Whatever the Reserve Bank (RBNZ) decides to do with official interest rates this week, fixed mortgage rates will likely continue rising, ASB economists say.
Market opinion is divided over whether the RBNZ will increase the Official Cash Rate by 25 basis points (to 1.25%) or by 50 (to 1.50%) at its Wednesday review.
ASB economists are picking a 25 basis-point raise. But in ASB's latest Economic Weekly, senior economist Mike Jones says "the most important point for many" is that fixed mortgage rates will likely rise regardless of the RBNZ decision.
"Last week’s big lift in wholesale rates adds to the upside pressure. The RBNZ decision is probably more about the timing," he says.
In Kiwibank's latest First View publication, chief economist Jarrod Kerr, senior economist Jeremy Couchman and economist Mary Jo Vergara say they expect a 25 basis point rise to the OCR from the RBNZ.
"If the RBNZ delivers a 25bp hike come Wednesday, we'd expect to see a sharp reaction in financial markets," they say.
"Interest rate markets have front loaded expectations for 50bp moves and have a terminal rate of 4% in this cycle. Market pricing is well above the RBNZ's OCR track which implies a terminal rate around 3.35%. A 25bp hike would underwhelm markets, and see 50bp moves being priced out of the market."
They say with a 25bp rise they would expect to see a 10-to-20bp fall in wholesale (but not retail) interest rates.
"Conversely, a 50bp hike would further fuel the relentless push higher in interest rates. A decision to hike 50bp in April is likely to be seen as a decision to hike 50bp in May as well, and again in July and August. We simply don't see the need to prescribe such an aggressive policy, given the weakness in confidence. Therefore, into the announcement we'd position for a slight fall in interest rates and a reactionary fall in the Kiwi currency (to be short lived)."
ASB's Jones notes that the world's central banks, tasked with controlling inflation, "continue to sound ever-more stressed about the job at hand".
"Turns out inflation wasn’t transitory after all."
He says the speed of the central bank "flip-around" on inflation "is frightening the life out of wholesale interest rate markets."
"Last week was case in point. US long-term bond yields lurched another 32bps higher over the week, helping drag rates in this part of the world up by a similar amount. And let’s not forget these gains are coming on top of what was already a record March.
"According to our numbers, the March increase in the 2-year US bond yield was the largest in over 30 years while the increase in the NZ 2-year swap yield was the 10th largest in recorded history.
"So, while interest rates remain low in an overall sense, the speed of the increase has been the fastest in decades."
Jones says it is therefore no wonder that people are starting to fret about the possibility of monetary policy-induced recessions.
"The fact the US yield curve slope has been flirting with inversion (10-year rates below 2-year) – a long-followed US recession indicator – has been getting plenty of attention. "
He says the risks of a US recession have probably increased.
"We think sharp increases in interest rates coupled with an energy supply shock will certainly slow global GDP growth this year. Our friends at CBA [ASB's parent Commonwealth Bank] have recently trimmed their 2022 global GDP forecast to 4.1%, from 4.5%.
"But excessively tight labour markets and oodles of fiscal cash should hopefully see most of the world avoid the stagflation nasties.
"Of our major trading partners, we think the Eurozone is the most at risk. This thanks to the continent’s energy dependence on Russia. CBA recently slashed its Eurozone GDP forecast for 2022 from 4.2% to 3.3%. "
107 Comments
It's better than 2022 but any insight into why you believe that and what would be prudent given that information?
Also, posting it a couple of times to start a conversation with a few different people is all good.
Posting the same thing daily with no new insights is just spam.
"7%" is the new "be quick"
fair cop -- was mocking 22 as i really think that they should update their forecast -- 7% is a given - how much higher is the question
I suppose i remember paying over 10% before the GFC -- and i see an even more ridiculously inflated housing ponzi than the one that caused that crash -- even more inflated stock prices - P/E ratios are through the roof - a Bitcoin bubble similar to tech stocks but with less real value behind it - and worst of all this time with massive inflation pressure that will stop the previous and only solution of mass printing presses and QE -
i took the 2.99 for five years last march with ASB -- based on listening to the more astute and way smarter people on here who convinced me -- that rates could not go any lower and if they did it was marginal at best -- and that the inflation pressures - supply chains et al were very real
If you were paying 11% for a mortgage in 2010 then it must have been because you fixed it long term prior to the GFC in 2008.
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates
Wow! Guess what mortgage rates actually were in 2010... You guessed it, it's your favorite number!!!
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates
Is your username 2022 so you remember what year it is?
"Demand and house prices started to fall in early 2008, as the global crisis spread to New Zealand. During 2008, house prices fell 4.8% (-7.9% in real terms)."
https://www.globalpropertyguide.com/Pacific/New-Zealand/Price-History-A…).
I don't doubt that you were paying 11% when everyone else was paying your favorite number.
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates
FYI, upvoting your own comments is pretty pathetic.
I have noticed your ongoing self adulation HouseMouse over your excessive commenting since I have been on this site. Clearly you are butt hurt because you are not the centre of attention in this comment section. You have now been caught out using another fake account to give yourself more votes, I am embarrassed for you. You are the one who has now lost all credibility !!! You failed to make a guest appearance yesterday under HouseMouse, Oh what a mistake. You have left a thousand signatures, you idiot.
Now that it is you HouseMouse that has been chasing me out of Fear and Jealousy I would like an apology for your actions.
Or has the Cat got your Tongue ??????
The forecast is fine, the posting it on every page is just spam.
I'm with the mouse, I think we will continue to see rises this year and then when the recession hits we will drop down again (albeit not to these levels).
2.99 was a great deal, well done!
Mine is split into 4, a big chunk is offset then part rolling over in march next year then the year after and the year after that.
It's a great time to be hammering down the mortgage. At our current rate it'll be gone in 5 years.
Kpnuts what made you buy last year? The rate was great but the house you purchased will lose 40% too 50% over next few years.last year’s prices will be remembered as year of FOMO and crazy over valued housing. Could take over 10 years for prices to get back to 2021 levels
I think 2022 is participating in a little light trolling ;-). In his defense, many commentators on this site have also engaged in that, so we shouldn’t complain too much at 2022.
2022 if I recall did you clarify that you are suggesting that mortgage rates would be at 7% by the end of the year (rather than the OCR)? If so, I think you could be loosely correct. I can easily envisage the 2 and 3 year fixed, being around 7% if the OCR is at 2.5-3% by the end of the year.
There will still be those who get cheaper offers (pristine collateral, secure job and good credit history), but I imagine highly leveraged investors and FHB might get offered 7%. Depends on the pricing of risk, not just the RBNZ. We need to remember that a lot of people took mortgage holidays, so that may also give lenders pause.
I actually think 2022 is about 4-5 other posters that seem to pop up, make the same post along the same subject in multiple discussions for a few weeks, then strangely never post again. Remember when we had someone counting off the number of houses for sale every day on trademe?
But yes, number go up, number go down. Better questions might be, "will the RBNZ make substantive changes, or will we just keep seeing QE being used to juice economies"? Because it seems pretty clear, the economy will go bust, stagnate, then money printing happens again, house prices go up, people get sadder.
Hi gingerninja - Sorry for the late reply, went for a cheeky little surf. Yes, when I talk about 7% interest rates this year ( Guaranteed ) I am referring to mortgage rates, not the OCR. And yes I like the way you mention what not many others are saying and that is "Depends on the pricing of risk, not just the RBNZ." 7% rates is very easy to believe, unless people have vested interests. Its about emotional Intelligence ( EI ) .
It was an unexplained guess the first time he commented and every subsequent one has just been taking up space where otherwise considered comments could contribute to debate.
I don’t need the particular advice he’s giving (fixed our debt for 3/4 yr split last July at about 3%).
I am only trying to help you Kjeldorian . And you should be thanking me . I know its there inside of you deep down. Let it out brother.
I have something for you to watch that I believe you will find very interesting and informative that is not about 7% interest rates.
Tim Mordaunt. Have you ever thought about the Streisand Effect.
Tim Mordaunt? Barbara Streisand? Have you gotten sick of shouting "7" and you've decided to play Guess Who?
You haven't provided any information to suppress. You've spammed 7 all over this website and pretend like that's helping people. It's not, its just annoying.
7% = Be Quick
I'd like to see basic needs to be affordable for everybody.
Affordable means that you can get them just by working more or less hard, in a fair amount of time, with a fair amount of sacrifices.
Today that is not true.
If some people must fail to achieve that I will consider it a collateral damage.
"If some people must fail to achieve that I will consider it a collateral damage."
The problem is you're going to take down an awful lot of recent home buyers who had nothing to do with spiking prices and just happened to be born at the wrong time. As usual, letting one generation cop it seems to be how NZ solves its problems - never minding the boomers and Gen-Xers who caused this whole mess will just cash out and carry on in their own little world in which they should have everything and everyone else should pay for it.
We could all succeed together? Again the Kiwi Tall Poppy attitude showing itself here, cut down those that are doing well?
I think bringing back unions and creating a high wage economy would go a long way in solving the problems. You look at Aussie, everyone earns a decent wage and can have a decent lifestyle. I also think Kiwis need to reside to the face the 1/4 acre dream is gone, and we need to become a modern society that promotes high-density living.
Many peps don't consider me a Kiwi.
Tall Poppy attitude against those that are doing well... you cannot be more wrong.
Define "doing well", please.
The victims will be not the ones "doing well", but the ones that felt in the narrative of "house price goes only up". The victims of every Ponzi are the last ones entering.
About Aussie... " everyone earns a decent wage and can have a decent lifestyle " <= I don't see that, any stats you are referring to? I only know that 1h work costs more in Australia and houses cost comparatively a little less in average. This doesn't put them in a much better position than NZ. Look at how prudently (cowardly) they are looking in OCR increases.
"I also think Kiwis need to reside to the face the 1/4 acre dream is gone" <= c'mon don't be naive. Most kiwis just dream a roof without inspections, with nad no no-pets conditions. The 1/4 acre is gone, you live in the past.
We need to become a modern society that promotes high-density living. <= yes, correct, and the consequence will be that offer will be more than demand.
Tall poppy syndrome is alive and well in NZ
"Doing well" depends on too large a volume of inputs. Age, income, savings, home ownership, career, family.
The victims will be the ones who are forced to sell. If you bought at the peak but don't have to sell and have the income to service the mortgage then you'll be fine in the long run.
I agree with Aussie points
1/4 acre dream is alive and well, just look in the comments section. There is always mention of "shoeboxes" or "shitboxes"
Yeh, no. I was referring to myself and what I said. I was not "tail-popping".
As said, I don't think the ones "doing well" will be hit too much, depending on how you define "doing well"
Buying an house at the top of the market does not mean "doing well"
About the ones forced to sell. Yes, those are the big losers, mostly. But there will be other side effects. I am just saying that you can't get out without damage.
About the nature of the house dream, you might be probably right. Just... is not my experience.
False dichotomy.
Continuing to bail out and enrich older speculators is not the only way to help recent FHB and current renters.
For example, the Aussie New Libs' plan is specifically targeted to enable the lowering of house prices while helping renters and FHB most badly affected by governments' and Reserve Banks' absurd pumping of the property market and resultant wealth transfers, without simply continuing to bail out and enrich speculators as has been the approach to date.
At this point, not wanting a crash is also wanting people to fail. It's a case of pick your poison. But in any case, I don't think most people want anyone to 'fail.' There's a difference between wanting an outcome that you think is necessary for the good of society and the economy while realizing that that will be bad for some people, and actively wanting those people to fail. I don't actively want business owners to fail, but I also think that it's necessary that some businesses be allowed to fail because if they are not (due to government intervention, for example) then that's bad for society and the economy.
Because for years we’ve been treated like second-class citizens for sitting on the side, waiting for this speculative bogan roulette to collapse. I don’t want anyone to fail, but the desire for a sane property market far outweighs any sympathy for those who unsustainably levered up to cash out do-nothing boomer property beneficiaries.
I agree. You can forgive first home buyers who felt they had no choice but to participate in the madness, or you can say, it was everyone who paid too much who are to blame for this mess. And that includes recent buyers.
Sick of treating full grown adults like poor victims who have no control over their own finances. Nobody was blind to this ‘housing crisis’, we’ve been calling it that for years and it’s been described as madness for years. So if you decide to participate in it, then it crashes, you have nobody to blame but yourself!
I can never understand, why house prices have been allowed to get so out of touch with reality that a crash is now necessary, and I certainly don’t won’t to see people lose their homes - utterly heartbreaking.
Saw this house for sale on trade me with price reduced!!! Surely it’s utter madness to pay that sort of money for a square box with some nice fittings and superficial room dressing on a postage stamp section. There’s gotta be a better a better way to live than what’s being dished up right now surely.
https://www.trademe.co.nz/a/property/residential/sale/listing/3543966606
House prices have gotten to this absurd point because our policy approach to housing, zoning, tax and money has encapsulated entitlement mentality. It has performed as a wealth transfer scheme to those who got access to property affordably. It's living off the wealth of preceding and succeeding generations.
If you want an insight into the entitlement mentality of the generation that benefited from that wealth transfer scheme, take a look at the last five columns here: https://maryholm.com/categories/nz-herald-qa-column/
Full of people getting NZ's most generous non-means tested benefit complaining that they have to fill in forms about their work history in order to get it.
Most people simply want a fair go. They see the chosen few getting more and more of the pie and it causes a lot of consternation on struggle street. "What about me, it isn't fair ... " as that one hit wonder song goes.
Meanwhile the chosen few promulgate the myth of "the Tall Poppy Syndrome" - insinuating that the rest are jealous losers who are not as smart and deserving as themselves. 50% of the worlds 80 richest people inherited their wealth.
I think you are right.
They, as everybody else, think for themselves and their families first.
There are caveats, anyways, as long as 1 person = 1 vote.
By making unhappy (or desperate) enough people they risk "populists" to became influent.
As long as the ball is passed between Nat and Lab, all good. But... what if not?
The continuing rise of the fixed rates is really going to start hurting those who have recently taken out large mortgages and their current fixed rate deal is coming up for re fix soon. It looks like the bank's will be increasing their rates regardless of OCR movements.
https://www.nzherald.co.nz/business/ocr-preview-reserve-banks-big-call-…
https://www.interest.co.nz/public-policy/115288/nziers-shadow-board-sha…
WHY is media discussing, do they not know what an average person knows that Mr Orr will not raise by 0.5%.
WHY the discussion, may be need something to talk - time pass otherwise what sort of journalist and experts are they when are not able to read writting on the wall that Mr Orr will raise it by 0.25% and even that as is forced by economy.
Good for the rich pricks on here, their nest egg goes up, while homeowners have to s**t out money they dont have, and those on benefits struggle to find jobs, and wages fall right thru the floor for everyone else.
Hope the term deposit rate increase, cheap lattes and nest egg interest is worth it. Because the barista who serves your frappachino has to find an extra $200 for their rent/mortage and will probably end up in his/her/their car.
Oh well the property investor types say that we will just inflate away our exceptional high debt levels for those with big mortgages/rental portfolios.
Will be a walk in the park (sarc).
Everyone’s wages will just increase at the inflation rates so nobody losses…win win…
Apologies....yet that was 50% sarc...
But then again wages never keep up with inflation then the quality of our lives must be deteriorating rapidly because our purchasing power would be being destroyed on a daily/weekly basis. This is certainly true at present. But has it been true for your lifetime Carlos? Do you experience a better quality of life now than what your parents did, or what your grandchildren experience relative to what you experienced as a child?
If your wages never stayed up with inflation, then your lifestyle would have to be substantially worse than your parents during their retirement. If not, then something strange must have happened..
But what could it be?
Exactly. The reality is NZ has declining real wages. This just isn't shown on paper because the Pseudostatistics out of Stat's NZ paint a rosier picture of the CPI than what it actually is in reality.
I personally wouln't expect anything else from a country who's economy is based in some sort of illusionary wealth effect generated by ever rising house prices. With no respect whatsoever to the concept of the neutrality of money.
7% really worries me as a FHB who bought responsibly two years ago ($430k mortgage). The jump from 2.9% to 7% is going to remove my ability to save any money at all. Full on hard breaks for spending, I won’t be doing any shopping and hoarding any money I get. I imagine other ls will be the same.
I empathize, IKiwi. At this point it feels like my whole life will be spent scrimping, despite earning what should in theory be very good money (first as a student, then while saving for a house, now while paying off a house and trying to save for retirement). It's not that I want anything fancy - I'm not after a boat or an overseas holiday or something really extravagant like a kid. But I would like to be able to afford a car so I could visit friends and family more easily (I had to move away to be able to afford a house).
If houses weren't so crazy expensive, and people only had to take on 3-4x income in housing debt....(which is the historical affordable standard)....then most of these issues would be more or less non-existent. Yet we have foolishly decided that pumping house prices is the best way forward. A principle of life is that as individuals and as societies, you reap what you sow. We, through self-centered and short term thinking, have planted the seeds for financial misery in the future - just so that one part of society (mostly boomers...no offence boomers) can retire during the everything bubble with maximum wealth. And it appears to be to hell to everyone else around them. Elder Gen X'ers have done quite well having been along for the ride with the boomers. Non-asset owning millennials/or millennials with large mortgages are left to carry the burden of the selfishness of the generations before them.
But I certainly feel for your circumstances....its not particularly fair....you might be burdened with the pain of higher interest rates in the future and the debt burden, while other people have had the wealth transferred to them for doing more or less nothing (those who are debt free or close to it).
Its a crazy situation, and generations with greater wisdom (think greatest generation) did the opposite to the generations that followed them. Yet their children, some how, missed the lessons of wisdom, humility and society over self.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.