The Reserve Bank of New Zealand (RBNZ) has taken traders and economists by surprise by lifting the Official Cash Rate (OCR) by 50 basis points to 5.25% from 4.75%.
This is the highest it has been since 2008, having increased 500 basis points in eleven hikes since August 2021; the fastest and largest monetary policy tightening on record.
Economists and traders were almost universally expecting a 25 basis point increase in Wednesday’s monetary policy review, with some suggesting it would be the last this cycle.
The NZ dollar jumped almost 1%, from US63.0 cents to US63.7 cents, after the announcement and government bond yields also rallied.
Wholesale interest rates have been declining throughout March as traders predicted overseas banking stress would deter the central bank from increasing rates as much as planned.
The RBNZ’s monetary policy committee was not pleased with this development and opted for a larger lift in the OCR to push wholesale rates back to February levels.
Wednesday’s decision contrasts to the Reserve Bank of Australia which Tuesday opted to hold its cash rate at 3.6%, essentially pressing pause on its monetary policy tightening.
The inflationary impact of Cyclone Gabrielle also appears to have been a major factor in the larger-than-expected rate hike.
“The recent severe weather events in the North Island have led to higher prices for some goods and services. This higher near-term CPI inflation increases the risk that inflation expectations persist above our target range”.
The committee said it expects the rebuild will boost economic activity, create demand for resources, and add more inflation pressure than assumed in the February Monetary Policy Statement.
In February, the RBNZ had forecast that lifting the OCR to 5.5% in the second half of the year would be enough to push inflation back into its 1% to 3% target range by September 2024. Consumers Price Index (CPI) inflation rose at an annual rate of 7.2% in the December quarter, according to Statistics NZ. The March quarter CPI reading is due out on April 20.
Lower wholesale lending rates and the cyclone rebuild was threatening this forecast and the central bank wants it back on track.
Shock and Orr
Economic pundits were expecting the RBNZ to talk tough on inflation but soften their views behind the scenes, as weaker economic data has begun to trickle in.
On Tuesday NZEIR’s quarterly survey of business opinion suggested the 0.6% fall in economic activity in the December quarter had continued through to March. Respondents said domestic trading activity had shrunk and investment intentions were at recessionary levels.
However, the survey also showed the labour shortage was subsiding which could dampen inflationary pressures. Businesses reported being more concerned about making sales than finding staff for the first time since 2021.
In a note prior to the announcement, ASB senior economist Mark Smith said the central bank would signal more rate increases despite signs of recession and capacity pressures easing.
“The RBNZ is unlikely to rest on its laurels and is set to retain an explicit tightening bias given the still worrisome inflation outlook”.
The monetary policy committee noted the weaker data but said inflation was “nevertheless still too high and persistent” and employment was beyond its maximum sustainable level.
Much of the decline in wholesale lending rates could be attributed to banking stress in the United States and Europe following the collapse of Silicon Valley Bank and the forced takeover of Credit Suisse.
But again, the committee judged these conditions posed no risk to local banks and had not caused credit conditions to tighten. Instead, the decline in wholesale rates could cause consumer rates to fall, when the central bank wants them to stay at February levels.
Cyclone inflation
Households affected by Cyclone Gabrielle and the Auckland floods had a “short-lived” drop in spending with a relatively quick bounce back to pre-event levels.
At the same time, the disruption has resulted in an increase in some prices — such as fresh vegetables.
“Over the medium-term, the inflationary impacts of these events are likely to be somewhat larger than assumed at the time of the February Statement as more information has come to light about the scale of rebuild activity.”
The bank does not think the New Zealand economy has entered a recession, saying that higher frequency indicators point to “modest yet positive growth over the first quarter of 2023”.
Also factored into the decision was possible fiscal spending. The current projection assumes Government consumption and investment will fall as a share of the economy in coming years.
“However, members viewed the risks to inflation pressure from fiscal policy as skewed to the upside, particularly given the ongoing demand for government services in an environment of rising costs of provision.
The economic impact of the Government response to recent severe weather events will depend on the scale of damage, fiscal reprioritisation decisions, timing of activity and how Government spending is funded”.
All of this added up to the monetary policy committee determining that a further increase in the OCR was required to ensure core inflation and expectations begin to fall.
The members were comfortable that current lending rates faced by businesses and households would be enough to do the job, but the lower wholesale rates posed a threat.
“As a result, a 50 basis point increase in the OCR was seen as helping to maintain the current lending rates faced by businesses and households, while also supporting an increase in retail deposit rates”.
The central bank said it was expecting to see domestic demand and inflation to “moderate,” and gave no indication as to whether it expected to lift rates any further.
“The extent of this moderation will determine the direction of future monetary policy.”
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MPC comment on the decision between a 25bps or 50bps hike:
wholesale interest rates have fallen significantly since the February Statement, and this could put downward pressure on lending rates. As a result, a 50 basis point increase in the OCR was seen as helping to maintain the current lending rates faced by businesses and households, while also supporting an increase in retail deposit rates.
Unsubtle reminder not to bet against the fed, it seems.
Not seeing it on the benefit front as of yet.
The last 3 weeks the people on job seekers has dropped.
People must be finding alternate work.
https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/s…
Especially folks who have been net negative contributors - ie the entire baby boomer generation.
Quite scandalous this inflation linked benefit is the same size as the entire NZ education budget, and is not means tested like any other benefit despite generation me having every advantage handed to them by the greatest generation which preceded them (free health, education, cheap food and housing etc)
Found this comment elsewhere. Not 100 percent sure on the maths but it sounds credible enough.
NZ life expectancy is around 80, so you'd expect to receive super for 15 years. Suppose you are continually employed for 45 years, i.e. 20 -> 65 when you retire.
Someone on the median wage pays an approximately 20% tax rate.
So over your 45 year career you will pay about 9 median wage years of income tax (45 * 0.2).
NZ super for a single person is set at 43% of the median wage, so if you receive it for 15 years, you will receive 6.5 median wage years of super. Yes you do pay tax on this which brings it down to 5.7 median wage years in the hand.
So in this optimistic scenario where you work continuously for 45 years, the payments you receive are over 60% of all the income tax you paid over your life. Yes you do may other taxes such as GST and petrol levies, but the benefits you receive through schooling, healthcare, etc. are way more than what's left over.
Also, have to remember that tax isn't a savings account, the majority of the tax someone on super has paid is now gone and was used to pay for services and funding for day-to-day stuff well into the past. The concept that a state-provided superannuation is somehow a payback for historical hard work or paid for by the worker in advance is a total misunderstanding of the reality. State superannuation is a benefit, just like an unemployment benefit.
By the time you bring the massive medical bills people above 65+ typically have with all it wouldn't be unrealistic to say that the amount they have paid in tax over a lifetime is outstripped by the amount its cost for their retirement. Gotta note as well that medical care is magnitudes more advanced than it was back in the day and also costs magnitudes more which is all funded by workers, workers who now have to fund their own education, their own retirement, and someone elses retirement all at the same time. Not even bringing into account that housing costs are way more than they were previously.
I'm not saying this to personally blame the older generation for all our problems, they were just doing what anyone would of done in the same situation. But we have to look at this pragmatically and realise it isn't really sustainable and we need to start doing something differently.
It's pretty simple. Here's a simplified version for you - assume a salary of 50,000 p.a., which is more than current full time minimum wage. Annual tax on that is $81725. Multiply that by 50 and you get $408750. Divide that by current single pension rate of ~$26000 a year and you get a tad under 16. So someone who has worked full time for 50 years just needs to live to 81 (And the average life expectancy is currently 82) before they are a net negative contributor just based on pension costs alone. This doesn't take into account all the other services they have used or benefited from over the years (roads, healthcare, policing, etc). So it's not difficult at all for someone who has worked and paid tax for 50 years to be a net negative contributor.
Broadbrushing slanted patter for the converted . Some pay their own way through education by working and studying as well . Also paid and still pay for their own medical insurance . Further the marginal tax rates pre 1989 Douglas reset were punitive. Muldoon bought the 75 election with national super and tax rates reflected to supposedly provide 80% of the average ordinary time wage . It’s a lot less now .Higher earners also obviously paid a lot more tax . Simple eh.
There must be some rebalancing of the workforce going on? You'd think those that have lost jobs should be able to find some alternative employment to tide them over given how constrained the labour market has been. (I accept not everyone wants to work in hospo or tourism).
Property market: Im free! Free-falling!!
Honestly, the reserve bank is doing what successive Governments didn’t have the balls to do for the last decade and a half: pop the housing market bubble!
They are doing a very big social service for everyone below 40 who was priced out of the housing market.
People here seem to like to think you can spend years of your live sitting on the sidelines because they're smart enough to see properties were overvalued you should have waited for a correction that was close to a decade overdue according to traditional economic cycles.
Never mind the banks, economists and all the people paid to know more about this than everyone else got it wrong and kept getting it wrong for years. They're just smarter, don't you see? We should be so lucky we have someone there to wag a finger in our faces at all times, be it as prices rise for not working hard enough and eating too many takeaway coffees, or as they fall for having finally saved enough to borrow for a house and get out of the rent cycle.
You need to learn how it works: never mind who stuffed up, didn't do their jobs or who just took the money and ran, younger NZers will always be wrong in some way.
Exactly. And the people who say these kinds of things never seem to think through what they are suggesting. Most people save for 5-6 years to buy a house. And buying a house isn't (or at least wasn't) an easy process - it took me a year from seriously starting to look to actually being able to buy (Covid of course didn't help). I bought a house towards the end of 2020. Prices are probably back in the ballpark of what I paid now in my area, but not quite yet. And If I had waited I would have missed 4-5 years (taking into account fixes) of low interest rates, so not necessarily be better off. So what they are suggesting in my case, for example, is that after 6 years of saving, 1 year of house hunting, I should have picked that in 3 years from when I bought prices would likely be lower, and have spent (at least) another three years in the oh-so-fantastic NZ rental market. And the thing is I don't even know yet, nearly 2 and a half years later, if it is in fact true that I would have been better off waiting. And I know people who bought a matter of months after me who paid more than their house is now worth, and a matter of months before me whose houses are worth significantly more than they paid for them. So I would have to have fine-tuned my timing down to the month in terms of whether buying a house was a good decision or not. I was meant to know (as were other people in my age group who were FHBs at the time), at the end of 2020, that buying a house in November would turn out to be a good decision 2-3 years later, but that buying a house in February 2021 would turn out to be a bad decision 2-3 years later. Not only were we meant to know that, we were meant to put our lives on hold for another 3 years or so after already (in most cases) having spent 15-20 years in the fresh hell of the NZ rental market, often either with kids in tow or holding out on having kids until we could secure stable housing.
Your odds would have been better at a casino in picking the right moment to 'invest.'
The point is you should never have been put in this position, any more than finding out that whatever month or year you were born would determine whether you would buy a house, or not, at whatever price.
In countries that have their shit together, none of this matters, in that house prices are stable, ie only go up with the general rate of inflation, and it doesn't matter too much when you buy, or how long you rent before, and if, you do buy.
Not totally.
The likes of Texas is a very good example of good land use policies that cause mainly very stable and affordable markets.
But even they got the speed wobbles because of Covid restrictions on top of everything, but they are quickly fixing that. And of course, a speed wobble housing-wise to them still makes their housing very affordable by NZ standards.
http://www.demographia.com/dhi.pdf
The fact this has 32 upvotes is nuts. Adrian Orr was advising people that rates were going to be lower for longer - encouraging people to load up in covid. Who else can you look to for advice?
Young people just wanting somewhere to live and raise a family getting blamed for complete regulatory failure. Most of the people getting smashed by this aren't over leveraged speculators (who are reaping their deserts).
It is young kiwi families who got suckered in by successive failures in government, a reserve bank straight up telling them they should borrow and the media who is bought and sold by the property lobby and government handouts.
I would assume most people on this website are boomers who have got theirs from the good years - now are happy the gate is slamming shut on young people they are cheering. Straight up shameful.
Young Kiwi family here. I find it interesting to look at the subdivisions around us (mostly FHB), and the discussions at work with the other "young kiwi families".
Most are in brand new houses with all the toys - new cars, boat/Jet skis, kayaks, SUPs, tramps, playforts, e-scooters, and Garages full of gym equipment and other assorted junk.
In comparison, we have a modest 1980s house. Our cars are 10 years old and we don't have any of the big toys other than a trampoline.
Point is, there were lots of options available to FHB. If you took the option to max out the lending, buy a new house and all the toys, then make the bare minimum repayments. Then you won't get any sympathy from me.
We are also a young Kiwi family. Purchased our first house in a fast increasing market before things got too crazy. I would say we have a relatively sane mortgage size with good incomes. Because we made the mistake of being born at the wrong time, the simple dream of having a home and a child have become extremely difficult. It's so fun to come onto interest.co.nz and see how people are gloating in joy over the hardship of young families. But hey, at least the boomers are finally getting some good returns on their $$ in the bank, because how inconvenient for them to have to look at alternative asset classes to invest in rather than safe stale term deposits.
Absolutely. Plan for the worst, and expect to work until death (most likely on minimum wage - I mean by the time I am 70 it will be at least $50-$60 an hour)
But we can't have the boomers missing out on their retirement cruises they are entitled to, because taxes or something.
Age of pension may rise a few years 67-70 but I doubt an ageing population is going to vote to cancel it lol.
I certainly wont be, I do see plenty of young people under 30's thinking this way.
Im 38 and definitely think a pension will be around when my time comes.
As soon as Kiwis were allowed to access their Kiwisaver to buy a house was a big red flag as to a dysfunctional economy.
All that extra money, including lower interest rates and any Welcome Home grants, etc. all fed back, and more, into raising house prices because it increases demand without increasing supply.
And because this increase in demand could be leveraged, house prices increased by a multiple of whatever people could put in and could afford.
Thus all the extra debt on a mortgage, which could equate to a minimum of the value of 50% of your mortgage, only exists because of Govt. policy. But once locked in, all that extra debt does not disappear as house prices fall.
Many are going to go into retirement with no savings and a large mortgage debt with no increase in equity to show for it.
Slightly better position for us. Still purchased an overpriced house compared to income. But I think we are paying less than an equivalent rent right now.
Wonder how the system should support stressed out FHBs like AJB case. Opening the credit tap for money creation into this shouldn't be considered as a solution, as that's the actual problem.
Perhaps Govt can help by paying anything more than we were stress tested at mortgage approval. ( Only FHBs)
Can't let the banker press couple of keys to create credit and deposit and immediately start to get 3% margin on interest rate
I feel for you and for the children of our society. These groups have been hurt so badly by the draconian and idiotic monetary decisions made following the initial lock-down in NZ. Your group are paying the price for most others and the total beneficiary pool (who have just had a nice pay rise). We stopped everything to save granny (and let granny walk free), one death (initially) was a death too many. Now we are happy to deny young people life extending or saving medication (Pharmc), clearly they are expendable. Hold on, somehow. The sun will come out again. Sell the car to give you some cashflow to get through 6 months. Halt KiwiSaver... don't think about the beneficiaries you are supporting - including the Gold Card holders who are travelling for free while you pay - focus on getting through.
I too see the gloat from some. I too assume they are boomers - hopefully they can pop themselves onto their free travel, discount doctor visits, and recent pay rise, find a nice wine and read more of these stories. Possibly, maybe, they can come to your house and help out/see if they can work out a creative solution for you, or hold the baby while you pop out to wash dishes to make the next mortgage payment???
Anecdote central - i agree with your take that anyone who borrows money to buy a jetski/car/boat deserves their licks.
My anecdotes from the young families i know is they have none of the things you posted about and bought dumps that need work to be able to get into the market and have a house to call their own. "lower for longer"
The fact is the regulators dropped the ball - the very average options available to FHB have been a minefield and rewarded the silly behaviour you talk about above.
I have sympathy for more then a few families i know under water now.
I don't disagree, although to some extent the stupidly high price of housing has made the other stuff look like a drop in the bucket.
Whether a fhb who bought 2 years ago and is now refixing from 2.5% to 7% owes $1m or $1.1m after buying a ute and a jetski, they're stuffed either way.
I think that is a bit mean - we bought our first ever home in 2020 just before lockdown. My husband and I in our 40s with 2 teenage kids. It's unfair to call people like us 'idiots' - but in the end I'm happy to live off beans and rice for the next year, as we feel so blessed we have a home of our own. I totally agree that house prices need to come down... I'm originally from Melbourne, and we were priced out of that market long ago. But it seems unfair to target people with mortgages to bring down inflation. We're already spending only on necessities.
"But it seems unfair to target people with mortgages to bring down inflation. We're already spending only on necessities. "
Two upvotes. Adrian Orr and independent economists now refer to the unproductive block by saying the "govts fiscal overspend". Adrian not allowed to advise govt, and economists too afraid to be pointed.
Houston, we have a problem
But Robertson brushed off inflation concerns back in 2021 saying it’s transitory. https://www.rnz.co.nz/news/political/447038/minister-brushes-off-inflat…
Following the November RB nuke, the wounded were beginning to recover and the sun starting to emerge. So Adrian decided to drop his Fatboy nuke to finish the job.
I cant imagine there will be another coming. This next 6 to 12 months is from an economists and political perspective, going to be very interesting.
Wow Orr is hell bent on crashing the housing market - after years and years of propping it up? Why the shift? Did he sell all of his stock in 2021 and is now looking to reinvest at discounted rates?
You would think with the state of the residential construction sector (i.e. it is dead) they might look to share the inflation bourdon around. Maybe look at increasing GST by 2.5% for 12 months?
Seems pretty unfair that 1/3 of the country i.e. mortgage holders are taking the full weight of this...
Mortgage holders are the reason we're in this mess in the first place - helped their by the banks, government, and yes, loose monetary policy. If house prices had been included in the CPI for the last 30 years, we simply wouldn't be in this mess.
65% of the country's 'investment' it seems is in collecting giant house-shaped baubles.
So in other words, total regulatory, political and institutional failure - but it's the individual mortgage holders who are to blame? Just so we're clear, we're overlooking the huge dearth in accountability from all sorts of people who are paid extremely well to not let this exact thing happen, and choosing to blame someone else?
Geez, I wonder if we'll ever see any actual change if we keep scapegoating people for the crime of buying homes for them and their families to live in.
Yes.
Like it or not, they were not forced to take massive mortgages out. Regardless of how their emotions led them to believe they 'needed' to own the house they lived in.
And I'm well aware renting ain't a pretty option, but under many circumstances it's still better than having a debt pledge several multiples of your annual income. Nothing in the future - not just interest rates, but health and employment too - is certain.
Inasmuch as you say mortgagees are being scapegoated for regulatory failure, in the same way those accountable people are being blamed for people's inability to assess risk, when the risk eventuates.
Cool. You would have been renting since the early 2000s waiting for a proper downturn. That's a lot of rent that you've paid over and above the cost of buying just to have something to hold over everyone else.
We all knew house prices were stupidly high. That's not news to anyone. But if you've been sitting on the sidelines for twenty years waiting for this correction then you're probably so close to retirement age that you can't get finance anyway.
And as for 'assessing risk': the PM, Finance Minister and RBNZ Governor all made comments about negative interest rates or desiring 'price stability'. Let's start there before we decide to get our rocks off about individual Kiwis not being able to measure risk as well as multi-billion dollar outfits like governments or banks - who also still got it wrong.
Again, if you listened to the PM, Finance Minister and RBNZ Governor, you were making an 'informed decision'.
So I'm not sure what point you think you're proving, other than it's much harder than some people might want to accept in a world devoid of consequence for political, regulatory and institutional failure.
I am stunned that so many people think there is some right or need to own a house.
It seems the kiwi culture and expectation on kids to own a house asap has caused a lot of this problem.. esp FOMO.
The game to teach kids is long term happiness.. whatever it means to people. But tie that somehow to owning a house over minimising risk and long term financial security.. is extremely foolish and played right into the hands of those who benefited most from driving up house prices
The main issue is renting is so unstable compared to other developed countries. In New Zealand, you are basically at the mercy of someone else as to whether or not you're going to have a place to live once your lease is up (The government has changed this but I could see national/act repealing this if they get in). In countries like Germany, Switzerland etc you have much greater stability in your housing and can happily raise a family in a rental without any of the same anxieties and stress you have here. a
Not sure what the solution is. Previously I think a lot of New Zealand's cohesion came from individuals having a tangible buy-in into their communities. The freedom to have a dog, plant a garden, and feel assured that you have housing security and that you're kids are going to have somewhere to call home.
Nowadays we are seeing this kind of breakdown as housing pressures work their way through society. We have transient families who are forced to move often, kids don't have anywhere to call home, and people don't feel like they're part of a community since they don't have that level of investment that we used to have. It's really screwing the country up honestly.
Whilst some points are very valid the entire world has changed.
The good thing for the next generation is their ability to learn skills (at school and online etc) is endless... and those skills are very portable here and overseas. With amazing opportunities to acquire wealth.
The solution to owning a house in NZ might simply be to acquire good skills here when young and go on an extended OE and earn enough to buy a place before coming back and doing so..... but those that dont get off their ass and do that (or anything similar) cant simply sit here and moan they cant afford a house with a full section and a bach like in the old days... on their local salary.
That seems like an insane way to run a country honestly. I get what you're saying and there is a degree of truth to it's absolutely not something we should be aiming for.
How are we going to pay for superannuation if the solution to our housing problem is for all our kids to be shipped off overseas and earn money and pay tax over there? What happens when the value proposition just keeps getting worse and worse and they decide to stay overseas and have kids over there that end up becoming taxpayers in foreign nations? Do we then just import low-wage workers from worse-off countries to fill in the labour gap we've created by basically forcing our most talented and driven individuals out of the country?
We're going to end up being an impoverished mess if we keep going down this path. What we are getting shown now is that we can't keep kicking the proverbial cans down the road, at some point we actually have to pull the collective finger out, and realize we can't run an economy through speculation and asset inflation. We need workers, and the current status quo is a good way to push the most ambitious ones out and brutally crush those who stay.
It is also naive to think everyone has access to those same opportunities to travel overseas to build wealth. What about family? Community? What if you have sick parents or dependents? Not everyone is going to be able to build those skills to get into the top percentage of wealth required to buy something as fundamental as housing, do they deserve to basically become second-class citizen's then? I don't think people are even asking for a full section and a bach they just want something to call their own and have the security that is completely lacking with rentals in this country.
This is purely anecdotal and I am sure there are plenty of exceptions, but I don't know a single person under 30 who has purchased a house entirely under their own efforts, every single one of them had financial help from their parents. They all still worked exceptionally hard to get where they are, but we now basically have a system that acts in a way to fully entrench generational wealth where people aren't getting ahead through the merits of their own work but by the virtue of how much money their parents had and how much help they could get from them.
This has turned into a bit of rant, and I'm not really sure what the answer is but I'm pretty sure sending our most motivated overseas ain't it.
You're right. Some people here need to realise what it would actually mean for social cohesion if their way of 'that's just how things are' is taken to its logical conclusion. Other people get a hand-up, it sets a price floor. Likewise with rents - the government sets an accommodation supplement, it sets a rent price floor.
Literally everyone but the people who were already here loses out. You have to risk more and more to get the same basic lifestyle, and then if you do manage to bust your ass to get there, someone is going to tell you that you've been hoodwinked and it's your fault for wanting... a stable home you can raise a family in?
This is a special brand of boot-straps mentality that even hard right Americans would be proud of. Even if you are a hard working Kiwi, if you're caught out by a system that rigs everything in favour of older Kiwis, the older Kiwis then just tell you it's your fault, again, somehow. Meanwhile, they spray relentlessly on talkback about young people not studying, or going to school, or ram-raids, while refusing to contemplate what part they played in us getting to this point.
Yup. House prices had been stupidly high (and interest rates historically low) for over a decade. And all that time, every politician of every stripe had done nothing but encourage house price increases, not matter what damage it did (see LVR removals for investors in 2020 for example). So it's a bit rich to now blame people for not being able to pick the exact moment when the stupidly high bubble would burst and the politicians/RB would all of the sudden decide that pumping up house prices was no longer such a hot plan.
You misunderstand me. I'm referring [in the context of the comment I replied to] to the mess of mortgagees who have taken on debt they couldn't afford at normal interest rates.
And while you're talking about the 140-odd billion dollars added by the government, let's not forget the over a trillion dollars added by the banks via the housing scheme, that was not measured by CPI, over the last decade. Hence the second part of my post. That amount was directly related to the amounts of money that the mortgagees decided to borrow, at stupid rates, with stupid levels of leverage.
The fact of the matter is, we've had massive inflation for 30+ years - it's just until recently been conveniently hidden in the financial glug that is assets - primarily houses here in NZ. And who decided how big those asset prices, and thus required debt, would be? The mortgagees.
Like this today: https://www.oneroof.co.nz/news/downturn-over-auckland-house-prices-rise…
Buyers are going hard apparently
That is exactly what it was. Notice how since homes are more unaffordable than ever, house prices are plummeting? Because of a failure of new entrants to the market, that's all. Higher interest rates are now the hurdle stopping first home buyers, which is a bigger hurdle than deposit since you can't borrow to pay the fortnightly payments.
This does show that house prices are largely controlled by the interest rates and what people can afford to borrow. If the RB wants house prices to rise, all they need to do is drop the interest rates and potentailly change some other settings to allow banks to lend more easily.
Even better, the investors RBNZ kindly removed LVRs for at peak insanity now get to sell down their properties and increase the risk of negative equity for people who just wanted a home to live in.
The RBNZ has been the best performing retirement scheme provider this country has ever seen.
In fairness 5.25% isn't a particularly high OCR setting in the context of the last 25 years. 3-4% is pretty neutral. Property prices are still above pre-covid levels so this is well targeted in terms of balancing previous wrongs. I have sympathy for those in the equity trap, a DTI should have been instituted before the OCR was reduced so dramatically - that was negligent.
Dropping the LVRs also extremely ruinous. That alone should have been considered enough to see reappointments not made. We still also haven't had a proper inquiry into the hows and whys of the Covid decision making - the bank was allowed to mark its own homework. Failure upon failure.
Savers - ah yes the group of people with either a lot of inherited wealth or those that benefited from paying peanuts for property, then lifted the ladder up for generations that follow.
Also identified as - group of people that wonder why they have to travel overseas to see their grandkids.
Ah yes, hiking mortgage rates for home-owners makes crops grow in the ground quicker.
Perfect logic.
The RBNZ is fighting a rear-guard action to try and win back some, any, credibility after years of failure and over-reach seems likely. I'm guessing borrowers should be planning for a longer, flatter period of higher interest rates - there won't be any quick walk-backs and you can bet they'll leave the pot on the stove too long when the rest of the house is already burning down around it.
woops...
by tothepoint | 5th Apr 23, 11:52am
Interesting to note that interests rates are peaking and that the stock of listings now shows a decline.
TTP
Do you think TTP that the RB is really interested in a few "astute" property investors, that got "sucked in" by the hype of "low interest rates forever" and "property only ever goes up" brigade, during the covid period, then that rhetoric perpetuated by you and your ilk on this forum ?
NZ has been living beyond its means since the GFC, as this is the outcome - totally unsurprising to me, in fact I had planned for all this and got out of NZ property investing in 2016.
I'll leave it to you and your buddies to clean up the mess.
Funny that the whole morning New Zealand's media was all about Trump, Trump, until RBNZ's 50bps hike, and now our own inflation and OCR hikes are back in headline news. Maybe we should keep focusing on our own issues first instead of looking at other countries' problems?
Might have a better gig lined up as a meteorologist. 100% change the sun will come up tomorrow. The sun has peaked here at 8am. The sun has peaked here at 9:15am. The sun will start going down at 10am. The sun will reach peak at 11am and go down. It's raining but my survey suggests that when it's sunny people might take their raincoats off, and then we will know that it is once again sunny and that the sun will be rising again at 3pm.
As I have been critical of the RBNZ in the past, it is only right to come out of exile and congratulate the RBNZ for having the courage to make the tough call. Going 50bp was the right decision, inflation has to come down by whatever means necessary. So well done Orr, you certainly have a lot more courage than Lowe.
Now we all know that when inflation rises, the RBNZ has to use a very blunt club to manage this rise, raising interest rates. Now this structure has a lengthy delay in being effective, 6 – 9 months after the interest rate rise before this has a measurable effect on the economy. So we have frequent rises (and falls) of the interest rates to balance inflation.
To battle inflation, we need to take money out of the economy ie stop people buying goods.
If GST is 15%, then increase to 20% for 12 – 18 months to take money out of the economy quickly, reasonably fairly, but more importantly simply and immediately, no lag.
Another way to do this would be to have a mechanism that raises the percentage deductions for kiwisaver accounts by 2 or 3 percent, from companies and individuals for a short period of time just to get inflation tamed.. This takes money from people and companies, but is not lost to the banks profits, but is depositied into the kiwisaver accounts as per normal, so is not lost in interest costs but available to the general economy eventually, once the kiwisaver account has matured. The other advantage of this is that money is removed from general circulation very quickly, and has a faster response to lowering inflation, we may with practise get to manage inflation within a 12 month period or faster. Smooth out the pecks and troughs. Also this methodology would have an effect on more tax entities than mortgage holders, so the percentages used could be reduced.
Any thoughts on these ideas???
GST is a regressive tax that disproportionately affects lower income households. Your proposal is to shift the burden of fighting inflation onto the lowest income households, who are already struggling with inflation, because you think mortgage holders should be a protected class. Your ideas are bad, there is no way to positively critise them.
Your second idea is to add costs to businesses who will respond by cutting workers at a time when the only thing holding the economy together is staff shortages.
Maybe think about the delays built into inflation reporting and inflation response. We won't see the inflation response to this raise until sometime next year, but we will see the inflation response to OCR raises at this time last year in the next 6 months.
Your second option is just as bad, taking more post tax money from the pay packets of the low income. one of two things happen, they again go hungry, or they take a contributions holiday (or whatever they've renamed it too) from kiwisaver to keep the cash in their pockets now, and they fall behind in saving for whatever retirement they are going to have. Possibly they never go back to kiwisaver and totally ruin their eventual retirement.
Increasing GST affects low income earners more than high income earners. Largely due to them having to spend a larger proportion of their wage/salary on fixed essential costs eg accom, food, travel.
NZ is a nation of consumers. Can't help themselves and explains the financial mess so many find themselves in. My 2002 Honda Jazz sits nicely alongside my work colleagues Audi, Telstra and SUVs. Irony is they are still paying mortgages. Go figure....
But do you buy second hand jeans, jackets and search for 'new' shoes on trademe which were the wrong size? Sunglasses from the markets ($10) and takeaways 1/month? Plain tee-shirts at K-Mart@$10. The crap people buy and the need to drive an expensive car to make a statement about yourself. Happy to be seen as an impoverished failure :-)
Extend the life of your business shirts for years by wearing $10 v-neck white tees under them.
Run your Toyota Corolla until it catches fire, then drive it for another 100,000km.
Petrol station aviators, $30 jeans from Postie Plus.
Starts to sound like an off-brand 'Born to Run' cover after a while.
It's not a bad mindset if you have the privilege of choice. I've lived like this previously without choice, the downside is that you lose dignity in your own self reflection. If you can get past this and accept that you don't need flashy consumables, then when the going is good, life is great. Though I am very picky with shoes...
Yeah. The inflation battle can take years and has been known to result in mortgage rates well into double digits and massive asset price drops.
In fact events like Ukraine, Opec raising prices, climate events, china-usa fall out... are all obvious flashing red lights... indicating there is more trouble to come.
Orr is right to double down on this and try to control local inflation asap. He wont want to be playing catch up if there are more inflationary events overseas on top of local issues.
'The central bank said both 25 and 50 basis point hikes were considered, but opted for the larger increase to boost wholesale lending rates back to where they were in February. Wholesale lending rates have fallen during March after banking troubles in the United States led some analysts to downgrade expectations for interest rate increases in many markets.'
Tony Alexander had said two weeks ago that the US banking crisis would "spark a faster housing market revival" and "the common pick was the cash rate here would peak at 5.5%, now a peak of 5.25% or 5.0% from the current 4.75% is highly likely".
Looks like that has backfired now.
So to all those positive peonies who spent last week or more talking the peak is here we will simply head back down from this point and house prices will plateau and rise, sorry, not sorry. This is your fault RBNZ needed sentiment to be with controlling inflation, you talked the opposite and gave Orr no choice.
I think the big thing is how Oz chose not to rise, and are still lower than NZ, but NZ is continuing to increase them. Austrlaia does have more competition and their inflation isn't as bad as NZs. The benefit and super increases in NZ could also increase inflation because the day after the increases my supermarket increased many of their prices. It does seem to be an inflation/wage increase spiral.
Who remembers when the narrative was that interest rates were going negative, we had a major housing shortage and half a million Kiwi's were coming back to buy property? There will be a lot of investors that jumped into the property market taking on large sums of debt from that hype and all of the fomo.
The past few years will go down as a big learning lesson for many of them that's for sure.
The RBNZ has reminded the Property Sector of the economy that it does not control monetary policy, the Bank does.
It has also fired a warning shot at all political parties that it is the RBNZ that controls monetary policy, and in a debt soaked economy fiscal policy by default.
Any party that is espousing reversing current monetary policy direction, and so looking to 'reverse' fiscal or taxation setting might want to have a hard look at what it should be campaigning on from here.
I personally think that this is mostly a pretty direct message to the banks here in NZ - who've been mucking about with under the table mortgage deals and actually daring to reduce rates rather than raise them - not to mention the disobedience of not passing on the additional rates rise to savers.
It's a little like giving a child an extra portion of carrots because they're refusing to eat their vegetables.
What they are refusing to acknowledge however is that the RBNZ already gave that same child a santa's sack goodie bag full of candy that the child has stored away in his wardrobe... a.k.a. cheap money doled out already!
The banks are just gobbling up the increased margins that raises like this provide - it's not like they need a bunch of money to lend out right now anyway right?
Really Frank? How bout you talk to your supermarket about that gouging. It seems we are both getting effed over. The producer and the consumer. And the fat cats in the middle have us both tied up in knots. As for the government helping out in time of need...its talk and no do. They make out they will help, put on a big front, then disappear like magic once the cameras have gone.
When the weather runs your economy you know you have the fiscal fundamentals all stuffed up!
The reliance on low profit industries like logging have fu#&ed up our...
Roads
Rivers
Beaches
Land
Local towns
Local enviroments...
And... polluted our skies, seas, and airways.
...wholesale interest rates have fallen significantly since the February Statement, and this could put downward pressure on lending rates. As a result, a 50 basis point increase in the OCR was seen as helping to maintain the current lending rates faced by businesses and households...
So, because the markets were betting the RBNZ would be forced to abandon its rate hikes we have been forced to hike rates further. There's some bravado, Mr Orr.
Also, anyone who wants to avoid further rate hikes should stop saying rates have reached their peak and you just need to hold on a little longer. The hikes are only going to stop when we believe they will work and "correct" our behaviour. Clearly, they will make a show of not bowing to this kind of pressure.
There is no way to correct the behaviour. The cat's out of the bag. Sure, businesses which provide services and productive enterprise will be suffering. But it would be interesting to get a tally on cruise ship bookings, weekend holidays, campervans, lunches and dinners... there's a lot of money still sloshing about in old trouser pockets. And outdated ml like on homes only preserves the diminishing wealth effect. There's a long way to go before those who own their own homes realise they are not millionaires and never were.
If 'moral suasion' fails then eventually OCR will do the job.
That's the point: the real estate "industry" and the press they fund are still trying to convince everyone that the OCR raises can be ignored and everyone can carry on as normal. The couple of page press releases 7 times a year and a few interview are no match for this so they need to raise rates further (until most people start believing they could keep doing it until it actually hurts them). Maybe the RBNZ need to have some back room meeting with the real estate companies and explain to them what's in their best interests.
Here's my unsolicited opinion/advice: to all of you who want the rate hikes to stop go out there and start convincing people to stop spending, start saving and pay down debt and maybe do it your selves. Tell them not to accept price increases and walk away. This an easy form of deflation, not telling everyone: no one can stop the party you're too important and they will capitulate (the vocal ones could be considered responsible for some of the rises by the end of this).
I'd say there's every chance it's going to end in tears, not only for the economy but also for lots of kiwis as interest rates rise, property prices decline and the economy tanks. This govt. has borrowed billions, lots of it squandered on boondoggles like the Harbour Bridge debacle, Pike River, the dopey gun buyback, 3 Waters and light rail.
Looks to have been about 2.53% on average
https://www.interest.co.nz/charts/interest-rates/fixed-mortgage-rates
As a property valuer without a vested interest in boosting property prices, I welcome this move by the RBNZ. It disturbs me that a generation of kiwis have no understanding that property prices can, and should go down after a strong rise.
We should have had a strong correction after the GFC but because of manipulation of the system it didnt happen. Following the arrival of Covid, interest rates were lowered too far too fast, even though Treasury warned that the longer term consequences would be painful for low income people and fisrt home buyers.
The NZ residential market is still overvalued by around 30% but I am guessing that further manipulation by those with a vested interest, it may not fall to that extent.
I am constantly analysing the market and expect further weakness throughout this year, and unless the world situation worsens further, we should be expecting mortgage rates around 6% for years ahead, not months.
That depends on a lot of variables- usually it drops for a year or two, then stays flat for maybe 2-3 years, then slowly picks up. However, the world is no longer stable or predictable so I wouldnt rely on property as a sure bet like it used to be.
The smart thing these days is never over-extend yourself, and buy property for the right reasons, that is, for somewhere to live. I am concerned there are a lot of kiwis with little else but their home. If youre not freehold with a solid kiwsaver at age 50, then expect to work until age 70 at least.
ABSURD.
RBNZ let interest rates go too low and provided excess liquidity and now they are cranking interest rates too high as they stuffed up.
Also by removing all house prices, (we only have rent and new build costs now) from the CPI, interest rates swung too low and will now swing too high. housing is the biggest consumer good.
And they loosened the LVR restrictions.
People will lose their jobs and mortgages won’t get paid due to the RBNZ incompetence.
They need to be sacked.
Australia's OCR at 3.6%, New Zealand's at 5.25%. Surely much the same inflation pressures apply to both countries so why the large differential?
Annoys the heck out of me that Orr was talking up negative OCR's two and a half years ago but is now hell bent on lifting it as high as he can.
I'm retired with no mortgage (and no investment properties) so it doesn't affect me, but I feel for young families with big Auckland-sized mortgages. Orr and Labour have been a disaster for NZ.
We are following the Fed not the RBA. Australia has the luxury of digging rocks out of the ground and doesn't have a massive trade deficit like we do. Without raising interest rates we'll get screwed by imported inflation. Brutal but not sure what other options we have.
But in a recession there are less buyers wanting Australia's "rocks" although I accept your overall explanation for the difference. Probably, it is Australia's massive exports of LNG from the NW Shelf that help their balance of payments position (everyone who hasn't got their own always needs energy) as much as their base metal exports. NZ used to offset at least some of our fuel (oil) imports by exporting our higher grade (more refinery-friendly) crude oil that we produced here but that is now much less of a factor as a result of the clamp-down on the petroleum industry by our green-tinted government.
For now they have a pretty healthy trade surplus, especially with China firing back up and demand around the world continuing to be relatively strong despite pretty grim expectations. It gives them flexibility we simply don't have. They are also very very good at mining those rocks.
At least that's what I think, I haven't got any firm numbers for any of this basically just going off what I've read recently.
Spending due to the cyclone will be quite inelastic (needs to happen to repair the damage regardless of the increase in interest rates). Insurers will have to pay the cost of repair as it falls at the time of the repair anyway. So although the cyclone is a contributor to inflation, the interest rate rise probably won't have much impact on cyclone-related inflation, rather set it off through cooling other parts of the economy.
A tide of change is coming and that is what you fear
The earthquake is a coming, but you don't want to hear
You're just too blind to see
Have you seen the writing on the wall?
Have you seen that writing?
Can you see the riders on the storm?
Can you see them riding?
Can you see them riding, riding next to you?
Will Mr Orr will have egg on his face when all these hikes havent and wont bring inflation down. He hasnt got any tools in the tool box to bring inflation down because he was allowed to print and double NZ debt in the space of 4 weeks. The only way of this shit storm is to crank up those money printers and when that happens the OCR will shit itself and probably have to go negative by 2025. The dollar is dead its got no value its fake
Reserve bank Act continues to be draconian measures poorly targeting inflation and spending. Very hard to see evidence for many med-hi income earners reigning in spending while young establishing families and businesses bear the brunt of it. A poor mechanism that hasn't adequately evolved with time since the measures were introduced in the 80's.
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