You have a 2.49% for 2 year, our interest rate offer for 2 year from ANZ last month was 4.20% after 0.75% discount.
A nearly 2% increase in rates on a $500k+ mortgage = $200 per week in extra payments. Inflation at 5%, even if a household on $130k receives a 5% payrise that's $125 per week before tax.
Are people still listening to bank economists in 2022?
They are wrong most of the time and have simplistic models, so why should anyone?
And obviously have vested interests like 95% of economists we hear from in NZ. It's like listening to the covid 'experts' in NZ...
Last years massive gains were speculative bubble bath thanks to Mr Orr. A full retrench of that is needed, and more to release the pressure from inflation.
What a mess. Great time to be in opposition.
If National can't win the next election they are truly a basket case!!!
Labour have made some good changes to lower house prices such as rental tax changes, national will need to oppose those for their core voters which won’t look good to non PIs. I think labour have handled Covid well once again - not perfect (a bit too safety conscious IMO) but still pretty good. Also looks to be some movement on environmental policy which I think will be popular overall. So yes they have a lot of issues, but getting the big stuff right.
Changes Labour has made have not lowered house prices but done exactly the opposite. There has been an average $300k gain on Auckland properties in the last year.
The government is now planning to continue its spending spree.
NZ has the second highest Covid-19 spend per capita in the OECD behind USA. It is not a coincidence that the excessive spending in both USA & NZ is resulting in escalating inflation problems. ANZ’s report shows a graph showing USA & NZ leading the way.
Interest rates are still very low by historical standards so expect inflation to keep going up over the next couple of years.
This will continue to cause increasing inequality in NZ between home owners & renters. It is a pity the government has failed renters.
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Those changes weren't the cause of house price rises in the last year.
Although the 2-tier welfare and reserve bank pumping of the market obviously were very successful at protecting property from market risk and pumping prices far higher, yes.
I haven't been listening to National recently, so they're making a lot of noise about hiking rates then?
Speaking of, haven't seen our bald saviour in the media at all lately. Guess he's having some time off in one of his 7 houses lol.
I saw him in the media speaking to National party folks in the Hawkes Bay....,looked like a ryman crowd, very old.... might have been too.
Bayley is having a crack at the moment because someone had to pay tax on a house sale.
They're outraged. Taxes are for working folk!
ANZ’s report provided some very useful information which explains why NZ could be headed for a period of stagflation ie high inflation & little GDP growth. This should be a warning to the RBNZ to curb inflation sooner rather than later.
ANZ commented “over the past decade or so, a weak GDP print (for example) would typically be interpreted (rightly) as indicating spare capacity opening up, and therefore downside for interest rates. But now it could just be reflecting the fact that there is no more labour/hours/overtime/capital left in the economy to bump up activity and not necessarily indicate a lot of disinflationary pressure.”
They indicated last year they where going to raise in 25bps increments. My guess is that'll probably continue until inflation is back within their target band.
It's funny to me that people are fretting a rise in interest rates that is still in single digits, we are in deep trouble if households can't absorb increases in this range easily.
In response to the crap that is filling these threads these days - the race is long and, in the end, it's only with yourself . The arguments are inane and pointless. There are possibilities and probabilities - you pay your money and you takes your chance. I understand the world has devolved to drivel but I come to this website to get an overview of the financial news not people's man sausage envy rants.
I do wonder if one day SETI will decode a message that says no intelligent life on Earth
Pay money...take chances, aka personal responsibility, shock horror. Not in this era of nanny state. You may get sent to an overseas location for organ harvesting.
To your point, people get hot about speculative interest vs. those that look at what the math says. Both sides have much to loose. That said if there was ever a time to spend 3-6 months to see which way the global wind will blow, it is now.
There has never really been a time to "Wait and see". The times of greatest change really represent the times of greatest opportunity. You simply cannot afford to sit and wait, there is always something that will keep you sitting and waiting........... forever. The last 12 months have been life changing or to put it into perspective, houses went up in price more than I paid out in total interest over 15 years.
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