What a devastating impact that foolish move will have on business confidence and the economy in general. Can Bollard not see what strife the country is already in without adding fuel to the fire? Idiot! Great for anyone with money in the bank - not that many Kiwis are in that priviliged postion.

These bits annoy me.

"“The New Zealand dollar has appreciated in recent weeks. This appreciation is inconsistent with the softening in New Zealand’s economic outlook and moderation in our export commodity prices." - the NZ outlook is of no consequance to the financial traders who play with the NZD, only Bollards messing with the OCR and 'risk' feelings in the world market effect the NZD. I guess I should give up trying to export as the NZD climbs to 80c!!!!

“Overall, we continue to predict respectable near-term GDP growth, with manufacturing confidence remaining elevated - who cares about confidence, it is actual sales and success that counts - this is not happening at the moment.

John Walley must be spitting tacks right now.....savers gain if they have a job!...exporters have higher floating cost of debt and lower Kiwi dollar returns. Writing's on the shed wall John...move the manufacturing to....Asia.

The consequences of a few years of shoddy labour govt and poor RBNZ powers to stop a bubble...now the pain and endless trouble.

Bad move IMO. The economy will stagnate even more as our dollar continues to be over valued.  So more people will cross the tasman as Oz economy continues to grow whilst we are standing still.

I think we get caught up with the idea rates should be around 5% as a long run average - why? Rates at this level are not encouraging people to go out and borrow madly so why raise them until we see signs of a decent increase in credit applications. all the signs are we are low and slow for a sustained period. Seems a case of looking at the Economics text book without looking at what is happening in the real world.

Here's a question: If the OCR was able to be floated (in some way) what would it's 'market' value be? Or to put it another way: What is the true price of debt/credit right now?

• 3% now 5% by this time next year
• More dosh sucked from the ponzi scheme
• Pressure pushing property prices down
• Equity losses for those who gambled and believed the hype
• Exporters with marginal returns forced out
• Unemployment to stay high
• Exodus to Aus to pick up steam
• Retail trade to shrink
• govt revenue to shrink
• Banks facing forced mergers as in Spain
• After a bubble comes the pain

As expected, but just proves that AB is living in la la land.

The economy (both domestic and international) have changed gears, and are definitely slowing! and could go into reverse again.

We do not need to raise rates, just to get back to some historical normal level, which may now be totally irrelevant.

Inflation is not the problem, debt is. We need to pay as quickly as possible, before the next downturn occurs which may be in 2012  if not earlier.

Jim Rogers predicts a new recession in 2012 http://www.telegraph.co.uk/finance/economics/7913302/Jim-Rogers-predicts-a-new-recession-in-2012.html

Good to see others think about property the way I do. Despite reading this site I am happy to be invested in property also.

and did Kiwis save when the OCR was last at 8% - aaah NO! No matter what the OCR they still prefer the old favourite reliable investment - Property.

I have been reading the comments from what I think is one source this morning and they are all unbelievably pro property investment even after AB put up the OCR this morning. I am the legal practitioner in a very established pracitce in a provincial capital and I can say with utter conviction that this commentator is deluded.

1. All practitioners,agents,bank managers,mortgage brokers,valuers and clients say the same thing. The housing market is in decline and it has got worse in the last 5 to 6 weeks.

2. Vendors have become desparate and are so relieved when they hear the word unconditional. Buyers are getting worried about buying today as they are worried it will be worth less tomorrow.They say a lot of landlords are putting their rentals on the market.

3.When a sale falls over the next offer is invariably for less. One property with an agreement for $235k in April, $215k in June then $205k in July and going unconditional on Monday last and the seller is pleased and relieved it has sold. He would have gone into the $190's if necessary. Vendors are starting to lower their sights to get their places sold.

4.Then there is the young couples who borrowed more than they should have to build or buy their first home as they wanted a flash one to start with. They are tryiing to sell and buy a cheaper one and this is not working out to be as easy as they thought.

As said earlier I am working at the coal face and I meet buyers and sellers every day. It is not easy to sell as the buyers are wising up to the fact it is a strong buyers market and it is getting stronger. Even if they can get finance they want to borrow as little as they can get away with.

I have to bow my knee before Mr Bollard, he is capable of hiking rates and still get the dollar down... that was  brilliant.

I am a PI, and the comments by Rich Troll, The Man etc.  are just plain embarrassing.

It isn't all roses out there, not as bad as the "non-PIs" say, but those PI comments are whack! and do hint at some type of delusion and fear.

These times do demand sobriety, good property and tenant management - as always!

How long will the margin between the OCR and the banks' floating rate stay so high? It is nearly 3%!! Why is there no commentary on this?

How interesting (pardon the pun) the ocr up but the dollar down...looks like John Walley will have to think again whether the ocr is the cause of the dollar movements!....it seems the statements about the economy being flat as for longer, has been the cause.

FYI I've updated the article above with my comments.

What I think - Hitting the brick wall of too much debt

You almost have to feel for Alan Bollard.

Right at the time when he would like to leave his foot on the accelerator to rumble over a few bumps in the road, the government is forcing him to slow down because of the extra chicane it built on the road ahead.

cheers

Bernard

Are you revising your coffee on your head prediction of 9% floating by end of 2011 was it BH?? ;)

It is evident the new normal will be here for a very long time. Not the best situation to be a PI in especially one up to the gills in debt. No wonder prices are dropping like a stone.

By mid 2011 with the ocr at 5% and no sign of any "recovery", property will be in freefall throughout the regions. Bernard's pick of 30% down has already been and passed in many places. Those of us with lots of munny hold all the aces!

Wally, Everyone has to live somewhere. If no one is going to rent  houses to live in, Maybe Its a good time to build a trailer park  for all propertypobes.

Prospective first home buyers would have to be barking mad to buy right now. With property so grossly overvalued, you would lose all your savings in a market correction and end up in negative equity.

All your money gone and in debt and possibly bankrupt to boot.

The property market must be surviving only on fools right now.

What you are skiting about is not logical. You are buying in a dropping market which is accelerating in its velocity downwards by the week. All you have done is given some vendors money, all or part of which you have borrowed and the properties are already worth less. To boot part of the debt you have taken up and are paying off was not needed as the properties are now worth less.

You should have waited and then you would be able to buy more properties and borrow less. You have no right to be so arrogant as all you have shown NZ is how stupid you are.My colleagues all over the country tell me daily just how bad it is and confirm that sale volumes are dropping still and prices are dropping.

My impression is RBNZ is always behind the curve in using OCR. They increase too early, decrease too late and generally not use it in the right way. This could be one more such instance.

debt is not bad if it is productive debt. Productivity gains come off the back of gearing and increasing the output of plant & equipment. Everyone here is confusing the issue, that is the mismanagement of the economy by investing solely in residential on property. This asset neither produces anything or improves output. It just slowly but surely depreciates. The writing was on the wall here when the powers that be allowed Oz to dominate our banking sector. We are now rudderless. If the prudential banking rules limit investment in the productive sector (as they do) as the banks need to hold more capital, and no one else will, or is able to lend on these riskier assets then how are we suppposed to ramp up our export led economy? The only avenue is to accept foreign capital and pawn off our farms and businesses to the lowest bidder.    

The rbnz should in conjunction with the ocr require the banks to hold higher levels of capital for residential housing and lower levels of capital on productive assets. This at a macro level will ensure the country begins producing again.

NZMEA says:

'RBNZ weighs against export recovery - 29 July'

The Reserve Bank’s decision to hike the Official Cash Rate (OCR) again will stifle the export growth that needs to lead the economic recovery say the New Zealand Manufacturers and Exporters Association (NZMEA).  There have been warnings from across the tradeable sector on the damage OCR hikes will do; this advice needs to be heeded.

NZMEA Chief Executive John Walley says, “Reserve Bank Governor Dr Alan Bollard noted that domestic demand, retail spending, housing turnover and business investment are all weak; this begs the question: why has he raised the rate again?”

“Hiking interest rates on the basis of business confidence and commodity prices is always going to be a risky practice.  These are among the most volatile and unreliable forecasters of where the economy is going.  Both of these indicators have dropped since its last announcement so the Reserve Bank should have put prudence before pride and put interest rates back on hold.”

“This must force some action from our politicians.  The way the world is now we cannot afford to have a central bank policy that simply ignores growth today in order to focus on possible inflation a year or so down the track, particularly when most other central banks are pushing the ‘lower for much longer’ outlook.”

“As most of the others go ‘lower for much longer’ the RBNZ needs to accelerate the macroprudential measures to deal with inflation rather than using interest rates which tend to lift  the exchange rate and are so damaging to the traded economy.” 

http://www.realeconomy.co.nz/102-rbnz_weighs_against_export_rec.aspx 

Cheers, Les.

www.mea.org.nz

PEC says:

Is Bollard boxing at shadows?

The Reserve Bank Governor has all but said there is zero reason to raise the OCR right now, but has gone and done it anyway. Perhaps in hindsight he believes that during the last inflation spiral we should have used the OCR lift earlier and gone hard. That soft approach inevitably killed our exports and now while many exporters are hanging on by their fingernails we start the process all over again.

It’s hard to get your our head around this output from the Governor given the identified inputs below:

• Outlook for growth has softened
• The world economy continues its fragile recovery
• Our trading partners’ growth better than expected but future prospects are worse
• Commodity prices moderating
• Domestic demand subdued
• Household spending low
• Retail spending growing slowly
• Reduction in housing turnover and demand for domestic credit weak
• Immigration slowing and business investment low and borrowing difficult

We have said for some time that the OCR is a very blunt tool and hasn’t the finesse to do the job it is tasked to do. The fact that if you only have a hammer then everything looks like a nail would seem to be the only logic for lifting the OCR at this point.

Whether you use it early, use it hard, use it late, or use it softly makes no difference in our opinion. The OCR remains the wrong tool — it just manages the CPI by killing exports while non-tradable inflation doesn’t change. This is not the world’s best practice and needs to be revisited. We can’t pay off foreign debt without exports. Our foreign indebtedness continues to rise, so that an increasing share of our GDP is therefore going to debt servicing. The sooner we acknowledge that we need to bias our economy for exports the better our future will be. 

http://www.pec.org.nz/2010/07/is-bollard-boxing-at-shadows/ 

So, I just went out to the mailbox to get the mail, and there's a flyer from some RE agent  in there.  Apparently the house down the road sold in 7 days and for 7% over GV, with over 20 groups of people through it in that 7 days.  This particular house sold very recently, as I noticed the "sold" sign just the other day.  So what gives?  Is this rapid decline yet to hit Wellington?

And he was stupid enough to buy it at the price he paid.

Looks interest.

Happy Renter.

You have raised the issues Mr Hickey should be getting answers too.

"We little people have no say.  We are too concerned, really, about what the All Blacks are doing this week, when we should be asking why we work harder and harder, yet get poorer and poorer. " Exactly and those corporate bureaucrats in power do not give a toss.

if people are selling their houses now and just renting..doesn't that provide an opportunity for a shortage of rentals =rent increases=PI a good idea?

Oh , no...the rot has started setting in in australia also!!

shock,horror..fresh in this morning ..read on..sob!!!!!!!!!!!!!!

Expectations for home price gains have flattened nationwide, with Melbourne seeing the most dramatic pullback, new research shows.
Real estate agents, developers, owners and fund managers see Melbourne prices rising only 0.7 per cent over the next 12 months, down from 5.8 per cent growth expected over the 12 months from March, the National Australia Bank quarterly property survey shows.
Sydney-based respondents also expect more modest increases for the coming year, with prices to rise just 2 per cent, down from the 5 per cent gain expected for the year to next March. 

''While residential house prices are still generally tipped to increase over the next 12 months, we have seen a significant cooling off since the last quarterly survey,'' said NAB chief economist Alan Oster. ''There has been a very big change in expectations.''
Nationally, expectations for house price increases over the next year are for a 1.4 per cent gain, slower than the 5.4 per cent foreseen for the year to next March. 

The weaker outlook for house prices follows six interest rate rises by the Reserve Bank since October of last year. At the same time, auction clearance rates in major state capitals have fallen from February peaks, but shown signs of stabilising. 
Respondents to the NAB survey were divided about the causes for lowered price gain expectation. Developers blamed access to credit as one of the major constraints on building new homes, the report showed. 
Buyers, on the other hand, have pointed to rising interest rates and sinking housing affordability. The Reserve Bank board meets next Tuesday for its monthly review of interest rates but is expected to leave its key cash rate unchanged at 4.5 per cent. Yesterday's June quarter consumer price inflation came much weaker than economists had tipped.

Other capitals

Perth, Brisbane and Adelaide have all seen expectations drop over the next quarter, the report showed. 
In the past three months, expectations for Perth's house price gains have dropped from 5.5 per cent to 2 per cent. 
In Brisbane, they've fallen from more than 4 per cent to less than 1 per cent. Adelaide's price hopes slid from 5 per cent to just over 2 per cent.
Canberra, which fell from 5.1 per cent last quarter to 2.9, has the highest growth expectations among the cities surveyed. 

Expensive end
The outlook at the top of the market is by far the most grim, with capital growth expectations on the $5 million-plus homes down the most, the survey showed. 
''Homes and apartments over $2 million are considered the worst investment options - perhaps impacted by share market volatility,'' Mr Oster said. 
Expectations for capital growth in sub-$500,000 homes is the strongest, he said, in a view echoed by recent sales data.
Also the report showed the real estate agents and sellers nominated 9 per cent of future sales will go to foreigners. Mr Oster said it suggested ''Australian residential product is attractive to overseas buyers and a genuine investment option.'' 

Price growth slows
The lowered expectations for price growth come as price growth slowed in the June quarter nationwide. 
The median national house price rose 2.4 per cent in the June quarter, slowing from a 3.8 per cent rise in the March quarter, according to Fairfax-owned Australian Property Monitors.
In the year to June, prices increased 15.6 per cent to $558,540 from $483,201 twelve months earlier.
Melbourne saw the greatest gain - possibly setting it up for the steep reduction in expectations.

House prices have jumped 28 per cent in the year to June in the Victorian capital. 
In the same period, Sydney home prices jumped less than half that amount, by 13 per cent, Australian Property Monitors said. 
''While clearance rates have definitely been softening since April, volumes of sales at auction, both in number and value have remained at very high historical levels in the major markets of Sydney and Melbourne,'' said APM economist Matthew Bell. 

''This indicates that the falling clearance rates have more to do with increased supply of properties for auction than collapsing demand.''

PI's rush to nearest cliff...sob.sob

The five year swap rate is down a whopping 14bp today.  Expect a cut to 4 and 5 year mortgage rates in the next few weeks, perhaps in the same breath as when each bank raises their floating rates in response to the increase in the OCR.  Good cop , bad cop from the banks.

5yr rates could get down to 6.99% in my opinion as I think bond markets all over the world will keep rallying as we approach the northern hemisphere winter.  3% 10Yr yield are a real possibility , possibly even lower.

Yay Bollard, now do it again and again every month until we reach 'neutral'. Savers, YOUR TIME HAS COME!

I have only been commenting on this site for a few weeks but over that time I cannot believe how many more people are commenting on it over a very short time and in particular if there is any bad news for property such as todays OCR increase. In that time I have been watching this site the news has been pretty bad for property on a regular basis. I sense a growing number of people on this sight who are showing classic signs of fear and they attack the other side without any argument. Just venom. I think the market is gradually swinging away from a bull property market to a classic bear property market and the fear being shown by the investors is just going to get a lot more venomous and outrageous. As the market collapses I would ask the bears to refrain from gloating and get in there and buy the bargains as the stressed investors are forced to sell. It is our christian duty to do that.

Hi Fred - yeah, I'm talking about the country saving. Interesting how others do it, eh? Cheers, Les.

"US real infalti0on rate higher - they changed methologies in the 1990s.  Recorded same as 1980 much higher"

Fully understand your argument Yup..the inflation data deceit  in the past comes from the use of the likes of hedonics and substitution. Being the the world's greatest debtor nation there was for years every reason for the US to try to hide the true rate of inflation. However, all has changed - when you are the worlds greatest debtor there's only one thing worse than high inflation and therefore interest rates, its deflation - with deflation you have lower asset values, less growth, against the same amount of debt

The incentive now for the US is TO STOP DEFLATION and part of that is to raise INFLATION expectations. Having been a major skeptic of US inflation data, I believe their 0.09% number, in fact it may be over stated. I believe that with their ability to print money that they will defeat it eventually (for a while anyway) and in the interim I don't believe for one minute that inlfation will be understated.

When I  bought my house in 1988 I paid 16% interest to the National Bank.

The collapse of the NZ dollar in 2000 accompanied by the lowest interest rates for 40 years is what sparked off the boom in residential property.

An increase in interest rates will  help keep the lid on house prices.

In the intervening years,reckless lending by all manner of financiers has seen NZ move into a highly indebted nation that does not save.

Of course there are a multitude of people who are borrowers who want low interest rates,because they are heavily indebted.

If we had not seen the explosion in house prices from 2000 to 2007,fueled by easy credit,first home buyers would not habve paid so much for their houses during that period.

The returns for savers have been pitiful,especially when you consider what the real inflation rate has been over those years.When you deduct tax and inflation,their returns have been close to negative,

It is all live for today.No wonder we are getting bought up from offshore.

Grant - please, do doubt me being correct, as for right, or left, I'm neither! Anyway, I think, using cfr, and perhaps even better, a modified cfr along the lines I've suggested above, would not,  "make NZD returns similarly attractive to offshore investors," because of the volume fraction stipulations involved. Hence, the evidence to date is, without cfr being applied as it has been (which has led to term rate increases to haul in the onshore cash) we'd probably have seen ocr hikes before now, given the RBNZ view on things, that is. 

Sure, I appreciate it's been introduced primarily as prudential tool, but it does have a complementary effect on monetary conditions, without necessarily translating to a kick and volatility in NZD. Further development of it and other macroprudential tools could leave us with a lower i.rate neutral that would leave us further down the carry and risk-play list. 

Fred - flick stuff to John or MEA email, mark FAO Les and it'll get passed on. (Keep it simple!)

Cheers, Les.  

www.mea.org.nz

And the market for the production of these productive businesses is?

A fundamentally flawed disconnect, I suggest.

All countries will now export to each other while concurrently retiring debt whilst saving.

And while we have proved - are experiencing -  that exponential growth is in trouble, China will magically prove that this is not the case, equally magically taking us all along with her in the process.

Good-oh.