Strap yourselves in folks. It's showtime again as we prepare for the latest, plot-twist-packed, instalment of: The OCR Review - It's a Live One.
Yes, once more we are contemplating an Official Cash Rate review that is very much in the 'live' category.
This time around we've pretty much managed to skip any debate about whether there will be a cut or not. A cut is just being presumed. All the chat has been about the size. Will it be a 25 basis-point cut - or a 50?' In other words, will the Reserve Bank (RBNZ) be using a pistol? Or will it bring out the bazooka? Make sure you are in front of a computer or have your personal mobile device handy at 2pm on Wednesday, October 9 for the big reveal. Action guaranteed.
So, what can we expect? Well, some background will help.
The cut in August dropped the OCR to 5.25% from 5.50% where it had been since May 2023. And it ended a 'hiking cycle' that pushed the OCR all the way up from just 0.25% as of October 2021.
Tearing up rates to tear down inflation
It was a punitive, most rapid ever, hiking cycle, with 525 bps of hike spread across the 12 OCR reviews up to and including May 2023 (it works out at 43.75 bps of hikes per review!). And it was all about tearing down rampant inflation that peaked at 7.3% in mid-2022.
The RBNZ's goal is to achieve 1% to 3% inflation as measured by the Consumers Price Index (CPI). And it specifically targets 2%.
Inflation has been marauding outside of the 1% to 3% range since the March quarter 2021. But the the RBNZ's aim to get it back under 3% is now well within sight.
In fact as I write this, we are probably already well and truly there. We just don't know yet. Strangely enough, the inflation results for the just-finished September quarter are being released on Wednesday, October 16 - exactly a week after the very-much-inflation-oriented OCR decision is to be made. No, I don't understand the timing either.
But, be that as it may. In its August Monetary Policy Statement the RBNZ forecast that annual inflation as at the end of the September quarter would be 2.3%, down from 3.3% as of the June quarter.
Some of the 'partial economic indicators' that we have seen, including the monthly Selected Price Indexes, which measure about 45% of the things included in the CPI, have suggested annual inflation may well have come down to somewhere around the RBNZ's 2.3% forecast. All things being equal then, this is certainly pointing toward another OCR cut.
But a 25-pointer? Or a 50?
The 50-point pick surged into outright favouritism with economists just in the past week. Specifically this happened after the release on Tuesday, October 1 of the latest NZIER Quarterly Survey of Business Opinion (QSBO). The QSBO result was a weak one and some economists subsequently stressed the possibility that inflation might soon start to even fall below the RBNZ's specific 2% inflation target. Hence the need to relieve the economy of what are still very tight monetary policy settings as soon as possible.
The markets are sure - but what does the RBNZ think?
The financial markets are, as ever, way ahead of everybody. Markets are pricing in a 90% chance that the OCR cut in the coming week will be a 50-pointer.
In fact the markets are currently pricing in at least 125 bps of cuts between now and February. There are three OCR reviews in that time: the one this week, the final one for 2024 on November 27 and the first one for 2025 on February 19. So, that means the markets are currently pricing TWO 50 bps cuts before the end of this year and one 25 bps in February. Current market pricing is even giving a better than half chance that the February cut will be a 50-pointer as well.
In its August Monetary Policy Statement, the RBNZ was forecasting just three 25 bps cuts in the same timeframe. But the RBNZ has been pointing out recently that we shouldn't take its OCR forecasts too literally. And those forecasts were made in mid-August, which feels already like an awful long time ago. It seems the key thing for this upcoming decision is how much weight the RBNZ will put on the NZIER survey results. And we'll find that out on the day.
If the RBNZ's convinced by the survey's depiction of inflation as very much on the run then it may well be happy to go the 50 point cut route.
If it would prefer to see the whites of inflation's eyes it could take the more cautious path of a 25-point cut and then bring out the big guns in the final review for the year in November - assuming the CPI figure released on October 16 is supportive of such action.
I think it would be fair to say though that the RBNZ under Governor Adrian Orr has tended to take a shoot-on-sight approach, so, if the thinking is that the OCR needs to be dropped in a big hurry, then dropped in a big hurry it will be.
Could inflation yet throw a curve ball?
The escalating Middle East crisis certainly has the potential to throw oil prices and other commodity prices around. But to some extent the RBNZ would attempt to 'look through' such shocks and it may well be that such shocks as we may see don't endure for that long anyway.
In terms of recent data, the RBNZ's actually been getting great tailwinds in its inflation fight from things like, well FALLING oil prices (because they have been falling till very recently).
Oil prices and other things involving imports are categorised as being part of so-called 'tradable' inflation.
The RBNZ can't do much about tradable inflation - other than enjoying when it goes down as has very much been the case in recent months. But what the RBNZ does focus on - and can do something about - is the 'non-tradable' or domestically-generated inflation.
As per the June quarter, annual non-tradable inflation was still running at an elevated 5.4%. The RBNZ reckoned as per its August forecast that this would be down to 5.1% by the end of the September quarter. That's still a long way above the 1% to 3% inflation target range.
However, the mounting belief is that with the NZ economy now as cold as a cold thing, this domestic inflation will start to melt away quickly. But I'm sure the RBNZ would still rather prefer to see with its own eyes that this is actually happening - rather than depending on, effectively, second-hand information such as surveys.
Nevertheless, the overwhelming view is that the RBNZ will cut the OCR by 50 points in the coming week. Just don't bet your house on it though. Our central bank has a collective mind of its own. It has demonstrated that many times in the recent past.
Some hard evidence would be good
Personally, I don't think we've yet seen quite enough definitive evidence that domestic inflation is collapsing in quite the way many economists expect. Now, yes, it could well be that the September quarter CPI figures WILL provide that evidence. But we ain't seen them figures yet.
For me, a 25-point cut would be a safer option. This is New Zealand. There's already people waiting at the starting gate for the next housing boom to begin, despite what some noisy gloom and doom merchants might say. So, caution by the RBNZ would be warranted.
Having said that, I'm expecting a 50 point cut. And, yes, I was wrong with my pick before the last OCR review, so, feel free to ignore me!
Anyway, that's it. I'll leave you with some thoughts from ANZ chief economist Sharon Zollner and senior strategist David Croy taken from their preview of the OCR decision. They think the decision is going to be a close-run thing:
"...But now that most economists are calling it and the market is pretty much fully pricing it, one has to conclude that on balance the likeliest scenario is that the RBNZ will just take what’s on the table and cut the OCR 50bp to 4.75% next week. But we discussed flipping a coin...
"...Weighing it up, and taking risks on both sides into account… it’s clear as mud. We are much less convinced than the market that a 50bp cut is a done deal, but we are now over the line.
"We’ve laid out the arguments and the data here, but it all boils down to one thing: will the RBNZ now be more certain than they were in August that the job is done; that inflation will not only fall back into the band (a given, and imminent) but stay there? The economy is not as weak as they thought, with the risks tilted towards a faster rebound than they expected in August. On the other hand, they can have more confidence about the current degree of spare capacity in the economy and near-term disinflation, and that counts for a lot.
"The traditional way of predicting RBNZ’s policy decisions – seeing what they said last time and looking at whether the data justifies a deviation from that plan – clearly argues for a 25bp cut. But stepping right back and looking at the big picture, if you ask the question, 'is it reasonable for the RBNZ to be confident that they’ve done enough?' then it would be very easy to justify a 50bp cut. The market has made its mind up firmly in favour of 50bp; we view it as a much closer-run thing than that. We’ll find out next Wednesday what the [RBNZ Monetary Policy] Committee thinks."
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
175 Comments
@I.O, agreed, isn’t this the highest the OCR has been for almost two decades? At which point does it become the current norm, I understand saying it’s lower than the long term average etc, but two decades is a fairly long time to wipe out as an anomaly of lower rates
No it’s not. You should look at the history of interest rates. Same thing happened in 1930s-1940s and then we had 3-4 decades of rising interest rates - all the way to 20%.
Nothinh stopping history repeating itself.
I wouldn’t be surprised if we have 8-10% interest rates in the coming decade.
Eg we drop rates too far again now, inflation rips higher again, OCR goes to 8%, mortgage rates 10+% in 2026/2027.
This is entirely possible. Likely? I don’t know as I don’t have a crystal ball. But history show it is by no means impossible or should dismissed. Deflation is our central bank’s biggest fear so they may over do it again trying to avoid it once more and we find ourselves with lots of old retirees no longer producing goods and services but instead consuming them (creating demand but no supply) - the combination of both could be quite inflationary.
I_O, you can't look at interests rates in isolation when you talk about 'historic rates'. The amount of debt on which those interest rates apply is critical to making sense of past interest rates.
For example, a 1% rise today would be similar to a 3% rise twenty or more years ago. The better measure - and a far more meaningful one - is the amount of disposable income consumed by any rate increase. And conversely, the amount of disposable income released by any rate decrease.
re ... "I wouldn’t be surprised if we have 8-10% interest rates in the coming decade. "
I'd be extremely surprised. ;-)
It is the low rates that allow the high levels of recent debt to be created. Eg low rates have allowed high private debt/GDP.
Does the cart lead the horse or does the horse lead the cart?
You’re assumption appears to be is that private debt to GDP is always going to be at these extreme levels which they were not prior to around 2000 (when our housing market started departing from controlled flight). Ie look through history and see how often our private debt to GDP is where it has been the last 20 years. We are a sitting duck for a reversal of trend - back to historically more normal levels.
It will only be possible if we reverse the private / govt debt swap that took place between 1990 and 2010. I don't think many people understand that tbh.
I think I get it Jfoe. How you make that massive transformation is way about my pay grade. Remember h'hold debt to income has approx 2x'd since the early 90s from 56% to 165% (similarly h'hold debt to GDP).
Japan's household debt to GDP was 1/3 lower even during their epic bubble and has remained stable. Back of envelope stuff but why has this ratio not improved despite their massive public debt?
Great question. I think the answer is that govt debt and household debt contribute to net household savings. If someone takes out a $1m mortgage, and gives $1m to a house seller, and that house seller saves the $1m, household debt goes up but so does savings. When Govt deficit spend they create private sector savings automatically.
In Japan, where the Govt has merrily gone into debt, and househol debt has been stable, household savings growth as a % of GDP has been positive for decades. You can see this in the OECD data here. It is also interest to compare Japan and NZ in terms of net borrowing / lending. See how increased NZ household and business debt support Govt and offshore savings (a consequence of our current accout deficit)? While in Japan, increased Govt debt and their current account surplus supports household and business savings?
Pretty much it. The Japanese have always been great savers. And they've been collecting on-shore and off-shore interest for ever, with off-shore rates being much better.
NZ? Not so much. We like to borrow heaps and buy over priced houses and think we're getting richer. In fact, we've been enriching Japanese savers ;-)
You mean people that took on 30 years of working debt, betting that rates will stay low because they can't afford 10% interest?
Yes, they can all burn. You take risk, you get burnt if you don't calculate it.
It's either them being burnt for taking excessive risk, or the next generations being screwed over in slow motion. Before you come in thinking a 30 year loan on the hope rates stay low is normal, it's actually insane risk. Your entire working life is held on it.
I think you've forgotten that the RBNZ said rates would be low for quite some time. And the retail banks echoed this message with rampant glee while adding their own 'reckons' to RBNZ statements.
Ergo, people taking out these mortgages were responding to what they thought was going to be the 'new normal'.
People forget just how badly our RBNZ has served this country.
The RBNZ openly signaled negative rates were on the horizon and asked banks to prepare for them - and did so publicly.
The PM of the day made comments about houses being many people's main asset and that they would not want to see them fall, after campaigning on an interventionalist platform when it came to house prices.
The 'I-Told-You-So' scolds are operating on stopped-clock logic and it's absurd to think that If you had listened to the key decision makers in the country and made an informed decision (about as informed as retail mortgage holders can be) then you would have made a choice that could have been financially ruinous.
"The PM of the day made comments about houses being many people's main asset and that they would not want to see them fall, after campaigning on an interventionalist platform when it came to house prices."
Such comments were made about any potential response to NZ's 'housing crisis' and came before the RBNZ dropped the OCR down to 0.25%, dropped LVRs, and threw cheap money at retail banks.
The suggestion isn't as silly as it sounds. At some point we need a reset when we grow by less than each new dollar of debt created.
While I'm not saying it would be smooth sailing, the houses will still be standing and the farms still producing. Ultimately it might be the banks left smoldering - what are they going to do, kick out all owner occupiers with a mortgage. Guess they will have to employ a lot of people to do that and all for what? To rent of sell the property in a market with 10% interest rates and book a loss...
@21 Trillian here is a story for you - a guy I know owns a big hardware store - he also owns the land the hardware shop is on so he charges himself $1million per year rent - he then also offsets that rent against his expenses for the hardware shop and it is 100% legal so 1. the land appreciates 2. hes pays himself $1 million of the bat per year. 3. he offsets the rent against the shop 4. everything inside the shop has a 30% mark up........ Now thats how you get wealthy not sitting here squabeling over 2 rental properties - this is what houses overpriced / averageman dont get.
The city has been dead for years, CBD has been hammered by endless road closures, city apartments being used as emergency housing.
Apart from that, retail generally has been on a downward trend since covid and the transition for many to online shopping.
The go is, the Council need to sort it out if they want business and people to return to the city.
NZ is in a bad state - dropped my car of for a service behind K road - and I walked from there into the city for work - the amount of empty or for lease shops was very noticeable
How many of those, now closed shops, had you purchased from in the last 10 years?
My point is that maybe these were part of the non-productive part of the economy and aren't such a loss. Perhaps landlords could have adjusted the rent down for the 'bad state' (I agree, but for different reasons).
I think a series of .5 cuts is probably the go.
Oh I see, the problem is for someone other than landlords to fix.
They're different cycles
Stats need some time to process the data. That is fixed after the quarter's end
RBNZ has a 6-weekly cycle of OCR reviews. This time it falls badly
Both cycles are predefined, for market predictability. They can't just change one instance on the go because of misalignment
Gentle reminder that:
- The tradable vs nontradable split is nonsense. The method was devised in 2003 and is no longer fit for purpose. Domestic prices are driven primarily by the cost of import input costs and the price paid for exports.
- The biggest drivers of nontradable increases over the last year have been rent, insurance, household energy, and local govt rates - none of which are responsive to demand (rent gets closest but rent just tracks wages)
- NZ prices and wages have adjusted to a shift in the global price level. We were along for the ride. Every major economy has seen the same rise and decline in inflation as they have made the adjustment.
- If RBNZ had done absolutely nothing for the last 4 years I doubt that the CPI data would have been much different. Higher prices would have reduced demand, wages would have adjusted, rents would have followed, and we would be back about here now... But without the catastrophic recession.
- Higher rates added $10bn to business debt servicing costs. Who paid those extra costs? Customers of course. So, even if crashing demand did lower prices, did they do more than offset the upward pressure caused by higher debt costs? $10bn is a month of card spending, or 6% of total NZ wages.
Low interest rates alone didn't drive up inflation in NZ. I still think expansionary fiscal policy did a lot worse.
Labour pumped was on track to pumping deficits worth ~145 billion into the economy (38-40% of GDP) over just 4 budget cycles. Most of that went chasing aggregate demand and very little towards increasing economic capacity.
(@safeashouses, reposted from below)
Do people see old political trick being played out here?
Hint: it is a False dilemma
We're being conned to see it as choice between 0.25 and 0.50.
And scant discussion goes on where the OCR should be!
This is how central banks receive "get out jail free" cards from the great unwashed.
Why does everyone ignore the massively idiotic actions by the people buying into the RBNZ borrow and spend mantra, bidding up house prices, etc etc.
The RBNZ isn't here to serve the country, it serves the financial system full stop, and look at the behemoth that "market" has turned into. In fact there must be enough money in this market that we don't need banks doing their credit creation trick. We just need to get this money circulating and flowing through the economy.
The OCR, NIR isn't going to solve any of the structural flaws in our economic thinking.
"...Domestic prices are driven primarily by the cost of import input costs and the price paid for exports."
"The biggest drivers of nontradable increases over the last year have been rent, insurance, household energy, and local govt rates "
- please clarify your internal statement logic
Primarily driven by imported input costs.. then, other prices adjust (rates, wages, rent) and some prices change because of structural factors (eg insurance). The only demand driven story in the last few years imho was property maintenance/ build costs in 2021/22.
On one hand
Domestic prices are driven primarily by the cost of import input costs and the price paid for exports
On the other
If RBNZ had done absolutely nothing for the last 4 years [...] we would be back about here now... But without the catastrophic recession
So we have no control over domestic prices, but the RBNZ decision has caused a catastrophic recession. Can you please explain?
I think he’s right, I see it if RBNZ weren’t involved then we would have ridden out the high global inflation that was created by supply constraints & essentially we would have ended up where we are today but without the increase in interest rates that took so much money out of our economy & caused the recession we’ve been in for almost two years (referring to per capita GDP)
But then house prices wouldn’t have exploded by 40% during covid either and could be back at 2015 prices now (ie they were looking like they we about the crash leading into the pandemic) and we’d not have the problems we have now where an OCR at a historical normal level is unsustainable because our mortgage debt load is too much of a burden relative to our GDP - meaning we constantly need emergency level interest rates to stop the economy from cratering. The entire economy is being hijacked by excessive private debt/house prices too high relative to productivity/incomes.
@I.O, we must be close to seeing that 40% fully eroded now, I did just comment on one your above posts regarding long term OCR, I think they should never had let it get so low but I know think they have no choice but to take it back down again. I just hope they can use lending restrictions wisely to cap another boom, but I’m doubtful, lower interest rates alone won’t do it…they need money creation via increased lending…rates slashed, restrictions eased & the shitshow continues is my guess
I don’t think we should drop the OCR by much but instead focus on our fiscal response. Our government debt/GDP is by international standards quite low but our private debt/gdp is dangerously high.
And yet a lot of people are cheering for more private debt via lower mortgage rates to save us - but it won’t save us because it is drowning us
"And yet a lot of people are cheering for more private debt via lower mortgage rates to save us - but it won’t save us because it is drowning us "
So you're saying that LVRs and DTIs won't work to control our ridiculous housing market?
I beg to differ. (Assuming the RBNZ actually uses them. Which they may not given the massive pressure the Australian banks are putting on them.)
Important points there.
Note that private debt as a % of GDP is now well below 140% - so we can go through another stupid cycle of pushing that back above 150% by 2027. That extra $50bn or so of credit money will enable companies to make profits, wages to increase, jobs to be created, and GDP to increase - and we will all say how well are doing now that we have got out of the slump. Until the next time.
The kingdom doesn't appear to be visibly burning from their ivory tower. So all must be good then!
Our firm had 2 rounds of layoffs very recently and headcount is down 11% from 12 months ago. Many large firms in construction and related professional services are going through the same "transition" as we speak. Together the sectors account roughly 25% of NZ's filled jobs and an even bigger share of higher-paying jobs.
My employer has had a sinking lid policy for the last year now. Every expense is under the microscope to the point of ridiculousness. Through the grapevine, I hear jobs are being lost at our trading peers and vacant positions being cancelled. I've heard of instances where, post second interview, applicants were told "sorry the Head Office has withdrawn the vacancy"
I anticipate a full review of existing head count at some point in the very near future at my work too.
Interest rates are plummeting alongside house prices for a reason.
What are you so afraid of? You can be as vague as makes you comfortable....
You think I'm care enough to try find who you are? For an old timer you really are paranoid
I only ask because I work in manufacturing and things are quite the opposite for us.
And I wondering if it industry specific or company specific
It is an anonymous forum for a reason Rookie.
The less you reveal about yourself the better.
The more you reveal the more it is held against you at a future point.
The great thing about it bring anonymous is that anyone (regardless of background, wealth or social status) can share a view and it can be critiqued, criticised and debated based upon the merit:quality of ideas and this alone. Try doing that in the real world where if for example you have no money or social status or political power where your views don’t get noticed whatsoever.
Eg why would anyone take notice of a Rookie investor in the real world in a fully transparent forum? You’d immediately be dismissed but here you get to have your say.
If for example Retired Poppy was open and honest and revealed he actually works for the RBNZ or Treasury, or is in the Labour Party etc he could no longer share his private views (ie what he really thinks) and then the forum is ruined for him. And we lose his insights - the value of which can be judged by the individual.
Yes and I’m trying to help you see your own blind spots.
You might be surprised by what positions various commentators on this site hold - and if they revealed who they were they would no longer be able to contribute valuable insights (whether you agree with them or not).
Im pretty sure RP is a retired banker (if my memory serves me well) so he knows about lending and debt and interest rate risk. And yet you are dismissing him like he’s an idiot.
Retired Poppy has revealed probably too much about himself for his own good. He's told us that despite his name, he is not retired and he is not a Poppy! He invests in TDs, and he has his own property, which has increased in value over the past 27 years. He is vehemently anti-spruiker.
IT GUY has boasted too much about himself, revealing that he has made a fortune on capital gain from a city house, so he now lives in a lifestyle property. He too is vehemently anti-spruiker.
Zwifter, so what you're saying is, me telling people there need be no hurry to buy is now tantamount to telling people not to buy?
This is yet more proof Spruikers are indeed a confused and irrational bunch who struggle with the truth. You simply cannot be trusted.
Unlike yourselves, we are not overly motivated by the value of our property. Houses are for living in.
Ladies and Gents, buy now. We are fast running out of houses in Aug 23.....
Edit, like I've said previously,, if a FHB has a substantial deposit that mitigates well thought out downsides, then buy now - on the basis of low ball offer. It's a true buyers market. There need be no hurry to buy. What part of this statement are you struggling with Zwifter?
Your face needn't have turned blue after all :)
Spruikers are notorious for not considering the emotional and financial wellbeing of others. They just want fodder in which to escape their poor decisions.
"There's already people waiting at the starting gate for the next housing boom to begin, despite what some noisy gloom and doom merchants might say. So, caution by the RBNZ would be warranted."
There will always be, however are there sufficient and with the nerve to sustain the self fulfilling event of an asset bubble?....especially with recent experience in mind.
Ultimately the credit worthy rely upon those deemed not so....and theres little help in sight from the fiscal purse.
If I’m allowed to play I’ll lock in C please!
Sentiment seems to be improving…but they’ll need sentiment to become activity…think about Adrians form guide…these last four years it doesn’t read great with regards to subtle moves & even keels…his ⬇️ was too keen, his ⬆️ was too keen, he held too long…surely the odds are on he’ll cook it going ⬇️ again 🤷🏻♂️
That's my point, it could re-ignite what has been happening over the last decade in the lower-end properties market.
My feeling is that the current state of the economy and the jobs market, coupled with high interest rates, is doing a better job at keeping a lid on house prices than a massive sudden drop in the OCR coupled with tightened LVR would. Reducing the LVR might create more demand for the lower-end properties which at the same time will become more affordable through reduced interest rates, so those properties could shoot up in price faster than they otherwise would.
😂🫵
Who's ready for another decade of increased:
House prices
Young kiwis exiting NZ
Crime
Drop in birth rates
Social anxiety
Insanity is doing the same thing and expecting different results.
NZ is digging it's own grave and sadly the majority of over 50's are grabbing another shovel as they'll be dead before it's time for NZ to hop in.
More taxes? A bigger public sector? More legislation? More socialism? Capital controls?
So it is a binary choice between neoliberalism with broken markets and fully state-controlled economy in your uninformed opinion?
Ironically, you mention Queensland certainly without knowing the state has created massive economic opportunities in recent years largely by directing billions from its budget and public fund boosted by mining gains into the productive economy each year. That's state intervention done the correct way.
I'm referring to the 1970's.
Muldoon running NZ into the ground, because he knew best - extortionate interest rates, capital controls, and bloodsucking taxes. Socialism's a scourge, destroying countries by diverting funds away from the economy and into the very inefficient public sector.
It's all been done before. Roger Douglas knew it, but many with their heads in the sand didn't.
Going to work wasn't worth it, because if you diligently worked hard, 2/3 of what you earned was confiscated, and accountants nationwide were working full bore on inventing tax avoidance schemes.
I used to spend lot of time overseas, and if I needed USD, I would have to sign for them at the bank at the airport. The allowance was US$10/day.
A good start is to make housing not a lucrative tax incentive place for money to flow into.
Tax changes can and will incentivize money to flow into different things.
We have made property a tax free money machine tied with leverage. Make it less attractive and watch the market correct itself.
Well if it's so attractive, and so 'easy' to make your fortune in property why aren't you doing it?
And why are property and building companies going bust all over NZ if it's such a 'can't miss' proposition?
More taxes NEVER make things cheaper, and the proof was recently when those dopey Labour socialists tried to screw landlords.....and rents went up.
it's all been done before but socialists are slow learners.
https://www.cnbc.com/2024/09/20/britains-ultra-wealthy-exit-ahead-of-pr…
Well if it's so attractive, and so 'easy' to make your fortune in property why aren't you doing it?
I'm in my 20s and struggling to break the 20% deposit barrier. I identify that a 5-15% deposit is far too risky. I also have 0 confidence in this country over the next decade, so investing my entire life into it is not worth it. Why on earth would I want to tie my work and economic value to a state that is heading backwards. Have you ever spoken to anyone under 25 that understands economics about this? Perhaps ask the ones leaving in droves. We have media and boomers interviewing each other about the record numbers of young kiwis leaving and being depressed, but we never speak to these young kiwis.
And why are property and building companies going bust all over NZ if it's such a 'can't miss' proposition?
Greed, risk profile? When there's a lucrative market that some feel will only continue nonstop, they go too far and learn a lesson.
More taxes NEVER make things cheaper, and the proof was recently when those dopey Labour socialists tried to screw landlords.....and rents went up.
I never said more taxes. A shift what is taxed and how - so that we incentivize a different focus for wealth to flow into. Be it business, productive work, bringing in foreign money over selling younger kiwis into 40 years of overvalued debt.
This isn't a labour or national issue, it's a country issue. Your tunnel vision is so tight you can't see outside of it.
Landlords have chosen to take leverage and invest in an asset class. They shouldn't be dependant on society declining to protect their investments. Grow some balls, take some responsibility.
To add, even if I was making 200k a year pre tax and could get a 20% deposit while renting - why would I want to then raise kids in this country that is most likely going to continue the same circus.
House price to income ratio in 25 years time will be between 13-17x if we keep this up.
What kind of life is that for my kids?
Here's a good start....
Save your money, don't get divorced or end up with cutting it all in half, don't breed until you're 40 years old, lower your expectations and buy in a lower class area that's gentrifying, get flatmates, get a do-up and renovate.
That's where I got started....hope that helps.
I used to drive old cars because my money was going into property, not a depreciating asset like a car.
The local dairy owner asked me why someone like me was driving a Mk4 Zephyr in 1984. I told him I was poor, but by that stage I owned several properties with pretty big mortgages.
It all came unstuck a little when mortgage rates got to 23%, but I managed to get through it by selling a property.
It's just incredible. Where can I find a dairy owner that cares enough to leave the counter, walk out onto the street and comment on the type of car I drive?
If true, the dairy owner must've known about your financial circumstances as he questioned why "someone like you" was driving an old car.
I remember in the early 90’s the local dairy owner knew all the neighbourhood kids, & they knew our parents…they’d chat with the old man when he went to get the milk & bread…your comment saddens me more about lost community spirit than ole mate telling us his yarn
Delaying kids makes financial sense, but the average boomer didn’t have to wait until 40 just to make it work. Many people waiting don’t realise by 35yrs, 50% will have problems conceiving and many need help from fertility specialists. By 40 things are getting dire for the majority
21Trilion, this housing problem you describe is not exclusive to NZ, house prices are unaffordable across the anglosphere and will probably become even more so if nothing will change.
I doubt it's much easier to save for a house deposit in a country like Aus (for example), since there you have to save for a deposit AND for a Stamp duty tax ( this tax being many tens of thousands $ on median house in a city like Melbourne/Sydney).
Yes, we need to fix housing affordability but I wouldn't point the finger at NZ exclusively in that regard. Having said that, NZ is the only market that NZers can try to change.
No better in any other Western country. One will find very similar circumstances in Auz as well, it's certainly not the sanctuary that many young NZrs think it is. In the end a majority of them end up returning back to NZ, tail between their legs, with even less than when they left, having relized a valuable lesson - grass isn't always greener on the other side. Think NZ is having a hard time? Pick another western country - racism, financial turmoil, favoritism, equality inbalance, huge prices of property & rent, they've all got them, if not all those issues, at least a few of them. Interest is also paid on students loans if one leaves the country for a period of time as well. I'm in my 30s, plenty of my old school mates left for Auz over a decade ago - 90% of those are back in NZ, with even less. Changing ones location won't solve one's problem.
The problem will likely die with you Wingman.
When we can get back to focusing on getting young families into home ownership instead of hearing about how many properties you and your property investor mates own, or how many millions you’ve made in capital gains, or where the next get rich from property suburb is going to be, or how terrible any policies are that hurt property investors over FHBs. When you are constantly stirring up FOMO and greed for your own selfish gain.
The problem dies when the greed and entitlement mentality dies - but it is inside you and nowhere else. Perhaps you could ask yourself when the problem is going away as it is internal to you - not outside of you.
I'm actually encouraging young kiwis to get out. I'd like to see this country fall over and people like wingman burn in their old age. If at all, it'll be ugly for a while but then once again be prosperous and good for the long term.
You built your bed, now sleep in it.
This is a common thought pattern in young men, many are too afraid to voice it though. The fall of the Roman empire is in their mind because they're seeing the same playing out infront of them in slow motion.
Agree - 40 years of falling interest rates an extreme capital gains has deluded the minds of many.
To avoid anger over it all I’ve returned to a more religious view point to it all.
Jesus said ‘what is it to gain the whole world but lose your own soul?’ You can spot who has gained too much and lost their character/morals/respectable principles in as a result of this housing bubble. You see it in these forums and talking with friends/colleagues. Their own personal need for more material wealth is greater than their desire to see the nation do well from both financial and social stability points of view (ie what men and women of good character would want the most).
Don't get divorced, flatmate until your 40 and it'll work out is what you said.
Kind of sounds like you got screwed. Sorry mate, I'm not fond of a lifestyle of being minimized because of a broken system. Just leave the system and prosper where life is moving ahead.
You will find that many successful people made sacrifices....they didn't wait for handouts.
Here's another couple of tips...eke out tax deductible mortgages with rentals, buy a mortgagee sale...very risky though...I've done it.
Tax deductible mortgages save you a fortune.
Pretty sure it'll all fall on deaf ears though, you don't seem to have the determination. You want da gubbermint to solve the problem for you.
Heres my tip, dont get suckered into housing with the other suckers. Its a chain around your neck. Theres more than one way to skin a cat, NZ has excess house cat skinners.
Ive been on the housing side, being Gen X I was fortunate enough to be born at the right time and buy at 3x income in central Auckland at the age of 24. At one time owned 2 houses, had kids at 30 yo, divorced at 36 yo, started a business at 42 years old, spent the last 2 years sailing round the South Pacific currently 55 years old (business pays me to goof off). Sailing home in a couple of weeks, and will put down roots somewhere that isnt floating.
You dont have to own property to have success, in fact the endless debt cycle just ties you to a life of bank slavery, there's a big old world out there, debt removes choice. Before buying a boat I rented for 16 years, its not the end of the world, in fact its pretty liberating.
Fully agree Sluggy - having that massive chain around your neck probably made sense when big capital gains were pretty much guaranteed, but that time may well have passed. Besides, there is nothing wrong with renting and plenty of other ways to make money outside of housing, and which enable you to have more freedom to enjoy life. To any capable young kiwi in their 20s or 30s, I'd recommend to them go explore the world and develop your career internationally - NZ is a bit grim at this point in time, perhaps best enjoyed for holidays and visits.
Again this comment highlights the problem- you thinking buying and selling houses to get rich = ambitious go-getter.
Why not just celebrate people getting into one home, having some kids and paying off the mortgage? Isn’t this worthy of celebration enough?
Or does everyone need to be an ambitious go-getter who gambles with leverage against a frothy housing market and build a property portfolio.
Your version of success is very different to mine - and no I am not a Karl Marx fan. Socialism and communism are terrible things which cause great suffering- but so does listening to greedy and silly old fools try and FOMO an overpriced housing market.
I'm still out there, I'm building a new house right now in an up and coming area.
I enjoy it, I'm afraid mediocrity just isn't my thing. Sitting at home with the kids might be your cup of tea, but it's not mine.
I'm currently employing 5 builders and creating a crowd-stopper. My wife enjoys the new builds too btw.
I've got a ton of time left and I'm in exceptionally good health.
People drop dead when they sit around and do nothing....like you!!!
Bob Jones authored a couple of books on property way back in the '70's. I remember buying them, I see he's currently number 10 on the list of the wealthiest in NZ.
The problem dies when the greed and entitlement mentality dies - but it is inside you and nowhere else.
It's not necessarily 'greed'. It's the incentives that the monetary paradigm promotes.
F'more, re 'entitlement', of course the boomer generation thinks they deserve what the system has delivered. That's natural. The problem as I see it is that they have paid little attention to the trade-offs and what they're leaving behind. It may sound coarse to suggest they don't give a rats, but in many ways their attitudes are understandable.
It’s millennials and GenXs that are now the active property investors. Telling boomers off for ruining everything doesn’t get us anywhere. The same tax incentives of property still apply now as it did then.
We can blame the politicians….or maybe just the people who vote for them
More taxes?
No. Different taxes. Specifically, those that make owning more homes than you need to live in an expensive pastime ego a land tax offset with lower PAYE/UBI.
This or similar RFRM has been on the table and while I was questioned for asking, I think it is relevant that the young such as 21Tril have not been voting in their best interests which would have taken very little effort on their part. A lot less effort than moving overseas at least but that's where we are with trust in the establishment.
One cannot tax oneself to financial prosperity. That is a socialists mantra one has been decieved into believing. Take off the rose colored glasses, governments clearly do not have individuals best interests at heart. Ye have too much faith in government, it's going to get one in trouble someday when the cozy government rug of comfort is suddenly swept from under our ones feet.
There’s absolutely no way anyone can predict what the RBNZ will do. After the May to August pivot in MPS’s it’s clear they do not have a consistent approach regardless of any expert telling anyone otherwise. The only perfect predictor is a character called Wednesday@2pm. The economists have been whipsawed like everyone else - they should stop putting themselves in the firing line for end of year KPI review and just focus on the general direction of rates and how their clients should utilise this cycle.
"It was a punitive, most rapid ever, hiking cycle, with 525 bps of hike spread across the 12 OCR reviews up to and including May 2023 (it works out at 43.75 bps of hikes per review!). And it was all about tearing down rampant inflation that peaked at 7.3% in mid-2022."
So you're saying David, in the face of rampant inflation, they should have immediately hiked to 2.5% which was the RBNZ's neutral rate at that time rather than waste time with 0.25% and 0.5% hikes?
Yes. I'd agree.
Would it be better to have your 2.75 NIR, then as you say do chunky moves when needed…maybe it’d decrease the lag effect? Folks lock in for longer knowing the risk is a 1-2% shifts in either direction when needed? Locking in longer maybe creates more stability as the gamble for short terms isn’t as rewarding.
That’s bloody interesting to think about
"That’s bloody interesting to think about "
Agreed. Very interesting to think about. When rates are back to 'normal' - people would do well to think harder about fixing long.
My view is that 0.25% changes are hints & messaging. 0.5% and above are action!
And 1% or more should not be as uncommon as they are when drastic action is required. (Much like now IMO.)
Likely they will cut but by how much who knows , Im not sure it will achieve anything significant ... everyday living costs are too high for the labouring classes ...folk with money to burn likely thin in the ground.... Im gonna push the boat out and estimate a full 1% cut might stir up some enthusiasm (unlikely) but even then Im thinking the Manawanui is a bad omen . Govt could have done a few things better, ditching the ferry plan , retarding the Dunedin Hospital build and Manawatu gorge tolling , mill and works closures might very well come back and bite them next election... My opinion a full 1% cut required just to stave off a growing negative nation wide outlook ...but dont expect houses to be selling like hot potatoes , folk just dont have the liquidity even with a 1% cut.... running renovation /house flick progs on TV wont cut it... 'Moneys too tight to mention' "Simply red" ....
Consider the effects of a) 1.5% OCR cut with b) substantially reduced LVRs and DTIs on our construction industry (25% of NZ Inc. by some measures are employed in construction).
The construction industry has huge working capital requirements. Many firms have to borrow most of a $20+ million project. Sure, only for a few years, but the interest rates they pay are huge! 20% interest rates are not uncommon. The interest costs must be added to the price the building's dwelling are sold at.
A big OCR cut helps them enormously while tighter LVRs/DTIs have only a small effect on what borrowers can afford.
Work those reduced working capital costs over all of NZ Inc. and you can see where I'm going.
"... folk with money to burn likely thin in the ground ..."
Actually they're far more abundant than you'd think. As evidence, I present the billions in term deposit.
If the RBNZ doesn't restrict lending on mortgages, especially to the rentier class (but also to OOs), then when those TDs mature they'll end up going into the only asset class Kiwis believe they understand ... residential property.
Sorry to bore you all but I am going to point out the obvious - yet again.
The RBNZ believes the OCR neutral rate, where it is neither expansionary, nor contractionary, is 2.75%.
The current OCR is 5.25% - meaning it is contractionary by 2.5%.
Does the NZ economy need further contraction given we've been contracting or standing still for over two years? Only idiots and/or masochists would believe so. Unemployment is up, thus there is spare capacity in labor. Supply chains are almost back to normal so few if any capacity constraints there.
And inflation? Within range. And one can't overlook the fact that with an OCR cut the costs of working capital for businesses would also fall which means input costs would be reduced, thus domestic inflation may fall further.
David talks of pistols (a 0.25% cut) and bazookas (a 0.5% cut). Frankly, both are in the pop-gun category!
We should be near or at an neutral OCR by now. Read that sentence again. By now we should be closer to 3.5%.Instead we're talking nonsense about going to 5.00% or 4.75%.
But once again, David quite rightly points out phantom risk that far too many will focus on as to why the OCR must come down more slowly: Our poorly controlled housing market and our poorly controlled banking system that is free to create money to lend on existing assets.
See where the real problem is? NZ Inc. is NOT our ridiculous housing market!
Why must NZ Inc. suffer because both our politicians and the RBNZ can't do their job?
My recommendation is for both the LVRs and DTIs be substantially reduced (i.e. become far more restrictive) to put the brakes firmly on our ridiculous housing market - while the OCR is cut to 4.00% - yes - a whole 1.25% !!!
My recommendation is for both the LVRs and DTIs be substantially reduced (i.e. become far more restrictive) to put the brakes firmly on our ridiculous housing market
I agree, however, one of the almost universally criticized things by commentors here in 2020 was the RBNZ removing the restrictions pretty much overnight. Would they just do the same again? While I blame RNBZ for trying to be too smart, they wanted the wealth effect and said as much, it remains our tax settings which aren't under their control that are the problem. Politicians trying to outsource inconvenient news is the core problem.
2020 was a very different time. And one with an extremely unique problem.
But yes. Dumping LVRs as the RBNZ did was idiotic. But not as idiotic as the other things they did at the same time.
DTIs didn't exist in 2020. They barely exist now having been activated just a few months back.
And to control how much mortgage debt is created by the retail banks, both LVRs and DTIs are needed. (Listed commercial property companies publish their LVR and DTI in their annual reports. Commercial property investors are aware of why both are needed. But Kiwis in general? not so much. )
My point is that it's no use having a whole host of perfectly good safety measures when you switch them off at the first sign of danger...better then to sort out why housing is the risk it is by changing the taxation rules away for accumulating property with leverage. Get that right and you don't need to rely on the safety measures and the RBNZ to not have another 2020 'moment'.
Agreed.
But I've been waiting 20+ years for our timid governments to make any significant change to our seriously unbalanced tax system. I expect to die before any government has the gumption to do what NZ Inc. needs.
But the RBNZ is not so bound. Ergo, I'm suggesting they actually use the tools they have to restrict further idiotic mortgage lending.
I've been waiting 20+ years for our timid governments to make any significant change to our seriously unbalanced tax system.
You and I both Chris, you and I both. I've 'wasted' many votes trying...
But yes, better the RBNZ has the tools than not, although even they dithered about getting DTI which was hardly confidence inspiring.
Do people see old political trick being played out here?
Hint: it is a False dilemma
We're being conned to see it as choice between 0.25 and 0.50.
And scant discussion goes on where the OCR should be!
This is how central banks receive "get out jail free" cards from the great unwashed.
Really do not care about what other people on here think of me to be honest, I have always thought totally different to the majority of people and hence I'm not where the majority of people are financially. Anyone with a mortgage is looking forward to rates dropping from here.
And if the result of the calculation doesn't yield the desired number, change the way the calculation is done.
"The first PTA, signed in 1990, defined price stability as an CPI rate between 0% and 2%. 0% to 2% was replaced with a target band of 0% to 3% inflation in 1996. In 2012, an explicit focus was given to 1% to 3% target range."
And if all else fails, 'look through' the most inconvenient of calculations and revert to the time-honoured method of Central Banking - close your eyes and pray.
This is far more interesting:
https://www.nzherald.co.nz/nz/politics/livestream-government-to-make-fa…
The number of fast tracked projects in the 'Housing and Land Development' column suggest this government will do swat with regards fixing the RMA. Which is obviously the reason why so many of these projects are on the list in the first place.
Or put another way - government should be fixing what's broken - and the RMA is seriously broken - rather than picking winners (many of whom have donated to parties in the collation).
LVRs and DTIs starting to have an effect?
"“Well, we’ve just been advised that BNZ has reached their threshold on high LVR loans so he said there are no other options but to wait.”"
First-home buyers earning $225,000 ‘absolutely gutted’ after bank turns them down
Bit like the old days, ay?
I saw the original post in the FHB Facebook Page. What's not included in the article is the $30k of debt they claimed to have.
$2k savings, $30k debt, $75k Kiwisaver. $225k combined salary.
While the bank has "hit their threshold" for high LVR loans, this couple are burning $3k per week in take home pay with little to show for it and would be a red flag for the bank.
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