By David Hargreaves
Well, gobsmacked I said I would be if the Reserve Bank cut interest rates, and, gobsmacked I am.
I would just point to the final paragraph of my opinion article earlier this week (which you may or may not have realised was a bit of cunning backside protection), in which I said that if the RBNZ did cut this week - less than two months after acknowledging that cuts might realistically be on the table - then it would be an indication that the economy is weakening rather more quickly than has been widely believed.
And so this seems to be the case, with the RBNZ expressing strong concern about the falling dairy prices and likely impact. And this of course just a day after Fonterra foreshadowed "hundreds" of jobs were likely to go in its head office and support functions.
I thought that the RBNZ would want to wait till closer to the October 1 start date for the measures by itself and the Government against the Auckland house market. The fact it hasn't suggests it believes it simply can't wait. Also, it clearly wants the NZ dollar down significantly, right now.
The currency markets do appear to have been caught out by the RBNZ move. Immediately prior to the release of the central bank's decision the Kiwi dollar was restlessly pushing against the US72c mark - giving the firm impression that a substantial rise was just moments away if no rate move was forthcoming. But of course there was one and the dollar straight away lost nearly a cent and a half in value. What they call a kick to the solar plexus.
What this does now mean is that the RBNZ has its fingers, toes and probably a few other things crossed that the wild child Auckland house market doesn't go mad between now and when the new measures take effect. The latest figures from the REINZ today would suggest that insanity is currently reigning.
The only thing I would say in the direction of people clambering into the Auckland market is, the RBNZ has clearly indicated today that our economy is slowing up quickly. Be. Careful.
The "rockstar" economy description - based as it was, let's face it on super high dairy prices and the necessary rebuild of our second largest city - is going to be seen in future years as unfortunate. Our rockstar has quickly passed from the magazine good looks, thrusting, vibrant, youthful stage to the too-many late nights, putting on weight, and looking generally jaded stage.
Let's see what happens. I think the Auckland house market is likely to lose steam from here as people view the economy - and such things as job security - in a less positive light than they have recently.
But, equally, you can't rule out the possibility that the Auckland market will keep rising regardless as everyone loses touch with reality. If that happens we will have the worst kind of two-speed economy.
It has happened before. In the mid 1980s we had a soaring sharemarket and yet a real economy that was dying on its feet as the then Labour Government undertook all manner of heavy duty structural reforms.
That all ended very badly on or about October 20, 1987 (the sharemarket crashed).
The clear warnings from today's decision about the slowing economy should be heeded. Otherwise there could be trouble. Big trouble.
21 Comments
I can't see a soft landing for either the NZ economy or Auckland house prices. Interest rate cuts won't help. Auckland prices are well and truly on an exponential curve now (albeit on very thin volumes).
It's not all foreign investors either. I have a cousin who works for Fonterra who has just purchased a first home and a mate who has just purchased (>$1m) with lots of debt. If and when jobs are lost interest rate cuts won't help.
Prices will always go up, it's just a question of how long you have to be prepared to sit it out for them to do so. Yes there might be a god almighty crash but if you have the willpower and cash flow to sit it out you will ultimately make a return on the property. Perhaps the younger generation of first home buyers are more prepared to sit this out if/when it occurs than older property investors are.
Personally my young family are living in a comfortable and warm, if a little older house purchased for $415k, with a mortgage of only $130k. Rates and markets can go which ever way the like over the next 5-10 years for all I care, we will still come out on top once we are ready to move on!
I have always said that things are not what they appear , we are not in trouble just yet , but clearly falling dairy prices are going to impact the dairy sector which is best known for its unsustainable debt levels .
Its should also weaken the Kiwi $ which will assist exporters
No doubt its good for the productive sector Boatman, unless of course we have an Akld housing crisis somewhere further down the track which will hurt all, including the productive sector. Hopefully not, but Wheeler rolled the dice today, and I share David concerns - hopefully it works out, but I hate relying on hope as a strategy
1) The government is weak, incompetent and showing no leadership on the issue. The elephant in the room is the immigration rate which will continue to push up Auckland house prices in yet a bigger bubble.
2) The RBNZ is hamstrung. It is implementing macroprudential tools for Auckland to try & decouple Auckland from general monetary condtions but it wont be enough against the rampant immigration rate.
3) The RBNZ should have bought the LVR restrictions in immediately and then dropped the OCR, not the other way around.
4) The government needs to give the 12 month rolling inward immigration rate to the RBNZ as a macroprudential tool. The migration rate could have then been managed against out ability to build more housing supply an sort out the RMA. The OCR could also then be a lot lower and the NZD a lot lower.
This article is too inward looking; have a glance outside our little island nation at all the turmoil around us. What our monopoly master doesn't understand is that the forces driving the Auck market originate outside of his domain.
Arrivals are looking beyond just the fiscal, but when all you have is a hammer (interest rate?) then every problem looks like a nail ( house prices).
Does anybody think the refugees in the mediterranean care about the finer details of the EU fiscal problems; they are looking in the rear vision mirror and running away from, as much as running towards....!
Capitalism v number of musical chairs/ Titanic v available lifeboats are all relevant descriptors.
[ Please do not use racial sterotyping. partly deleted. Ed ] They are somehow spending million or more each in auckland despite only being allowed to take out 50k from china (so i heard). The worse our economy, the higher house prices go. Total divorce of house prices from reality.
Dropping the OCR before the regulations on housing comes in is just madness. The Auckland housing market will go ballistic with investors and speculators both here and overseas fighting each other with higher and higher prices before the regulations kick in in October.
The Government does not give a toss about Auckland's rampant market. Just look at the idiot John Key has put in as Minister of Housing.
It is all about self interest. The RBNZ hands are tied, the Government and its backers have too many investment properties to want to put a brake on the unsustainable house prices.
Well Ergophobia is not surprised, I labelled such a RBNZ move here, in anticipation, as a delinquent act. They (RB) have come out of the shadows now and all can see that they are just the organs of a motley crew of pollies, banksters, debt ridden fontera,real estate agents and stock-jobbers. There can be no other Judgment upon their seeding them more with cheap debt and debasing our currency, when the NZ economy has rising manufacturing, the best balance of payments in 40 years, a chronic skills shortage, retail spending at record levels and even the RBNZ is predicting 3% P/A growth for years to come. Forget free enterprise in the new aotearoa, from now on it's all about feather-bedding monopolies. And all us millions of Kiwis are going to pay them subsidies by way of higher house prices and costs of imports along with low interest income for hightened risk.
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