The Reserve Bank (RBNZ) has increased the Official Cash Rate (OCR) to 2.0% from 1.5% - making this the second month in a row it has hiked interest rates with a 'double shot' 50 basis points jump.
More shockingly, perhaps, the central bank has ramped up its expectation of how far interest rates will still need to rise - and it now sees the OCR peaking at 3.9% by June of next year. Earlier its pick was for a peak in this hiking cycle of just 3.4%. Now it sees the OCR hitting 3.4% by THIS December.
This means that it can be confidently expected there will be more 'double shot' rises in the rates in the forthcoming OCR reviews.
This also means that mortgage holders will have to brace for considerably more pain in the way of their rates rising.
The Kiwi dollar jumped half a cent in value to US64.8c on the news.
ASB senior economist Mike Jones said: "We thought the RBNZ would came out swinging, but today’s statement was still more hawkish than expected. The OCR was lifted 50bps as we and the consensus expected. But the RBNZ’s new OCR forecast profile implies both a higher OCR peak than we’d expected, and a more rapid pace of tightening to get there."
Commenting on the decision by the Reserve Bank's Monetary Policy Committee, RBNZ Governor Adrian Orr said: "The Committee agreed to continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target range. The Committee viewed the projected path of the OCR as consistent with achieving its primary inflation and employment objectives without causing unnecessary instability in output, interest rates and the exchange rate. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level."
The OCR's now at its highest level since September 2016, having been hiked rapidly since October 2021 from the 0.25% historic low pandemic emergency setting it had been on since March 2020. Much more is clearly expected.
The latest jump in the official rates can be expected to keep upward pressure on mortgage rates. But it should be noted that the big upward moves in mortgage rates seen since the latter half of 2021 have been most directly influenced by surging wholesale interest rates that have moved ahead of anticipated OCR rises. The resultant rapid mortgage rises have seen two-year fixed rates, for example, shoot up from just over 2.5% in June 2021 to well over 5% now)
With the 50 bps jump on Wednesday having been very much expected in the marketplace, all eyes were on what the expected pace of future OCR moves will be - and how many more of them will be needed as the RBNZ grapples with our 6.9% inflation.
And the 'forward track' the RBNZ has produced with its latest Monetary Policy Statement (MPS) is red hot. Much more so than economists were expecting. It shows the OCR at 2.7% by September of this year, then 3.4% by December, then 3.7% by March and peaking at 3.9% in June 2023. The OCR is then forecast to start slowly easing back, reaching 3.5% by June 2025, the end of the forecast period.
Similar magnitudes of rises in mortgage rates will likely see prevailing rates all north of 6%. This would be hard for many, given the sheer size of mortgages now necessary to buy houses at New Zealand prices.
These comments from the record of the MPC meeting are worth noting in respect to the health of household finances:
"On the risk of doing too much too soon, the committee acknowledged that raising the OCR steeply puts pressure on some households’ spending decisions, especially those that are highly indebted.
"However, members noted that, on average, household balance sheets are healthy. Banks have been testing mortgage lending for higher interest rate possibilities – consistent with current projected levels – before recent home loans were made. They also noted that house prices are expected to remain above their pre-pandemic level. The committee also noted that while higher interest rates will increase firms’ hurdle to investing, recent business surveys suggest labour shortages are the main constraint preventing an increase in production.
"The committee agreed that stabilising inflation is its priority. Members agreed that raising the OCR by more and sooner was consistent with avoiding higher future costs to employment and the economy in general as a result of high inflation. Stable inflation expectations will be a key indicator that the current monetary policy strategy is working."
This is the statement from the Reserve Bank:
The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 2.0 percent. The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment. The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.
Consistent with the economic outlook and risks ahead, monetary conditions need to act as a constraint on demand until there is a better match with New Zealand’s productive capacity. A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment.
The level of global economic activity is generating rising inflation pressures, exacerbated by ongoing supply disruptions driven by both COVID-19 persistence and the Russian invasion of Ukraine. The latter continues to cause very high prices for food and energy commodities.
The pace of global economic growth is slowing. The broad-based tightening in global monetary and financial conditions is acting to slow spending growth, accentuated by the high costs of basic food and energy staples. European geopolitical uncertainty is also weighing heavily on business confidence and investment intentions worldwide. Likewise, COVID-19 restrictions in significant regions of China are exacerbating supply chain disruptions and adding cost and complexity to trade.
In New Zealand, underlying strength remains in the economy, supported by a strong labour market, sound household balance sheets, continued fiscal support, and a strong terms of trade. The reduction in COVID-19 health-related restrictions is also enabling increased economic activity, including hospitality and tourism.
However, headwinds are strong. Heightened global economic uncertainty and higher inflation are dampening global and domestic consumer confidence. Asset prices, in particular house prices, have also declined, reflecting in part higher mortgage interest rates and increased supply of housing.
On balance, a broad range of indicators highlight that productive capacity constraints and ongoing inflation pressures remain prevalent. Employment remains above its maximum sustainable level, with labour shortages now the major constraint on production. The Reserve Bank’s core inflation measures are above 3 percent.
The Committee agreed to continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target range. The Committee viewed the projected path of the OCR as consistent with achieving its primary inflation and employment objectives without causing unnecessary instability in output, interest rates and the exchange rate. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.
Summary of Monetary Policy Committee meeting:
The Monetary Policy Committee discussed developments affecting the outlook for inflation and employment in New Zealand. Members noted that current inflation and employment were above their target and sustainable levels respectively. Members agreed that while the direction of their monetary policy decision was clear, the extent and timing of future increases in the Official Cash Rate (OCR) still depends on the economic outlook and avoiding major risks.
The Committee agreed that global economic activity was slowing more than previously expected, and that further weakening in global economic growth was likely. Members noted that while international fiscal and monetary policy actions have partly cushioned the effect of the COVID-19 pandemic on household incomes and employment so far, significant and ongoing disruption is now being felt.
The recent rise in global inflation pressures has led central banks to raise their policy interest rates and signal further tightening to come. These measures have been aimed to deliberately slow demand to be more consistent with the current constrained supply capacity of goods and services.
The Committee noted that the disruption caused by the Russian invasion of Ukraine has added to the underlying global inflation pressures. The cost of living has risen significantly, in particular due to shortages of food and fuel. This rise in costs is necessitating lower non-essential spending in households globally. High global commodity prices are likely to persist for some time, creating long-lasting cost pressure for firms and households, even as general consumer price inflation slows.
Economic activity globally, and especially in China at present, is still being severely disrupted by COVID-19. Members agreed that China’s regional health-related economic restrictions are having a direct impact on global growth, supply chain efficiency, and New Zealand’s trade outlook. New Zealand’s trade performance is strongly linked to China’s economy.
The recent rise in central banks’ policy interest rates, and forward guidance for more increases, has led to a significant fall in global equity prices, albeit from high levels. The Committee noted that a rise in official rates creates a higher hurdle for investment decisions.
Members discussed developments in the New Zealand economy. It was noted that rising global interest rates have narrowed interest rate differentials with New Zealand, adding to downward pressure on the New Zealand dollar exchange rate. The Committee noted that the lower New Zealand dollar raises import prices – exacerbating the effect of elevated global prices.
The Committee agreed that both high food and energy costs, and rising mortgage interest rates for those with debt, will affect household budget decisions and lead to less discretionary spending. Members noted that over the past year or so, wage growth has been less than consumer price inflation, adding further pressure on discretionary spending.
Recent and expected increases in mortgage interest rates are likely to contribute to falls in house prices, further reducing households’ willingness to spend. It was agreed that household consumption was likely to be relatively subdued in coming quarters. The Committee noted that house prices are now headed toward a more sustainable level.
The Committee noted the Government’s Budget announcements. It was agreed that fiscal policy is currently supporting economic activity, but that this stimulus is expected to reduce in coming years. The current level of fiscal spending is contributing to a modest increase in demand. This is expected to diminish over time as a result of the end to the large, broad based, fiscal support packages the Government delivered during the initial phase of the COVID-19 economic response.
The Committee noted that measures of core consumer price inflation are above their target range. Surveyed measures of near-term inflation expectations are also high, in line with actual consumer price inflation. It was noted, however, that the medium-term measures of inflation expectations have remained near the centre of the target range, albeit heightened somewhat. The Committee agreed that it was critical for these medium-term inflation expectations to remain around 2 per cent.
Members also noted the factors responsible for the current elevated consumer price inflation. New Zealand’s inflation rate reflects a relatively similar contribution of global imported price pressures and domestic price pressures. They observed that a key factor contributing to domestic inflation pressure is housing – including both the cost of construction and the operating costs of dwellings in general.
On the costs of construction, members noted that the growing delay in accessing key building materials is significantly slowing activity, and increasing the financial risks associated with construction. The Committee observed that these delays, cost pressures, and associated uncertainty could limit the conversion of building permits into dwellings, exacerbating the pressure on housing supply.
Members agreed that employment is above its maximum sustainable level, as highlighted by a suite of indicators. They agreed that rising wage pressures are an expected outcome, with access to labour the key constraint on firms’ productive capacity. With the global labour market tight, people are also more willing and able to take up new roles for higher wages.
The Committee noted that the reopening of the border should see a return to a net inflow of migrants into New Zealand over the next two years. Over time, this net immigration will help to ease New Zealand’s labour shortages. More immediately there is an outflow of New Zealanders creating supply capacity constraints. With the international border reopening, more immigrants will also bolster demand ahead of supply capacity as they settle. It was agreed that these patterns of migration will have an uncertain net effect on inflation pressure, as they will affect both supply and demand in the economy. As a result, these dynamics do not play a key role in determining monetary policy at present.
The Committee noted the weaker outlook for employment growth in New Zealand, which is likely to be outpaced by labour force growth. As a result of the increase in labour supply, measured unemployment is expected to rise to around levels more consistent with maximum sustainable employment.
The Committee discussed the future path of the OCR based on the outlook for inflation and employment pressures. Members noted that both inflation and employment are currently higher than previously expected, and that this strength is broad-based, arising from a range of economic factors.
Members agreed that a higher level of the OCR is necessary to ensure annual consumer price inflation returns to within its target range over the next two years. They agreed this was also consistent with ensuring employment remained near its maximum sustainable level.
Members discussed their ‘least regrets’ framework which in the current context amounted to the risk of tightening policy ‘too little, too late’ versus ‘too much, too soon’. The Committee agreed that at present, with persistent cost pressures and rising inflation, the risk of moving too slowly and not far enough remained the most costly option.
On the risk of doing too much too soon, the Committee acknowledged that raising the OCR steeply puts pressure on some households’ spending decisions, especially those that are highly indebted.
However, members noted that, on average, household balance sheets are healthy. Banks have been testing mortgage lending for higher interest rate possibilities – consistent with current projected levels – before recent home loans were made. They also noted that house prices are expected to remain above their pre-pandemic level. The Committee also noted that while higher interest rates will increase firms’ hurdle to investing, recent business surveys suggest labour shortages are the main constraint preventing an increase in production.
The Committee agreed that stabilising inflation is its priority. Members agreed that raising the OCR by more and sooner was consistent with avoiding higher future costs to employment and the economy in general as a result of high inflation. Stable inflation expectations will be a key indicator that the current monetary policy strategy is working.
The Committee agreed to maintain its approach of briskly lifting the OCR until convinced that monetary conditions were sufficient to constrain inflation expectations and bring consumer price inflation to within the target range. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level. The Committee viewed the projected path of the OCR as consistent with achieving their primary inflation and employment objectives without causing unnecessary instability in output, interest rates and the exchange rate.
On Wednesday 25 May, the Committee reached a consensus to increase the OCR to 2.0 percent.
170 Comments
If 2 rises of .5% is hard & fast in a situation we are in of overinflated asset prices, too low interest rates for too long, add in inflation say 6.7% but in reality nearer 10% in terms of what you spend - rates/energy/taxes/insurance/food then slow and late would be overtaken by a Glacier. Without accurate figures of average mortgage debt I can only guess but say debt is$450K then each 1% increase in interest costs approx $90 a week and 3 year rates are already 2% higher for re fixes on average is an extra cost of $180 a week which may be manageable but the reduction in descretionery spending will have a domino effect on the business's that no longer receive that income. Add in unemployment rising and the picture is looking ugly.
I understand that higher interest costs in the short term would be even worse so the choice is a short sharp shock or ongoing agony and it seems the Govt has no idea of the likely economic direction the world will lead NZ to so I reckon NZ is in for a very rough ride.
Good, and well overdue. I have been predicting for many months that the OCR will have to go to 4% at the least. The RBNZ are finally starting to be honest and they have started to acknowledge reality.
However there are still significant upward risks and the likelihood of an OCR peak closer to 5% than to 4% should not be underestimated.
The creaking sound might be the ship of the NZ economy slowly breaking. If you have watched Das Boot, you know what sound I mean.
RBNZ have just torpedoed us.
They brought rates down to 0.25%, with a perspective of 'low for long'. They got rid of lending restrictions, especially minimum equity requirements, during COVID. They were basically begging people with low equity to invest in property.
Now the same people that have done that seem to be trapped with low equity which is fading further in a housing crash, and rising interest rates on their already high mortgages.
It is difficult not to become cynical about the RBNZ. Or to become a conspiracy theorist - "you will own nothing and be happy" as the saying goes.
What I'd like to see from Interest.co.nz is an analysis of past bank stress testing rate as it relates to mortgages coming off their fixed terms now. While the MPC made noises about stress tests etc helping to cushion the blow, those apply to mortgages taken out in the past 6 months, if reporting is to be believed. What were the stress test rates when those fixed term mortgages coming off soon were granted by the banks, and what are the implications?
Hutt Valley Market Update 23rd May
In the wake of another lift in the OCR its worth discussing the impact of interest rates on house prices. Generally for every .25% that interest rates lift by (and assuming everything else stays the same for a borrower ie their salary) a borrowers borrowing limit will drop by roughly 3K for every 100K borrowed. This will result in borrowers having less to bid on a property.
Ie a $500 000 borrower in 2021 will only be able to borrow today (with the 1.25% increases) $425 000, A $750 000 borrower will only be able to borrow $637500
To date prices are down roughly 130K since interest rates started to rise in Nov. If a further 2.4% (according to the RBNZ) of interest rates is due to come then house prices may still have a further 150- 200K to fall.
Current Market Listings
616 houses on the market- up 5 on last week
Based on the REINZ data which showed that 96 sold in Feb and 104 sold in March and 98 in April giving an average sale of 25 houses per week– 616 houses means there is 24.5 weeks stock on the market.
I am still expecting given the withdrawals and low number of listings for the number of listings to fall to around the mid 500’s by mid winter ie late June/early July before picking up again in August.
House Price Reductions
297 houses have a listed price
57% of the houses listed with a price have reduced their price since listing
The average markdown has risen this week from 82K to 83K.
Of those that have listed prices (pool 308) -34 have reduced their prices by 100K
5 have reduced their prices by over 200K and 1 has reduced their prices by 300K with the biggest reduction been 350K (a total 20% reduction) Last week there were 2 properties that had reduced by 300k – the other one has been removed from the market unsold.
The data continues to show the majority of houses listed are under 900K. The Median house price for all 616 listings is now 830K. (Steady on last week and the lowest Median YTD – previous low was $839K)
The latest QV valuations (valuations by QV which are updated every month and give an approximation of a houses value) have dropped $130K since Jan for the Hutt.
In April the QV valuation had dropped 80K – approximately 20K a month since the start of the year but this escalated in April – dropping 50K in one month.
Meanwhile Homes based on last weeks update is inline with QV and indicating there has been an approximate $130K drop on house prices in the Hutt valley– since the peak which they are indicating was early Nov 21. According to homes prices are back to June 21 prices – so flat with this time last year.
Houses sold vs houses removed
My records show 166 houses listed with a Price have sold YTD (up 9 from last week).
I have records of a further 149 houses (up 16 from last week) that have been removed from the market unsold YTD.
18 of those houses removed from the market have been listed on the rental market
The total number of houses removed from the market in the last 5 weeks is 73 (this compares to about 5 houses delisting a week over the previous 14 weeks).
Length of time on the Market
- 441 of tte houses have been on the market for over 30 days - 72% (last week it was 472)
- 291 of the houses have been on the market for over 60 days - 47% (last week it was 303)
- 177 of the houses have been on the market for over 90 days – 29% (last week was 169)
- 91 of the houses have been on the market for over 120 days - 15%
The number of houses on the market over 60 days has fallen back slightly from 50% lastw eek to 47% this week ( still one in two). This has risen from 32% of houses in mid March (one in three) and just over 1 in 4 houses have now been on the market more than 3 months , 1 in 6 have been on the market over 4 months.
The time to sell is getting longer and longer. Anybody looking for a quick sale of their property would need to be well under the QV valuation or have a very attractive property at a very attractive price.
A real estate agent did advise most houses are going conditional with subject to sale as the most common condition in some cases there is chain effect occurring where there are now several houses all in the chain subject to sale. So anybody with cash is going to be an attractive buyer at the moment and could probably get a premium discount on the asking price.
Rental Market
Meanwhile the rental market has 210 properties for rent (up 12 on last week), and up 99 on this time last year – when just 111 houses were for rent.
Average rental price reduction is $60 a week (up $2 on last week and up $12 on a month ago) and 50% have dropped their prices since listing.
As noted last week I have also been noting how many properties are listed for rent over $650 a week.
At the moment the percentage of properties listed at $650 is 42% - last week it was 41%. Still well below the 53% of houses listed over $650 on the 23rd March.
Awesome work from the world's worst central bank, watch them blame it on Tane Mahuta.
Our cash rate is now 1.65% higher than Australia but our currency on the cross is still weaker than a month ago because the RBNZ will push us into recession and the RBA aren't that dumb.
When you say RBA, do you mean the Reserve Bank of Property? (sarc)
Exactly...there were no complaints when it was 'oh look we are importing cheap foreign goods and importing cheap foreign labour' so the OCR could go to zero and asset prices to infininty.
Oddly when the shoe is on the other foot the world is completely unfair....strange.
IO they are not the same, the standard of living in your sceanrio will be fondly remembered as our halcion days compared to the recession that's coming. You can't rent much if you're unemployed. I get your schadenfreude, just don't pretend good times are coming because it may eventuate a FHB stood a better chance of buying a year ago than in a year's time.
Yeah, understand :)
Interesting, I saw Michael Reddell pointing out today that Orr and friends were not alone in their predictions and prescriptions, and that the private sector contemporaries at the NZIER was making the same calls or very close to them all the way along.
Perhaps this will see the dismal science being relegated once more to being considered a social science.
"You can't rent much if you're unemployed"
Gee I wouldn't want to own a rental property out there if this recession is going to be as bad as what you are suggesting! Who pays the mortgage on the rental if the poor renters can't rent much?
Adversity builds character and unity....I think you're are probably more scared of a recession and depression than those you appear to want to threaten....those with nothing to lose, have nothing to lose. Its those who want the status quo to continue have everything to lose.
I don't recall you complaining as house prices were going up while the RBNZ pumped the economy with recklessly cheap credit...and I also recall you telling me in clear words that watching house prices go up 30%p.a. in 2020/2021 was evidence that you should never bet against or fight against the central bank.
As long as you are taking your own advice in the present tense.
Although it would now appear that because its perhaps not in your best interests (owning multiple homes), that the RBNZ actions are now unjust and want to fight them....but just less so before as they dropped rates to zero to your benefit.
Bias (conscious or unconscious) appears to work in rather strange ways.
Yes so to be clear you sat by silently in self interest and increased your wealth as a financial and social mess was being created. And now want to complain if those conditions might change.
https://th.bing.com/th/id/OIP.3GfyX6qdA_GUtdDoVSR3PAHaEK?pid=ImgDet&rs=1
Thanks for the support :-)
IO, as a longtime reader of interest.co can I please ask that you stop these pointless comments? Don't get into personal attacks on a news website.
You're obviously entitled to your opinion etc etc, but this is clearly not making you happy nor anyone who reads it.
You realise before 2019 that was cheap international imported goods and globalisation that RBNZ had no control with and kept the inflation low right? You could lower rates to negative but the price won't go up as it's imported. Rate comes down, rate goes up, it's just life.
I am afraid, consumer price inflation cannot be reduced after years of quantitative easing and now a supply shock. We will have inflation.
The only question is, will we also have an economic crash/collapse (stagflation, or a full blown financial crisis)? This depends on interest rates.
The RBNZ seem to think that inflation can be controlled. I think this is an illusion.
They also seem to think that their aggressive OCR hikes will be absorbed well by the economy. I think this is also an illusion.
Well there's usually some premiums you need to price in to cover the spread. Aussie dividend, that'll add 1%. Then you've got your 'underwriting discounts given in Aussie market for their borrowers using NZ as a subsidy' that's another 1%. Finally, you're going to need some new art and sculptures in the lobbies of all these bank offices. So chuck on at least another 1%. I'd say 8% to cover all your sundries and a few bags for the lads back in the Sydney office - have you seen what Bolivian marching powder goes for locally?
The audio feed has Orr "work on Dti continues with implementation in 6 to 9 months". He also said he thought "house price falls of up to 30% were not unexpected".
So what..well debt farmers will now not only have deal with an increased cost of debt, future rent slaves exporting themselves in droves, but they will have to find real equity in a price declining market as Dti is introduced.
About damn time. The one export we need to stop is billions in profits to foreign banks.
So, clearly getting on top of inflation is no1, no2 & no3 priority. Expected top of the OCR cycle 0.5% higher than expected just a month ago, to 3.9% . This sounds all very hawkish and certainly leaves the door open for more 0.50% increases rather than, generally expected, 0.25% increases from here on. The NZD up as a consequence of the hawkish tone.
Yvil OCR will not drop until inflation is down so maybe end of 2023 and no way will RBNZ drop to emergency levels again. The housing market is now going to spiral down to a more affordable place for average wage earners. Hopefully government will put some law in place to stop speculators in housing market
Not only is this a slow rate of change backward looking, the trajectory is all wrong as well. If we see another couple of significant raises this is not going to affect the actual inflation curve, simply the level of carnage for recent FHB's and over-extended investors.
Our monetary measures are simply trying to manage our imported inflation. Where are the fiscal measures to manage our internal inflation? Tax on gas? no. Charging for public transport? no. GST on food (and believe me I know how hard this is to implement)? no. Tax brackets moved to respect inflation? yes. CGT on sale of property? yes.
Amazing listening to some people squeal as interest rates start normalising after they've been set to historically (extremely) abnormal levels.
Its like it is expected that abnormal monetary policy conditions are forever to be the new normal.
History doesn't agree with that.
Yes I’ll be squealing, because 3 years in a home on a single income I can’t afford hikes to 7%. Your good to tell me that my last 3 years paying down a mortgage only to lose it all due to “fighting inflation” is squealing then You are damn right. I didn’t se this coming, the banks and mortgage brokers certainly didn’t warn me, I feel like I did my due diligence and now I’m being F**D for trying to secure a simple lifestyle for retirement. Yeah, I’m mad, I’m furious, Nothing you say will consolidate me. I’m just so damn mad right now. I’ve done a last ditch effort to set fixed rates for 3years, and if the rates are upwards of 7% by then it’ll be a sad fact that I’m forced out of the housing market. I’ve lost too much time to be able to secure another mortgage, clock has been ticking for a while now. It’s just messed up now.
My absolute sympathies in your direction IKiwi - its a terrible situation all around...
This is why I've been on here warning for many years about the dangers of people promoting higher and higher house prices (and probably annoying the hell out people via the arguments with the perma bulls)...because it always end in tears and often its the innocent who end up footing the bill or emotional damage of those who have benefited from it.
I lived through the GFC in the US and watched people get financially ruined....hence my desperate warnings on here for a large period of time to be careful about taking on too much debt....but as you say, people have lives they need to get on with....so this situation should never have been allowed to play out in the first place (via exceptionally poor market regulation...)
If you want to play that game...
"Hi Ikiwi,
I don't take pleasure in others "squealing" or suffering"
But you do/did take joy in expressing to everyone on here how you made a million dollars in untaxed capital gains a few years ago in a property invesment....which has contributed to very high house prices and the debt which Ikiwi is struggling to pay just to put a roof over his/her head.
Your action of speculating in the housing market, and making large sums of money, is offset by the debt/financial pain by another market particiapant....such as Ikiwi....yet you want to pretend your here to help him/her.
Perhaps you really want to help you could give him/her half of your $1,000,000 in capital gains so they don't have so much debt to pay?
Today he also happily posted that his skid-row motel rooms are available to anyone who can no longer afford their mortgage.
"Give me our tired, your poor, your huddled masses yearning for a home, and I will put them in my shitty motel, at a huge cost to the tax payer." Haw haw haw.
You're disgusting. You were gloating earlier about your motel being able to soak up a whole lot of people on 'struggle street'.
Are you so unaware of your behaviour that you can't see how distasteful that is?
Or is it just a 'joke'?
I just think it's so funny that you provide emergency housing - revealed tonight - given everything you have been saying about welfare recipients, and what you have been saying about this government.
What a joke you are.
What's the shelter you are providing?
I thought you live in your own house, and own a motel.
Are you saying your motel is used for emergency housing? In which case that would be ironic, as you often bang on about the welfare mentality, getting hand outs from the government etc etc.
Or do you actually own a whole bunch of investment properties that you have never let on about?
When Covid hit and Labour shut the borders and locked us down in April 2020, we had no guests at the motel at all. Instead of complaining, I pitched hard to MSD (= WINZ) to provide emergency accommodation. It was the best move to stay alive, so, yes we provide emergency accommodation as well accommodation to tradies and the few remaining NZ travellers.
right so there we go!
Yvil the slumlord, and Yvil the HYPOCRITE.
The guy who's often whingeing about the government, about welfare and handouts.
And there you are effectively getting a handout from the government. The govenrment you detest...
You're a dick, you really are. You've really been found out here, I'm afraid.
There we have it folks. What a hypocrite.
You are one of the ones we should be pointing the finger at.
shameless, self-centred spruiking of the housing market over many years.
It was only late last year that you started to say actually there might be significant house price falls. By then, so many people had been lured in via FOMO.
But you are far from alone. A whole large cohort of people have been spruiking this bubble, driving that narrative, and creating one massive FOMO mentality.
it’s really sad, as a lot of people are going to be wiped out in the next 1-2 years
For a long time now, house prices have been out of wack in NZ (damp, single sourced heated homes for crazy prices). I refused to allow FOMO to kick-in, but I feel incredibly sad for FHBs and people trying to set themselves up for retirement - their options were buy these overpriced homes or never get ahead by renting. Mr Orr has a lot to answer for - he allowed the flames to burn too long.
Good thing you fixed for 3 years. 2025 is a long way off and a lot of water needs to go under the bridge economically speaking. The peak of interest rates is mid 2023 - there is a significant possibility they will come down after that and at the time you go to renew you may be able to refix on a shorter term ie 1-2 years at about the same rate as you are currently fixed at.
I can tell you a story in 2004 we bought our first home - at 5.6% interest - by 2008 that was at 8.6% and we were pushing - then the GFC came and within 12 months we were paying less than 5.6%. A lot can change in a few years economically.
My advice enjoy your house, push those pay rises :) and then you can start to worry about it come late 2024.
You are 100% right to be mad with a lot of economist and mortgage brokers etc etc...I remember reading last year interest rates will never go back up to 8-9%, yet here we are less than 12 months has gone bye. You probably listen to a lot of them as they are suppose the be the experts, but I don't think they any better than Jo bloggs to be honest. I hope you got a rate you can deal with for next 3 years so you have some comfort. A lot can change in 12 months as we have seen
People have been on here lately touting "personal responsibility" when it comes to mortgages. I think the banks should be on the hook to be honest, we're not talking about personal loans for holidays to Fiji, we're talking a lifelong purchase. Banks make mega bucks, part of that should be adequate risk assessment and repercussions for poor judgement. Mortgages dished out when interest rates were in the 2's are effectively teaser loans.
- If an electrician tells me I can have a certain type of heat lamps in my bathroom, they install it, and the place burns down who is liable?
- If a plumber tells me I can have a mains pressure gas hot water unit, installs it and floods the place in the process, who is liable?
- If the bank tells me that I can borrow $800k over 30 years on a $150k income, my financial situation doesn't change but the bank doubles the interest rates in 12 months and I end up foreclosing, why is the bank not liable?
I hear you friend, this is a real issue for you and others. It can be a very anxious time trying to re-fix and hearing no every where.
Perhaps have a look Heartland Bank, let them know your situation and make them hear your genuine concerns, they are good people. Lock in for 3 years if you can. SBS is another bank to call, a good local bank.
I wish you all the best.
Most of us have unfortunately been talking about this for a decade or so, but the spruiker voice has been the loudest/had the ears of consecutive governments. And the spruikers path to "economic wealth" has been to do everything to support buying houses from each other and ever inflated "values" because the bank lets them. Screw the disconnect between the ability to pay for something and the price.
It's not the people that have been shrieking warnings that you should be blaming, it's the lax regulators, complicit governments and asleep at the wheel population that have caused the bubble and are responsible for the carnage when it pops.
I don't know what spruiker means (immigrant me), but the RBNZ has certainly contributed to the housing bubble by providing extremely low interest rates. Now, their job should be to allow the system to slowly reset itself, inflation would decrease house prices in real terms whilst house prices remain nominally unchanged. But what are doing now is causing carnage to the economy, and trapping up the very people that hey had lured into the property market by now providing in negative equity and unaffordable mortgage payments
Sorry to hear about your situation Ikiwi. A lot of this is to do with those irresponsible real estate agents, mortgage brokers and RBNZ. Some of my friends are in the similar situation with you. When RBNZ dropped OCR from 1% to 0.25%, my friends believed that it would go negative in future. I've warned them, if OCR goes to negative, there will be a massive inflation coming and RBNZ would have no choice to hike OCR even higher. But they didn't listened, still took large amounts of mortgage to buy more properties. I wish RBNZ would warn everyone about OCR will move up one day or put some sort restriction on how much of those money flowing into housing market. But they didn't. Also there were lots of misinformation in the air like "interest rates can only go lower" "house price can only go up" which were not really helpful for first home buyers. Even Jacinda is in this too. I am wondering how many people have bought houses in last two years because of what she said, which was she would like to see small increases of housing price every years?
Likewise Ikiwi, always hard to read stories like yours.
Hang in there, I genuinely believe we will not see rates raised to the levels forecast. The RBNZ are "jaw-boning", trying to talk tough in the hope the market cool's without actually having to deliver all the hikes. We will start to see some pretty bad economic releases before year end and that will temper the hikes. Also, you don't have to worry about landlords, being evicted, you can have pet's and your kids can paint their walls.
I have nothing but contempt for them personally, it was only 18 months ago they were aggressively easing as part of their rather do too much least rgrets policy. Now thir least regrets policy is to over-tighten, it's woeful central banking.
Quick guesstimate, OCR now at 2.0% expected to reach 3.9% in about 12 months. There are further OCR reviews in July, August, October, November, February and April (I'm happy to be corrected if wrong). So that's 6 OCR reviews to raise the OCR by 1.9% That suggests one more rise of 0.50% and oddly one of 0.40% with the rest being 0.25% hikes...
Certainly more aggressive than only a month ago
... the Warehouse ploy ... that something priced at $ 3.99 sells more easily , than the same thing at $ 4.00 ... I notice petrol used to be priced always with a 99 at the end of the per liter price ... until NPD , Gull , McEwens & Waitomo came along , to spoil BP & Z's party ...
Dec 2021 2% of 1.2m Bank Mortgage customers were behind on payments. That is 24,000 customers. Would estimate they were paying at that time 3.5% interest rate as a worst case. Now with the one year rate at 4.5% and going higher. How many more borrowers are going to get behind once they have to refix?
Some are paying additional 1% on top as low LVR premium. Some are mortgaged with non bank lenders who don't contribute to NZ Bankers association statistics.
The stagflation event of our lifetime is well underway. Recession with elevated inflation will turn into a depression within 18 months across NZ and the western world. The super credit cycle is now becoming an economic cycle that will have a deflationary debt spiral. Brace!
or maybe not an economist, wellington lackey -- or exceptionally well off -- Look around and listen to people - the levels of anxiety depression anger frustration -- the amount of Domestic violence, increase in crime, the total chaos that is impacting our health system - brain drain of our brightest young professionals -- thats all around -- long before you start talking about 7-10% inflation, mortgage rate rises, job losses, supply chain shortages, food shortages, potential expansion of various global conflicts -
hell even our very own super positive prime minister is off to do her job interview - sorry harvard speech followed by real interview sorry meeting with senior UN officials - lining up here exit from NZ -
If anything they underestimate the potential crisis
Interesting post. Stagflation is something the text books had in the "avoid at all cost" chapter. Well here we are. Well done successive Govts and all on the back of protecting the banks and speculators. I have thought reality was coming since the GFC, but been quite wrong because of the vast artificial protection unleased by central banks. Please note the word ARTIFICIAL.
Indeed time to "brace brace brace", I recall this quote from parachute training. A reminder to be delivered just before impact...
Tulipmania - https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp
Maybe they don't teach it at school anymore. No need as all school leavers need to do is save enough to buy their first home and wait for the value to explode.
The solution is lower house prices (real or nominal) so that landlords have smaller amounts of debt, so they have less mortgage servicing costs, so that rents are affordable in line with the broader economy.
House prices at 10x incomes isn't just an issue for FHBs, its also an issue for new landlords with large mortgages.
Meanwhile in the real world, we'll get a few months of news articles about how rent increases are causing suffering and misery to poor working families, and then the government will step in with higher AS or WFF rebates to look like they are doing something to solve the issue.
Is there a scenario where rents come down? If it needs AS or WFF then surely it shows it is past what a free market can support..
Preemptively replying yes I know housing is a human need but so is food yet there is no government assistance to help pay your weekly grocery bill
Any landlord that didnt see this coming and didnt get themselves in a position to weather the storm simply can to sell their house to someone who did (a cashed up investor will gladly buy the house at a fraction of its value with the tenant).
Capitalism has winners and losers.
I absolutely expect the government to boost the accommodation supplement.
They will do everything within their power to save overleveraged landlords.
Same as when Covid hit, the government and RBNZ threw the kitchen sink at bailout measures for leveraged property owners. This time they will fail.
Govt have nothing left in the pot for the landlords (or anyone else) and i think have well and truly burnt bridges with the money printers: https://www.nzherald.co.nz/nz/politics/inflation-pressure-grant-roberts…
Adrian asked for moderation, Govt delivered the biggest budget in history.
I don't think the rate rises indicated will be enough to tame inflation.
That will only happen when we have increases in real interest rates; ie interest rates higher than inflation
They will be hoping like hell that inflation stops rising but it won't.
Im expecting that houses prices will return to their long term mean of three times income...let that sink in.Get ready for 60-70% falls.
Its been a cancer across the whole of our society. I can think of only a handful of people who warned about it. Bernard, John Walley, Graeme Wheeler...gee the list is pretty short ain't it.
The easy decisions become the hard decisions later....and we have taken all the easy decisions.Now only the hard are left.
Still most people aren't factoring in inflation on top of interest rates , inflation is increasing living costs as well as interest rates rising . The reason interest rates are rising is inflation, inflation is unlikely to be stopped by a couple of rises in interest rates. This is likely to be a lengthy period not a couple of months or even a year. Orrs predictions are little better than guess work he has no idea what is coming nor do most economists. If they can predict with accuracy Chinas next moves on trade , the end of the Ukrainian war , the fed's response to it's internal inflation then they may have some idea but I don't think they do .
The OCR's now at its highest level since September 2016, having been hiked rapidly since October 2021 from 0.25% historic low pandemic emergency setting it had been on since March 2020. Much more is clearly expected.
RBNZ has doubled the OCR three times from the low and is expected to double it once again to ~4.00%.
The annual deposit amount to earn a pretax return of $10,000 has fallen from $4,000,000 at 0.25% to $500,000 at 2.0% and will fall to $250,000 at 4.0%.
So with falling house prices and rising wages(?), somewhere in the future the median income multiple to house price might return to what can be defined as affordable.
At that time, the stability could be locked in with a change of land and house use policies.
But there is no political party that has signaled the correct changes needed to achieve that in the last two and a half decades.
So Stagflation then?
If the cost of living goes up, but wages don't, then even with falling house prices, the relative difference ie discretionary income, could be worse.
While the Stats. say we have low unemployment, does anyone really think that is a true historical comparable number?
As soon as people start losing jobs, with the number of small businesses we have in NZ, secured against a house falling in value, the exponential effect could be huge.
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