It's not just that the Reserve Bank has done a screeching, tyre-shredding u-turn on its decision to remove loan to value ratio lending limits.
It's more the fact that our central bank actually pledged, very firmly, that the LVRs would be removed for at least 12 months. It has gone back on its word.
Credibility is huge for a central bank - and this is a very big and damaging blow.
Let's be clear, the RBNZ when announcing the plan to remove LVRs back in late April of this year said this: "This provides banks and customers certainty that no further changes to LVR requirements will be made for at least one year."
The fact that the RBNZ has gone back on this very firm commitment immediately casts doubt on another firm commitment it made earlier this year - that the Official Cash Rate would be kept at 0.25% till at least March next year.
The markets have long doubted whether the RBNZ could wait till after March to change the OCR and indeed possibly take it negative. Now, with the RBNZ having gone back on what it said on the LVRs the market will be free to speculate.
This was written ahead of the latest Monetary Policy Review and press conference on Wednesday, so, RBNZ Governor Adrian Orr may well have moved to clear up the situation on the OCR by the end of Wednesday.
But all round, none of this is a good look.
I would stress that I have absolutely no problem with the reintroduction of LVRs. On the contrary, I have made my views clear on this one a few times.
However, this astonishing u-turn is going to make it difficult for the banks and other market players to totally take the RBNZ at its word on other issues from now.
I understand that the RBNZ was trying to calm very, very troubled waters earlier this year, but by being so very specific about putting measures in place for 12 months it was giving itself very little flexibility for the future. And I would certainly argue that it did not need to put time limits on either the LVR or OCR moves.
In trying to give the market confidence and 'certainty' but now going back on its word, it has put a great deal of uncertainty into the atmosphere.
As for what happens with the housing market now that a very long lead-in has been given to reintroduction of the LVRs, well I shudder.
If the open homes have been frenzied, heated affairs before now, what will they be like this weekend once everybody realises the LVR barrier is coming down again?
To be honest, given that it has done a u-turn anyway, and gone back on its word, I think the RBNZ might in this instance have been better to just simply clamp the LVRs on again straight away.
Maybe it didn't want to look panicky - but given the circumstances of the timing of this announcement it looks panicky anyway.
44 Comments
There is little difference between ten months and twelve months. The restrictions should go back on immediately and the RBNZ should learn to not make stupid policy or promises.
These incompetent clowns will have achieved nothing except somehow adding twenty percent to the price of housing during a huge recession. That is... stealing $200k from every aspiring homeowner and handing it over to the undeserving landlord class.
I hope the next generation of kids who are now doomed to grow up even poorer spit when they hear the name Adrian Orr.
He will not be remembered kindly.
I'm sure they did what they thought best, backed by 'traditional' (post-2008) training & models, & bigger & faster. Other C/banks too. It didn't work, big time, but that's not so important now (we all make mistakes, can't know everything, and we are where we are). What's critical is what they do now. Keep digging the hole to 'save face' and dither (& your last sentence may well stick). Or the model's now (presumably) been adjusted with current reality and behavioural insights, and they can just get on with the best course, fast.
What would you suggest a middle aged investor do? Free hold with $1m+ in deposits (going nowhere, and not guaranteed by the Gov), shares and company super. Buying a cheap 2 bedroom unit looks like a reasonable option...Clendon, Pukekohe. Landlords aren't the problem. Limited supply, RMA, monopoly on building supplies and immigration are bigger factors. Disclaimer-have owned rentals before which i now regret selling.
Here's a thing, they made sure a 'certainty' is favouring one side of the team..it's clear, even themself admitted. The other team sided for 'uncertainty'.
So both govt & RBNZ have to be sided on predictable certainty? or creative/unpredictable, a just management practices.. cannot be bought etc.
So far, those pretend on SME circulating the funds out of the productive economy into housing is the preferred choice, the damage in my opinion is already done. If you're a Kiwis with so much 'uncertainty' sides of the team, move on. I don't expect that both NZ & RBNZ governance to be independent, fearsome, decisive but can be loved by all citizenz at the same time too, based on their decision making process/result so far?.. Kiwis will be the judge of that. 5million teams already contributed & sacrificed.. now, what next? slaughter them further?... go ahead.
Any credibility impact is not from changing direction, but from authenticity. An honest U-turn is better than not changing course in the face of new evidence. If they now think and just frankly say that removing LVRs and crashing interest rates didn't have the desired effect, and it was a mistake to set a definite timeframe on something so fluid/unusual, and then act immediately with the new strategy (whether reimpose LVRs, say rates will be adjusted as appropriate in future without any fixed timeframe, etc), authenticity and honesty adds to credibility.
It wouldn't be a U turn , it would be changing course to match conditions. That is pretty much what the government has done during Covid. They initially said masks could infact cause the disease to spread even more, but changed that opinion months later, after it was shown that they infact helped to prevent the spread. It seems that they don't want to be shown up to be wrong and the younger generations and people wanting to buy a house will be collateral damage. IMO I compare it a bit to current the President of the US denying that he lost the election and refusing to concede, rather than looking at the facts
It would be Interesting to hear what Michael Reddell has to say about this, but he's gone dark.. An Interview, eds? Reddell's a long-time, reasoned, RBNZ critic.
David RBNZ taking heavy damage is better that screwing FHB.
Please check what is happening in real housing world in Auckland and your thoughts on it :
You can check below to understand, how deep the crisis is in housing market (Nothing against individual but should study to get real idea of what is happening in Housing market and what more 5 months delay on LVR can do)
Bought in 2019 September for 900000 with CV of 880000 being sold now for 1.350 million plus (Is it builder or someone else and even if it is builder, will house price of all other houses not rise by 50% ). So whom is it helping FHB or speculators and who are doing it ?
https://www.propertyvalue.co.nz/auckland/manukau-city/pakuranga-heights…
https://www.barfoot.co.nz/property/residential/manukau-city/pakuranga-h…
Above is not cherry picking but the latest that observed - David your thought on it, please.
What happens if the Global economic situation worsens? Will the RBNZ then have to reverse again? A vaccine will not be the silver bullet everyone thinks it is and will take some time to roll out across the world. We have at least another year of heavy restrictions, not to mention many more years of travel restrictions on many countries.
With many cities being decimated by ongoing restrictions and lockdowns, there may be further downside risks to come.
I wasn't joking when I said houses in Havelock North are going up %10 a month, these guy's lost control and there is no easy fix without collapso.
She's breaking up Jim, worth a watch,
And so it starts.
I wrote this morning of a family member looking to buy at auction this week.
Well, (he's 28) has rung up and put in a pre-auction bid because of what he heard at work this morning (the LVR changes in the wind). And guess what?
He's the third to do the same on the same property this morning!
When his mother asked him "How are you going to pay for it if your offer is accepted? " he responded "I'll work it out"
Thanks, Adrian......Do you have any inkling of a clue as to what the unforeseen circumstances are likely to be from what you have announced this morning?
I hope so.
It's spilling into families in a way that isn't acceptable.
What do I tell his mother if her son has to pay up when I've already said "No." and received the cold shoulder?
Of course, we won't leave him stranded. But this mess is starting to consume even the most conservative of families.
Unpredictable commitments supposedly by a 'just referee', is what needed to restore the 'confidence'. At the moment the govt. & the RBNZ, are both pretty much predictable in their decision making process. Means, those favouring by decision can sit in comfy knowing they're nicely sit and secure. I urge those young professionals/essential workers .. either to just leave this country for a clear better pasture, or keep on striking for wages/salary increase.. for as much as the 'hidden inflationary numbers' of housing cost. Off course by the time, salary/wages increases.. the rental will go up, this is up to govt then to decisively opt for: (1)
Further rental increase freeze/stop (2)Apply the CullenCGT (after all Jacinda promise is as long as she is in power with NZfirst 'last time').. now, let's see if she & majority Lab team have a gut to implement what normally has been implemented within OECD countries (3).. or? all can still blind eyed pretend, and if possible even try to remove the current bright line test.. for this last option, I hope the govt can persuade the RBNZ to do more/massive QEs/LSAP & make it quick/tripling the FLPs value, with possible opening of loan $ flow into ..yip, the economic darling. For us personally? - see, you across the ditch for your long waiting list of Med procedure.
US bond market derails the RBNZ's LSAP (QE) lower term interest rate intentions in a matter of days - evidence-check 5D tab. A move from a low of 0.533% 10 yr yield last Thursday to 0.77% is a significant 44% increase and in terms of DV01 expensive for investors.
Banks have cause to be pleased if they swapped volatile fixed rate term market government debt at higher prices for short term floating rate (OCR) government debt, parked at the RBNZ.
I just got back from town nd was talking to the girl behind the counter from Waipukurau, she said her husband wants to move closer to work, they had the agent around last night.
They purchased their house just under 5 years ago for 340k and have spend a little tidying it up, on 1/2 an acre. The agent said they had buyers ready to sign up at 1.1 million, in friggin Waipukurau!
What will become of us?
Oh dearie me, another expert forced to admit that even he can't predict the future. Who would have thought, changing an input to a complex adaptive system has an unexpected outcome. There was I thinking he was putting up house prices because it's good for us.
Bet Jacinda and Grant are happy the media didn't seem to catch on that house prices went up 30% in their first term, too. Still, if they keep building houses at a good rate and we stop bringing in thousands and thousands of more people every few days, maybe she'll come right?
Both these things can be right. But expecting others to put their lives on hold because you think they bought at a 'stupid time' is where it falls apart.
As I've said before on here; the 'correction' we've all been thinking could be any day now is really delayed blod-letting from 2008. Not many people can put up with twelve years (and counting) of renting and having their homes sold from under them while they wait for a mythical crash, while well-heeled Wellington public servants pour gasoline on the fire.
Nope. The people who are worried about whether housing is a 'lousy investment' or not are not the same as the people who are upset by what the RBNZ are doing. I couldn't care less whether housing is a good investment or not. I just want a stable place to live and not to be destitute in retirement. I've worked really hard for that goal only to have the rug pulled from under me.
People who post comments like yours should be required to spend a month shadowing someone looking for a rental and a month shadowing someone looking to buy their first home. Perhaps then you'd have a bit more empathy.
I'm not uncaring about anyone's plight, far from it actually so don't lecture me about a lack of empathy. My comment is aimed at the many commenters here who were waiting for a crash and encouraging readers not to buy. Well, you should have bought as soon as you could - even a small rental in an area you didn't intend to live. Being short property is probably the single largest risk the average person will ever take. It is tough to save a deposit quicker than a house goes up in value.
My solution has always been to tax the investor.
I won't lecture you about lack of empathy if you actually demonstrated some, rather than telling me "Well, you should have bought as soon as you could - even a small rental in an area you didn't intend to live." You can keep your advice in hindsight that makes a bunch of incorrect assumptions about my circumstances to yourself thanks.
I would suggest that the RBNZ is losing much more credibility over it acknowledging that lower interest rates are the cause for the dangerous surge in house prices and then, the same day, announcing the FLP which has the main purpose of driving interest rates even lower. How incredibly stupid!
I think the task was to keep house prices stable. A 10-15% rise in house prices where they are 6 to 8 times income is a fail for RBNZ. A 1 million median house price is not a problem of course if we all earn over 100k. Unfortunately the median income in NZ is 54k.
"What shall we do?"
"Try putting in the LVRs!"
"We only removed them a few months ago and said we'd leave them out for 12 months!"
"Ok, what about increasing interest rates?"
"We only just put them down! And now we've introduced a FLP - which will drive them lower!"
"Well I dunno, lower interest rates then!"
"Just a second ago you said to raise them! And I said we're lowering them!"
"Well I dunno then, I'm out of ideas"
"Me too, lunch?"
It is not spelt Credability........It is Credit Ability ......Print and be Damned.... is the true meaning of Funny Munny.
Make Savers Poor Again...The New Labour Cap Motto Granted to Grant. ...Pledged by Orr.
Socialism at its worst.
It will work just like MAGA....Trump Motto....4 years of purgatory....Before Common Sense prevails and debt is not Man-duh-Tory....but " Capped".
But this is the most worrying item.......WAR....in USA.
https://edition.cnn.com/2020/11/10/politics/pentagon-policy-official-re…
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.