Is it time the Reserve Bank (RBNZ) stopped giving us specific forecasts of where it expects the Official Cash Rate (OCR) to be in the future?
That might sound like a strange thing to suggest, given it would seem helpful that we currently get quite a detailed picture of where the RBNZ sees rates going. But you know what they say about good intentions...
I was prompted to opine on this subject by reading a commentary by HSBC economist Paul Bloxham questioning the usefulness of the RBNZ's forward guidance. He makes some good points.
It seems to me that the OCR forecasts instead of just being a guide are in themselves becoming a key driver of our retail interest rates. Therefore, far from being helpful, I think the forecasts - by being so specific - could be counter productive. Yes, I get the idea of providing some view of what will happen in the future - but to give it in specific numbers seems too much to me.
I increasingly wonder if, by indicating explicitly where it sees future interest rates heading, the RBNZ is opening the door to adverse moves in actual rates and harmful distortions.
In the grand scheme of things, this may seem like a minor point. But I don't think it is. I think the issuing of these forecasts is becoming an unhealthy focus point.
And I also think as we start to move down from the OCR's recent 5.50% peak, the chances are there for even greater distortions.
The RBNZ would presumably need some convincing to change its mind on this issue.
This is what RBNZ Governor Adrian Orr said on the general subject of forward guidance this week in response to a question at the post-OCR review press conference:
"Central banks that provide forward paths wish they didn’t those that don’t wish they did. There is no known practice. We have had a longstanding practice here of putting our best foot forward out, subject to people understanding the conditionality. When the facts change the decisions change and that’s what we are working through always. That has worked very well for us. I’ve heard central banks who do scenarios wishing they didn’t do scenarios because everybody focuses on that one scenario. So, it’s horses for courses."
Well, okay, fair enough. But I would argue the potential is there for the RBNZ's outlining of an OCR rate track as explicitly as it is currently done to NOT work well in future.
As this is all bit complicated, I'll try to explain my case carefully. First, some context:
At the back of its quarterly Monetary Policy Statements (see page 51) the RBNZ publishes, along with several other economic forecasts, a forecast for the level of the OCR over the course of the next three years.
As indicated by the above Orr comments, our central bank is not alone in providing such forward guidance. The US Federal Reserve's Federal Open Market Committee (FOMC), for example, has been doing something along these lines since 2012 with its so-called 'dot plot' graphs. But without going into all the detail, the FOMC forward guidance is rather less specific than that provided by the RBNZ.
It may be of some surprise to you that such explicit OCR forecasts in their current form have appeared in RBNZ MPS documents only since November 2016. Prior to that, and from 1997, the RBNZ had run a forecast of the expected level of the 90-day bank bill rate. This effectively served as a 'proxy' for the OCR, given that you could subtract 20 or 30 basis points from the rate and 'get' an expected OCR level.
So, anyway, between 2016 and early 2020 there wasn't 'much to see here' with the OCR forecasts as inflation was virtually non-existent, so interest rates didn't need to move from very low levels. Then in March 2020 in reaction to the developing pandemic, the RBNZ slashed the OCR to 0.25%, pledged to keep it at that level for at least the next 12 months and subsequently therefore stopped making any forecasts about the OCR till the May 2021 MPS. So it was that in May 2021 the forecasts came back with a hiss and a roar. And an enormous market impact. Those forecasts showed SIX rate hikes over the next three years. Once the market digested that information, mortgage rates started quickly shooting up - before the actual OCR had even moved at all.
Just over two years ago now, I wrote on this subject, and said that we had now developed this thing called the 'Future OCR', and it was this 'Future OCR' - through the RBNZ forecasts - that was driving market pricing of current interest rates (including mortgage rates), rather than the actual OCR. The actual OCR was lagging behind as 'Future OCR' headed for the moon. In effect mortgage rate rises were being based on expectations of where the OCR was going to go, rather than where it was.
Now, there was a certain effectiveness about that as we were on the way up - at least at the start of the OCR hiking cycle in late 2021. The markets were driving up mortgage rates even before the OCR was physically shifted. However, I do wonder if this chasing of the 'Future OCR' led mortgage rates to go higher than they might have needed to be and also if in a strange way this dynamic also led to the actual OCR ending up higher than it might otherwise have done.
Everything goes up
It's difficult to prove a case on this, but the fact is that expectations of the future level of the OCR became quite similar to the dreaded 'inflation expectations', whereby people expect prices will go up, so they put THEIR prices up, hence fueling real inflation. I think we saw a bit of the same behaviour with interest rate pricing. Everybody was pushing everything up - and that might have even fed back into upward pressure on the OCR itself.
The RBNZ is always quick to say that the OCR forecasts are not a prediction, nor do they indicate specific levels the RBNZ wants the OCR to reach. Rather, the forecasts are a kind of mechanical production that comes out of all the various economic variables the RBNZ throws into its forecasts. Imagine it as a kind of: CPI inflation of X%, plus economic growth of Y%, plus unemployment of Z% equals an OCR of XX% equation.
The fact is though, that if you put a specific figure down on a piece of paper it gets taken seriously and so in the short term the markets react to that. If the RBNZ doesn't want us to take those very specific future OCR forecasts as a yardstick to measure current market rates against, then maybe it should just keep those forecasts to itself.
It's fair to say that the OCR forecasts are always 'wrong'. For example, just before the RBNZ slashed the OCR in 2020, the February 2020 MPS forecast an OCR of just under 2% for March 2023. Well, as we know, the actual level of the OCR as at March 2023 was 4.75% and still rising on its way to 5.5% by May 2023.
However, there's no doubt the OCR forecasts set the tone for the direction in which the OCR travels.
I think the forecasts have become too much the centre of attention. And I say that, perhaps somewhat hypocritically, as someone who immediately went to the back of the August MPS when it was released this week to find out what the new 'OCR track' was - because I knew that' s what people would want to read and also what would be the second most important thing for the economists to digest - after they had seen what the actual OCR number was.
An unwelcome distraction
So, I think the 'Future OCR' has become an unwelcome distraction. More than this, though, I think the forward guidance in its current form has switched from something that is a 'guide' and has become almost a marketing tool. And if it isn't a marketing tool as such now, it certainly has the potential to end up being as such.
After the OCR reached what became the top of the hiking cycle at 5.50% in May 2023 the RBNZ was in the interesting position of probably having to suggest that the OCR would be 5.50% for some time. But the question was then whether the financial markets were going to start second-guessing and knocking down wholesale interest rates, which could then lead to falling mortgage rates - something the RBNZ did not want till it felt inflation was under control.
So, we then started seeing the RBNZ putting into the OCR forecast rate track the possibility of future rate rises. It gets complicated because of how its done, but in the November 2023 MPS the forward OCR track showed a 75% chance of another hike. This was reduced to a 40% chance in the next MPS in February 2024, but then increased again in May 2024 to 60%.
Frankly that's all been very odd. It has had the effect of keeping retail interest rates more elevated than they might have been. But to what extent has the OCR forward track been a 'guide' and to what extent has it actually been driving monetary policy? And is that what we really want?
I see potential problems ahead now that we have reached the top of the hill with the latest interest rate cycle and are starting to move down again.
Prior to the RBNZ's OCR review this week the financial markets were pricing in an OCR of 3.25% by the end of 2025. The RBNZ has now put out a new OCR rate track in its August 2024 MPS (page 51), which shows the OCR dropping to under 4.0% by the end of next year. The financial markets are now pricing in an OCR of just over 3.0% for the end of next year.
Crossing swords
So, even after the RBNZ changed its forward path dramatically, the markets are still undercutting it and see about three or four more cuts than the RBNZ does. And I reckon this might just be the start of it as banks now start to increasingly play chicken with each other in reducing mortgage rates possibly rather quicker than the RBNZ wants. And what if the rates start to fall fast enough that the currently moribund housing market starts to wake up again? We are only ever a heartbeat away from a FOMO (fear of missing out) market in New Zealand. The RBNZ would need that like a hole in the head.
What do I suggest?
I say drop the OCR forecasts. The RBNZ has plenty of weapons at its disposal to keep the market informed without needing to be so arbitrary as putting up future OCR numbers. I think the OCR track has become a major distraction and in an unhelpful way.
The fact is that by putting up numbers of the expected level of the OCR in such an explicit way, the RBNZ is baking in expectations of where interest rates SHOULD go. And I think that can only lead to increased volatility, with potentially some adverse moves in retail interest rates that could be avoided.
What would happen if there is no such specific forward guidance? Well, the RBNZ can of course 'guide' the market in other ways without needing to put up numbers. If the forward OCR guidance were to be removed and the RBNZ then found itself in a situation where it was unhappy with the market's pricing of interest rates, what would it do? Well, it could simply physically move the OCR of course. That way we would once again have interest rates controlled by the actual OCR and not the 'Future OCR'. Wouldn't that be a good idea?
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105 Comments
HFL is here to stay, along with consistantly resurgent inflation.
Deglobalistation, ongoing wars and weather related resource shortages will ensure HFL.
Plan accordingly Debt Junkies.......the old reliable money grubbing system of Debt Stacking assets, is now broken beyond repair.
Try a productive money grubbing system. Good idea NZ!
Agree.
The risk associated with carrying lot of debt (used to purchase assets that appreciate as the way to make money) is increasing.
It's a global issue and feels like we are one step away from another bubble like AI bursting and collapsing the ponzi.
If feels like there is now a consensus that the debt issue is too big to address now so we have to let it roll. The problem is that nobody is in control and can stop it collapsing... and also a lot of bigger players are now 'shorting' the debt laden businesses (and currencies) and have a financial incentive to see them collapse.
I am increasingly hedging against AI. In case.
Communications from central banks are a tool in themselves, potentially as powerful as the actual rate changes.
If they expect higher rates to dampen inflation then they're going to beat that drum right up to the point they change course, not before. They're expecting the market to do much of the work for them.
About the only thing they have to be concerned about is eventually no one will take what they say even remotely seriously, making forward guidance of no use to them.
‘Communications from central banks are a tool in themselves, potentially as powerful as the actual rate changes’
Only if people believe what they say and every time they lie (or perhaps I should say it is revealed that they don’t really know what they are talking about), they lose that credibility (eg inflation is transitory, rates will be low for years, rates will now stay elevated until 2025, nek minut rates are being dropped in 2024..)
Central Bankers Wandering in the Woods
While the Fed has suspended the “zero interest” part of its experimental policies, it has been extraordinarily slow to reduce its balance sheet to a size that would allow it to manage interest rates without hundreds of billions of dollars of annual public expense. The Fed has done only half its job, and seems insistent on maintaining a ruinously bloated balance sheet. The real problem is that a decade of experimental distortion encouraged unprecedented speculation in every conventional asset class, not to mention fringe speculation in assets detached from any standard of value, including meme stocks, pictures of bored monkeys, and digital Pokémon posing as “currency.” As with every similar episode across history, the unwinding of this bubble in the form of financial crisis is already quietly baked in the cake.
In defending the deranged and experimental notion of an “ample reserves regime,” the Fed is defending continued misalignment between monetary aggregates and economic output. It is defending exactly the element of monetary policy that contributed to a decade of yield-seeking financial speculation, forced $8 trillion of uninsured deposits into the banking system, encouraged the passive acceptance of enormous government deficits, leaves in place the fuel for future episodes of inflation, and has already produced trillions of dollars of losses both in commercial banks and in the Fed itself – invisible because the assets are not marked to market. Even as the Fed battles the flames of a fire-breathing dragon, it insists on keeping that dragon as a house pet.
Altsims... I dont think the RB is 'baking in' anything...rather its looking to achieve stability . I think the projections aid stability ... the forecasts are useful for financial institutions as a spread of where things may or may not go based on recent data. They are not set in concrete . This latest move is not outside of any spread projection. Folk are free to ignore the RB and take their chances.
I just don’t get why so many people of this site knock people using debt to buy assets. It is up to the individual to manage their risk and debt. It has nothing to do with anyone else. Looking after one’s own financial situation heading to retirement takes a lot of burden off the taxpayer, when people can pay towards their healthcare and aged care.
Because a huge percentage of the population live from week to week, they don't have money to buy assets and they get pissed off at everyone else who can. Dangerous situation of course, its a balancing act from the rich, you get enough people thinking they deserve more and that's how revolutions start. Sudden high inflation is causing all sorts of problems and a number of counties have gone over the edge recently with more to come.
"I just don’t get who so many people of this site knock people using debt to buy assets". Have you been the owner of Debt backed Assets when the asset re-sale price falls substantially? If you ever have, you'll know the answer to your question already. (The Resale price of any Asset is subject to Market Revaluation - what the next buyer can pay to take it off your hands if need be; the Amount of Debt underpinning that Revaluation is Fixed)
And the worst Debt Backed Asset market? Margin Calls. That's why economic collapse frequently starts in the share markets - and spread to other assets, like property holdings, that have to be sold to meet other losses.
I have owned property when there have been substantial price falls but I have made sure that I have held on and bought more at the lower prices. The secret is to manage them well and ensure you have enough serviceability. I still don’t understand why people on this site knock people doing this. Envy?
Not so. I have used debt to aquire productive assets. But income covers and pays off debt. My dislike is it has got very out of control due to the tax treatment...aka no tax. Look at the bigger picture for NZ.
It has bloated prices due primarily being a capital gain chasing model. The stupid prices are driving our best future tax payers overseas. With an aging population increasingly burning tax this is very bad.
It's driving massive inequality. Same as industrial age England and France. One exported people elsewhere, one had a revolution and invented the guillotine.
It has made banks lazy and uninterested in lending to businesses. Less people are starting businesses, equals less higher paying jobs.
Asset price to income is very out of balance. Driving future tax payers overseas. Raising and educating youth to have them pay a lifetime of tax elsewhere is plain stupid.
Using debt to supress income tax dosent help Govt people try to survive. Eg police, nurses, teachers. All under funded and struggling. Perhaps we just don't need them...
It relies on inflation to bail out the interest only speculator at the expense of everyone else. Take the greed goggles of and look around at the damage from inflation.
It's a model that increasingly sends billions off shore to the banks owners. Every year a greater part of remaining workers income and tax is enslaved to global profit. The opposite of "winning"
I could go on.
Summary islts out of balance for the needs of NZ. If it can be done with more tax paid equity requirement and elimination of negative equity and cashflow tax avoidance models making it pay tax like a normal business then go for it. For that to happens rents have to tripple or prices have to halve.
Unfortunatly it is hard for investors to see past themselves...and here we are today.
Hard manual work, get paid, pay tax on that hard-earned income. No complaints if the tax is reasonable.
Save money by living tighly with no treats, use the savings to buy a house. Then when the house is sold pay tax on the heard-earned profits. That is also acceptable. Where I'd grumble is paying that tax on the inflated value of money.
My specific case: house bought 18 years ago is now could sell for over triple we paid for it but normal inflation has meant money today is worth half what it was. So I'd accpt paying tax on any profit beyond double the original price.
It has made banks lazy and uninterested in lending to businesses.
If you have a business model that can service the debt, then it's normally not a problem.
The bigger problem is most new businesses fail, so unless you have either equity or proven profitability, they're not very interested.
Banks may have become lazy and uninterested, however if you require an asset class to back the ever expanding 'money' supply in the absence of a comparable growth in output asset values must increase....and unfortunately RE (esp residential) is one class that has the priority of the payer (food is not an asset class)
"I just don’t get who so many people of this site knock people using debt to buy assets". Have you been the owner of Debt backed Assets when the asset re-sale price falls substantially? If you ever have, you'll know the answer to your question already. (The Resale price of any Asset is subject to Market Revaluation - what the next buyer can pay to take it off your hands if need be; the Amount of Debt underpinning that Revaluation is Fixed)
This is assuming someone has to sell.
You could equally use the same argument about owning a business and your figures are going backwards because of whatever's going on in the wider economy.
Don't own a business anyone, sometimes you will lose money.
And the same applies.
Debt will destroy anyone who has it that cannot afford it. And when we get to a situation where Capital Gain is the main driver of asset speculation, rather than productive income (the costs are covered by the business; if it's a rental property, that's secure rental income covering all the costs). In essence, your comment tells us a lot about how we now see Debt today. It's seen simply as a Tool, and not a Risk." Property always goes up!" and "If shares fall, just hold onto them. They'll be higher tomorrow!" being the biggest drivers of ignoring Risk. And when borrowers ignore the Risk, that's when trouble can follow.
Yes exactly this - see my post below. In a falling rates environment debt has been seen as a very good thing, not as a risk/liability. If rates are flat or rising then you need high general inflation so that the income of the asset is greater than the increased/increasing interest expense. But if there is high general inflation then interest rates will go even higher making the debt even more problematic!
You can make this argument about just having a job/living.
The consequences get amplified if someone's holding a lot of debt that's hard to service, but in an unstable, high inflation environment, most everyone is impacted. Arguably worse for people who can't even access the debt.
It's a tool, and a risk. The risk is what helps underpin potential (not guaranteed) upside.
The safely safely approach can be a more marginal proposition, the odds of people getting any sort of financial independence just by going to their job and building a savings, gets slimmer everyday. You will likely need to take some level of risk (not exclusive to housing).
So it's really up to an individual what level of risk they can afford/put their name to.
Only if the individual is really liable if the risk goes bad - but we haven’t witnessed that in NZ in my lifetime as risk has always been bailout by central banks or government. Leading people to believe that debt is always your friend. And if you do fail, just take a few years out then start debt stacking again until the next failure!
‘Funny mindset when you're a sharemarket and Reit Meistro’
Who has never gambled with debt or derivatives. And has sold out of positions when the underlying companies decide to take on too much debt relative to their incomes. Ie when I disagree with the risk (debt) the company decides to take.
"people getting any sort of financial independence just by going to their job and building a savings, gets slimmer everyday"
Precisely. It shouldn't be that way, but now it is. Didn't we all have grandparents; grandad working 9/5, grandma at home looking after the grandchildren from her 6 children. Owning their own home by 40, and having a small boat moored in a nearby harbour to while away the spare time (or the like). Yes. And that's gone. And we've replaced it with, "It's not about your day-job. It's how much you can borrow to speculate on, whatever, to get ahead". Which is makes sense, until it doesn't. And that applies across the Globe. Financial Resilience (Debt as Risk) has been replaced by Financial Speculation (Debt as a Tool)- everywhere. Little wonder The System is nervous about the implications. Because they often end in the same time honoured way - War to extinguish the unpayable Debt.
Precisely. It shouldn't be that way, but now it is. Didn't we all have grandparents; grandad working 9/5, grandma at home looking after the grandchildren from her 6 children
This is apparently how we wanted society to change. "Professional breeder" has been removed as the primary vocational aspiration for females. So we now have two working parents (if they are parents), effectively doubling the labour force and acting as both a supressor of wages and a price antagonist of housing (a family with two working parents will out compete a family with one).
So yeah, it's now a lot harder to sleepwalk your way through a working career and expect much. People are going to have to more financially inventive than just going to work.
On the flipside, materially life is much better for most of us alive today, than our great-great grandparents, and likely any of their descendents also.
It is all amazingly bittersweet.
You can probably still do it if you live like my grandparents did. They had a tiny basic house, barely any furnishings, grandad rode a bike to work, nana grew and baked most of the families food. So you could almost direct 100% of your income into a mortgage.
These days we consider a house to be unaffordable if you don’t get 60% of your income left over to spend on fast food and plastic crap.
That was much more sustainable when people started work at 15 and died at 65. Now many people don’t start until about 25, retire at 65 and live to 90+. That’s quite a few years where the state has to pay for them, including paying for education/ university, nz super, healthcare, etc. we’ve swapped happiness for longevity, and no one seems to be questioning it.
Another way to look at it: How many jobs will become non-net tax contributory?
Every person that has a 65th birthday and decides to keep working is one less job that is fully taxed (the first $95k received's tax is effectively given back as Super). Couple this with working for families tax credits, interest deductibility for landlords after a period of rapid credit growth followed by the cost of debt effectively trebling, a whole lot of people relying on the tax payer to fund their lifestyles.
The shrinking pool of net tax contributors that receive zero hand outs (would be nice if I could deduct mortgage interest from my income tax) are starting to get tired of being taken for a ride.
The lies about retirement don’t help. We keep getting told you need x million dollars to retire happily (I suspect it ends up becoming a noose, trying to spend that money before it gets taken from you). As long as you have your own house and maybe $200k savings I doubt you need much more. Most people could achieve that by working and saving, but not the millions we’re told we need.
Better to put uourself in a position to strike a a better balance between work and play .. but way earlier in life. Ideally from mid 30s.. that also gives more time to enjoy with family when it counts. Then work a few days a week when older (work isn't all bad.. in fact it's healthy)
Waiting til you are in your 60s to stop work invariably means you are retiring without the energy left to actually enjoy your freedom. Whilst working too many hours when younger means you aren't enjoying your time when you do have energy to enjoy more energetic pursuits.
Might help with the superannuation funding crisis too.
While I will hopefully have a decent amount of money by then, my backup plan is:
- pay off mortgage before 65
- work part time 65-70 to supplement nz super
- downsize family home to low maintenance 2 bed unit or similar at 70
- use downsize profits to supplement nz super 70-80
- live frugally after 80
"Live frugally after 80", lol, at the age of 80 that doesn't mean living "cheaply". Many people in their 80s have to spend more on medicine and care, etc. many people at 80 still spend quite a bit even if they forgo holidays and switch to "baked beans on toast meals" only.
Might get corrected here- as I see it challenge is it becomes everyone else's problem when too many people don't manage their debt and risk well. The whole system has to adjust to the cumulative effects of the individual decisions.
Those that make conservative decisions get frustrated by those that tolerate higher risk and get it wrong.
If the bank looses a bunch in bad debts they make it up from the rest of us. If someone short changes the IRD well the rest of us pick up the tab via our taxes. If the risky business goes under the subbies and suppliers get stung.
Do whatever the hell you like Paradice, Debt load to the rafters.......go to it man.
Just DONT whinge and beg from the rest of us, when your Debt goes bad, is unrepayable or the assets collapse in value (Housing is now back -30 to -45% in REAL terns since 2021) and you are forced to sell, at massive losses.
Don't crash the banks, when the many Debt Junkies try to walk from the legal obligations en-masse. More than 22,000 souls are 90+days behind on mortgage payments currently and its growing.
There is a good argument that the situation is more perilous now then at the peak. Further falls from here start to impact the equity of many many more people. If they loose their jobs the banks may have seriously large provisions.
At the top it was only the latest entries, now the situation is more serious, hence the bleating to cut cut cut.
You can forget recourse mortgages saving anyone, not many have assets beyond their house that can be touched by bankruptcy. Still this can be managed by lower rates, witness UK Housing fell a long way after 1987 and banks where ok with negative equity, as long as payments where being made.
For the Spruikers, UK house prices fell and stagnated for a long time peak was about 1989 and it took till 1996 to reach bottom.
chart here
Because high debt relative to income (either at a household or a national level) is a risk to the entire financial system. So if I see large quantities of my fellow NZers gambling with debt by being high leveraged I know that they are increasing financial (let alone the social implications) risk of the system as a whole, primarily for their own personal gain - and who do they think will foot the bill if their leveraged gamble goes bad? They aren’t paying for it as they cannot - they demand lower interest rates while inflation is still above the RBNZ mandated level to bailout their poor investment decision, or they expect even higher accommodation supplements to be paid to renters who can’t afford to pay the high rents on their investment properties because their is too much debt against the home (and interest expense to service it). High debt is a problem for everyone. It is only your friend if rates keep dropping but in a flat or rising interest rate environment it is anything but your friend (interest expense can be greater than the underlying cash flows that determined true original purchase price = bad investment).
Ok everyone is responsible for themselves (in your view) - so therefore we should immediately cut all accommodation supplements because the government shouldn’t be paying allowances to people who should be responsible for their own decisions and life situations (you can’t have it one way and not the other).
We will see who complains more when this happens - the ‘responsible rental owners’ or the renters who can’t afford to live in this country.
(and watch what happens to the rental/housing market when the government stops bailing out peoples poor investment choices via accommodation allowance that goes into the hands of landlords and not renters).
Yea and perhaps people with too much debt would have to do the same in the current system if their poor decisions weren’t being held together by extremely high government spending in things like the accommodation allowance (and motel rooms for the poor..).
So the truth is people don’t take responsibility in the current system, nor will they take responsibility in any other. Even though your ideology suggests they should - is this argument one of ideaology or reality?
Those claiming that others should take responsibility are often the greatest recipients of the charity of others (eg bailouts and landlords receiving accomodations allowances while claiming their tenants should act more responsibly!)
I think we fail to clearly define and identify what true responsibility represents and looks like in terms behaviours and actions.
Taking risks and not dealing with the financial and social consequences of these actions appears to equal ‘responsibility’. My definition differs. And it is the mindset where there is no real responsibility (just risk taking) that has resulted in the current cluster we find ourselves in.
So the truth is people don’t take responsibility in the current system, nor will they take responsibility in any other. Even though your ideology suggests they should - is this argument one of ideaology or reality?
It's a general approach to life, it's not an assertion that everyone takes responsibility for themselves, because that'd clearly be wrong.
You're trying to say what? That people can't be responsible for themselves if there's government money anywhere near what they're doing?
Honestly, my opinion from tracking the performance of the RBNZ is they just make shit up as they go. I don't think drowning in data is of any use either, you need someone highly skilled at forward thinking and analysing the markets on where they are going, not where they have been months ago. Imagine if you had someone like Warren Buffet working for your country instead of only working for himself.
Yes and every time they mislead the people then markets believe what they have to say even less - eventually this could theoretically lead to a point where the central bank completely loses control of the narrative and the real world control of inflation and interest rates as a controlling mechanism. #gameover for the currency.
"...corporations and governments remain wedded to the notion of eternal growth.... (which) has lifted millions out of poverty, but it has hardly delivered equality. Statistics show the largesse overwhelmingly ends up in the pockets of the already-rich. And endless economic growth is inextricably tied to consumption, leaders fret about the ‘fertility crisis’. (But) there’s a desperate need for population shrinkage....we are “using nature 1.7 times faster than our planet’s ecosystems can regenerate”. The deficit started on 1 August....the ominous annual milestone that marks when humanity has consumed more from the Earth than the Earth can replenish in a year."
We pay the poor to push out babies, we pay another 100,000 people for not working, then import people to do the work needed. We hate on farmers and business people as capitalists and environmental vandals. Marvellous economic plans NZ
After a lifetime of heady capitalism are you changing your spots and turning green bw. Please advise us what are the solutions for NZ to have their environmental cake and eat it. Will you be first in going 100 percent sustainable
I asked myself a question at 38 that no man should, "There has to be more to Life than the figures on the left-hand side of a spreadsheet being bigger than the ones on the right to make a living from; another quarterly stand-alone bonus paid into the offshore tax effect bank account, doesn't there?". I foolishly answered, "There is! I know. Farming...in...New Zealand". 3 average years of backbreaking toil; another 1 bad and another 1 good, and I just about broke even after 5 years. So I sold. And guess where the return from all that misspent effort came from? Yep. The sale of the land. (NB: The correct answer to my question should have been "Are you mad! Of course there isn't".)
If you're farming what you're doing needs to marry up with your location.
I developed a farm in my mid 30s, but made sure what I was doing had the demand and local infrastructure to make it viable. Does pretty good. One neighbor tried growing nuts for 15 years or so and failed, because you can buy nuts cheap at the supermarket, and they were doing it all themselves so no economies of scale. The other grew apples and raised sheep, also not a very good return.
I primarily grew barley on what in the late 1890's was the highest yielding land for such, that had been let go as sheep land after the 1980s farming reforms. And funnily enough, the current owner still calls it 'Barley Station' even though it has an alternative use now.
I don't really know the economics of barley, but I'd assume you'd need quite a bit of scale and capital to make it work.
What worked in the 1890s, is very different today. A friend of mine who does dairy has their old man call them soft. When the old man did dairy, you could make a living off 100 cows, one milk a day. Now you need close to 1000, two milkings and accompanying infrastructure to get by.
And what if the rates start to fall fast enough that the currently moribund housing market starts to wake up again? We are only ever a heartbeat away from a FOMO (fear of missing out) market in New Zealand. The RBNZ would need that like a hole in the head.
Is our new challenge. Putting into peoples heads that the green shoots have arrived may start the ponzi too soon.
I know business owners (since ocr change) already starting to increase salaries, planning to raise prices and peoplewho are thinking we are at the bottom and starting to buy investment properties and homes. The reas will be marketing hype already.
Be interesting to watch the psychological and inflationary effect of the forward prediction of a continually falling ocr... I still rate the probability of a black swan event and nz ocr going back up and catching people out again.
The rbnz does seem a bit chaotic in their planning and reactions. Would prefer a little less long distance forecasting and instead an acceptance we can only really try to predict 1 to 2 quarters ahead.
That's because so many vendors got sick of the market and not getting decent offers.... not because the buyers all purchased a house they could afford. No point trying to get last years prices in the middle of winter.
Even Barfoot head said realistic vendors who meet the market can sell.
He did not say that realistic buyers with enough funding can buy.
The overhang is real and unaffordability for anything but the lowest 25% of houses will limit sales.
There is no liquidity in the upper two quartiles to promote a healthy functional market. Given price drops from peak and moves since 2017 (7 years average holding time) there are few in equity position to step up the ladder here, and they are often meeting vendors who are still in denial re prices if trying.
Thus the market is more about people swapping locations or up/downsizing where both sellers are meeting the market on price.
When you say listings are down, down on last month? or down on July 2023? what's your reference point , could be big difference.
HPI out tomorrow, may add good evidence why cutting the OCR (with its long effective lag) was the right thing to do now.
The market is non functional as there is no agreement on value (hence low sale numbers), that's going to get worse if sellers start to think buyers will pay more now. You do not have to agree with me but lets watch it play out, even TA is cautious re sentiment.
The NZ House market is made up of so many different things now, townhouses, apartments, granny flats a 2bd rm duplex, single dwelling on 350sq, same on 800sq. Each of these will be lifted or drop by the same tide, but as in the real tide, may be pulling in different directions around NZ.
I am still -10% Dec 2023 - Dec 2024 when I made this prediction almost everyone here was calling increases in prices.
lets see where we are in tomorrows HPI, we cannot make up our own score.... HPI is the best truth we have.
I do not think investors are seriously looking in this tax environment and at these negative cashflow levels, I think most investor activity is likely numpties right now. I am not sure how many FHBers are actually that active without mum and dads help. The test rate is what like 6.5% +2% so 8.5% right now? I think the trigger for investors is possibly cash flow neutral... so its probably rates about 4.25% for 1 year fix and I am not sure we will get lower without economic meltdown as RBNZ will have their own view on this - PLUS DTIs
A win here for RBNZ is 10 years of stagnation and no bank failures. A loss is a meltdown or Ponzi reignition.
If I was a FHBer I would want to buy just before the investors do... they protect you by pushing prices up (FBHers cannot push they have limited $$$) so I would be watching the investors, but they are trying to cope with existing debt, seems most are donkey deep and those who are not are waiting for blood.
Perhaps today a 37 yo FHBer is in less competition with investors then in the past....? I do not think two above average earners at 37 want to buy into Manurewa, I think Brisbane looks better for schools etc, most FHBers in NZ do so due to forming a relationship or kids coming along etc... For them Aussie still looks better!
I do not think that the FHBers (mainly active 1st Quartile can stop entire market lowering), unless investors re-enter or people think the market is "cheap" its lower to stagnant for longer.
The banks are being patient , but it will run out. They have to demonstrate good faith not to demonstrate the biblical patience of Job.
I have never seen a recession without forced sales. I think the banks need to ensure FHBers can buy distressed sales so need OCR down, not that OCR down will stop all forced sales. Banks would be crazy to do forced sales in the middle of winter, I think they will occur Oct through Feb. Some may not be advertised as such but will be, watch for the auction clearance rate to tick up but prices to be lower then now.
Nothing beats buying distressed assets as a smart move... if it is truely the end of the world, who cares? We have not had that panic yet this cycle. Many people say they expect price rises unless a black swan event, well on average a meltdown seems to occur about every 10-13 years and the last was 2008, its unrealistic to think we can get through 10 years of local stagnation without some international event washing over us. Right now its nothing like GFC end of times, but the deck is loaded and if it happens there will be no globally aligned possible due to geopolitical allignements.
Joe Rogan has just interviewed Peter Thiel, he has some interesting takes on the AI Boom vs say the internet dot com boom... IE its hard to value these things with any accuracy.
Nothing beats buying distressed assets as a smart move...
Part of the huge gains we made on our first home from 2017 to 2021 was buying from a distressed landlord. A shadow listing our agent put forward that wanted a quick sale.
Bought the place for their daughter/partner to live in, but they split up. Got in a tenant that was a complete nightmare, would only allow viewings at stupid times like Tuesday mornings etc.
Ended up paying $17k more than the vendor did in 2007. Sold it for just shy of 3x what we paid in late 2021.
Beg to differ, David. And vehemently so.
The mandarins at the RBNZ are employed to 'look forward' using the data they have and adjust monetary policy based on their view of the future economic state. These forward looking statements and predictions becomes the primary mechanism for us - NZ Inc. - to gauge whether the RBNZ is doing a good (or terrible) job.
As has been said many times, economies are like oil tankers. To get them to change direction around dangers and obstacles, must be done months, quarters, even years, in advance.
If you remove this requirement - documenting their current understanding and predictions - you hand these expensive and highly paid people a 'get of jail free card' where they can blames all sorts other factors, that they should have foreseen, but didn't (even though it was blindingly obvious).
... As - surprise, surprise - they are doing now. May’s hawkish stance hinged partly on incorrect GDP forecast, RBNZ Deputy Governor tells the Of Interest podcast
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