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Well, the Reserve Bank (RBNZ) might be about to do its version of removing the punch bowl this week (on Wednesday, August 18) - if and when it raises interest rates - but home owners aren't perturbed.
They see house price rises continuing over the next year, with house price inflation expectations actually increasing, while mortgage holders are more confident about making payments than renters.
These are some of the key 'take-outs' from the RBNZ's latest quarterly Household Expectations Survey, which is compiled for the central bank by research group UMR. (Detailed note on the survey here.)
After taking something of a dip mid-year, the expectations of households for rising house prices over the next 12 months have actually firmed up appreciably in the latest survey, carried out towards the end of last month.
Nearly three out of four households see higher house prices in 12 months' time.
To be precise, 72.9% of households surveyed said prices were going higher. That's a sharp increase on the 62.4% of respondents three months ago that saw higher prices in a year. And it heads the sentiment back towards the peak in March 2021 when 81.4% of survey respondents saw rising house prices ahead.
It is to be presumed that the fall in sentiment three months ago reflected some of the measures being implemented by the RBNZ - such as tighter loan to value (LVR) limits and also the Government's March housing package.
But in reality the housing market has continued to roar on.
In commentary on the latest survey, the RBNZ said the latest house price inflation result suggests "households do not expect house price increases to slow down".
"This is contrary to what households expected in June 2020 where we saw only a small number of people expecting house prices to increase (0.2%)."
In terms of the kinds of increases in prices that are now expected, the survey found that households see prices rising 5% in the next year - and that's up from just 4% in the survey three months ago and now again approaching the record level, which was a 6% expectation in the March survey. The survey has been asking that particular question for 10 years.
Additional survey questions have been asked around ability to meet mortgage repayments. And there's a pretty high degree of confidence among home owners. More so than for those who don't own their own home, who have concerns about finding the rent.
"When comparing three month mortgage repayment concerns with three month rent payment concerns for this quarter, they are telling two different stories (Figure 5 & 6)," the RBNZ says.
"Over one half of mortgage holders are ‘not at all worried’ about being able to make a mortgage payment in the next three months, whereas only 30.9% of renters feel this way. One third (33.7%) of renters are either ‘extremely worried’ or ‘moderately worried’ about making a rental payment, versus 17.8% of mortgage holders."
The RBNZ suggests this "worry" could be partly explained by renters expressing more concern for having a job in three months time compared with those who have a mortgage (38.8% of renters are ‘Extremely worried’ or ‘Moderately worried’ about their short term job security compared with 25.5% of mortgagors.).
"More investigative work is required to understand the reasons behind the differences in worry between mortgagors and renters," the RBNZ says.
The latest survey was conducted shortly after the release of the super-hot inflation figures for the June quarter.
And that is reflected in the latest results on expectations of inflation, with respondents in the survey seeing a median rise of 3% over the next year, compared with just 2.2% in the previous survey three months ago.
44 Comments
When households (aka dumb money) are predicting 3% inflation you go damn well know it's going to be more like 7-10%. Anecdotally, there's quite a few cracks emerging on the ground. 10+ month waits for some building products. I am hearing builders hiring storage to stock pile supplies 4+ months in advance. Supply issues > cash flow issues > building companies going tits up.
Oh, and there's no catfood in the supermarkets for some reason haha.
Can we get M2 figures reintroduced? That would show REAL inflation, not this manipulated CPI bullsh*t.
Bingo, just because someone will charge you $X for something today, it does not mean that you will not have to pay $X + Y to get it when it finally shows up in the country in six months time. All well and good what is being spent today on things, but we should be measuring the actual cost of things at the time they are supplied. This would capture the inflationary effect of low interest rates on mortgages, so I'm guessing that it will probably never happen.
Whatever the timeframe you’d most likely be right. Supply will catch up with demand particularly if, in typical cyclical boom bust manifests. Demand will take a hit and current supply will match lower demand and in a few years maybe the world will be awash in massive oversupply as inventories will have ramped sky high. As said before interest rates will not go up much or stay up much. The long term is downward not up.
Well here it is - https://www.rbnz.govt.nz/statistics/m2
CPI is a poor measure a) it is manipulated by a group that makes arbitrary substitutions and normative "shaping" within categories. b)it does not actually contain a primary cost, mortgages, within the "Housing and household utilities" category. Rent is in there so that is something but the increased size of mortgages and is not counted.
"Households expecting house prices to continue rising over next year"
This has to be as everyone knows that RBNZ is in favour of house price rise continuing and Jacinda Arden - PM has assured that will not allow the house price to fall under her tenure, so what else does one expect.
Not only what they say but also their action / inaction support their intention. FOMO is at peak and unless both rbnz and government takes measure to cool down FOMO, this frenzy will keep on continuing.
FOMO has led to a point where FHB are throwing everything to enter as well as speculators as know that whatever price they pay today will get them profit just after a month or two.
This is the failure of RBNZ and Jacinda Arden in brief that house price should keep moving at the pace they are as they are aware that characteristic of any ponzi is that that it has to keep the momentum or it falls as their is no role of stabilisation in ponzi.
Best opportunity for RBNZ to raise OCR by 50 points to send a message even though may not cool the market but is important to send a message that be careful and to calm the perception and calm FOMO.
Not necessarily true. Depends on where and on whether you are talking like for like properties. Outside the bottom quartile, most places in Auckland are cheaper to rent than buy. Appreciate there are other drivers to buy (stability, free from landlords etc) but I hear this cheaper to own thing bandied about and it's quite often a myth. Let's assume $1.2m median priced house, so $960k loan at 3% interest = $550 interest per week, add on rates, insurance & maintenance which renters dont pay, plus the lost returns on the $240k deposit, and it's not as back and white as it might appear.
Fair points made.
A 1.2M property would rent for $35k + pa.
I have 2.49% for the next 2 years at least.
So that $960k would be 24k pa. $11k in your pocket for rates, insurance and expenses. Well under the renters watermark. And leverage on your deposit for future gains.
Median Auckland rent per interest.co.nz = $27.5k--$32k... $1.2m property pretty stock standard in Auckland.
If you're going to roll in future gains you then need to compare P&I, which is much higher than renting. I have rented in plenty of places where it was cheaper to rent it than buy it. (NB I am now a home owner, my point is simply that people throw around that cheaper cliche without it always being right, especially in a rate rise environment... you got a good deal at 2.49%, but not sure those are around now)
They do survey and if he end result of the survey suits their narrative, easy for them to go with their pre determine agenda and if data/survey suggests otherwise as in this case, will still go ahead with their pre determine agenda but only difference is will give them time find reason/excuse for their action that is not in line with survey result/data.
As per data and survey, rbnz has to act on OCR and may be by 50 points to send a message but more importantly should increase the LVR to investor as was in headline last week (Was it only to create a buzz and divert from real issue) and DTI.. fpr God's sake they must now be ready with the blue print as been in discussion for ages and they have been demanding it, so obviously are prepared and ready to ro;; asap as need is now and not after a year or months (If you ask for something and you get it, you should know how to use instead playing with time to find, how to use) BUT most probably Mr Orr and his team will play with time as though were asking for it but was asking as were sure that no politician will give it to them and not that they have received go ahead, Orr will do, what he best at play with time to delay or dilute. Do not believe wait and watch on Wednesday, how he actually does not do much to cotain the ponzi.
Price of petrol going above $2.50. So households not worried about repayments, really? Does this mean the RBNZ will be giving more free money soon? When are the creditors of RBNZ coming calling for their repayments? What will the government do then? Increase taxes? Hope i live long enough to see how much of a mess this becomes in coming years. May be it will not become a mess and we will all become multi millionaires like citizens of Switzerland.
The dirty secret of that being that once there are enough EVs on the roads, all the money the owners are saving on their petrol bills will be ploughed into higher taxes on their electricity, and we can all kiss 'off-peak' rates goodbye.
The government coffers need their revenue somehow.
For FHB lots of uncertainty as to future of house prices and mortgage interest rates.
It needs repeating: The key factor for FHB is that one’s first house is a home.
Whatever the market does in the short to medium term is irrelevant . . . the key is serviceability of one’s mortgage and so as long as one can live with some increase then there is little to fear.
The reality is that personal risk factors such as loss of income, serious illness or accident, relationship issues etc are far more common and significant but we don’t live in constant fear of those and get on with life.
I think a lot of FHBs have felt pressured to buy houses in places they really don't want to live. Wellingtonians moving to Palmerston North, et cetera. At huge prices, and sacrificing many of life's small pleasures, for decades... all to live in Palmerston North, or one of the less salubrious suburbs of Hamilton, or Pokeno. There's a point where admirable sacrifice becomes stupidity.
It's a complex problem for sure, if you can earn a living in Palmy or Hamilton you will have a better quality of life. Having lived in all our big cities, Hamilton is by some way the best for bringing up kids, and I suspect for retiring and therefore it is one of our fastest growing cities. Palmy has less momentum but has a similar opportunity to grow.
The general public aren't the sharpest tools in the shed, but it seems even they have cottoned on to our totally incompetent reserve bank and limp wristed ministers.
There is now an almost unquestionable belief that house prices can never fall because "they" won't let that happen. Therefore it doesn't matter how much one pays because you'll be "richer" tomorrow. The past is always extrapolated to the future and zero critical thinking is applied.
There should have been alarm bells ringing a long time ago on this speculative mania, but the people responsible for the financial system don't seem to be compos mentis and refuse to acknowledge the terrible mistakes they have made.
What comes after all this stupidity is terrifying.
Yeah - every random I bump into has at least some idea how fragile things have become and why.
Our electoral cycles are obviously a factor - kick the can onto the next guy's patch of road. Saw an interview with Schiff today talking to a couple of finance geeks from Zurich. He lumped central bankers in with politicians in this respect.
Combine the above with being at the point in the cycle where we want govt to manage and fix everything and we have this shambles.
Despite the broad understanding of the issue, if someone stood up and said they'd do the PM job as long as we know they would let people go bust, I don't think they would be a serious contender. We are cavemen and deserve what we get.
I wonder if something out of Afghanistan will be the Black Swan that tears us a new one?
Interestingly, the agency that did this research (UMR) is tightly connected to the Labor Party and Ardern's office. I took a look at the research design and they haven't broken out the sample to show that it's nationally representative in any way. For ex, it appears that they haven't done anything on demogs. So the research is very general and directional at best. Very surprised that the RBNZ is commissioning this kind of 'weak' research. Would be good for an official information request to see how much they paid.
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