ANZ New Zealand's economists now expect the Official Cash Rate (OCR) to peak at 4.75% next year, up from their previous estimate of 4%, arguing that economic risks are firmly tilted towards inflation and inflation expectations.
The Reserve Bank currently has the OCR at 3%, having started increasing it from its record low of 0.25% last October. However changing her OCR call, ANZ NZ's Chief Economist Sharon Zollner says the economy isn't rolling over, with a tight labour market and strong wage growth partially offsetting the impact of higher interest rates. Additionally she says the low NZ dollar is also a meaningful offset to current monetary conditions.
With Consumers Price Index inflation hitting a 32-year high of 7.3%, and official unemployment at just 3.3%, Zollner says the Reserve Bank needs to see "a fair degree of slack in the economy," including unemployment rising to 5%.
On Thursday Statistics NZ reported Gross Domestic Product (GDP) rose 1.7% in the June quarter, well above the 0.4% increase forecast by ANZ's economists. Following the GDP release, ASB economists also revised their OCR forecast, now seeing a peak of 4.25% early next year, up from 4.0%. According to ANZ's economists, as of Friday financial markets were pricing in a peak OCR of around 4.34% in May/July next year, with cuts priced in after that.
"By hiking the OCR, the Reserve Bank is trying to cool demand to the extent that it drops below (constrained) supply, opening up a 'negative output gap'. That is, they need to see a fair degree of slack in the economy – including a 5% unemployment rate," Zollner says.
The Reserve Bank's Policy Targets Agreement with the Government requires it to target maximum sustainable employment alongside price stability - keeping inflation between 1% and 3% on average over the medium term - when setting monetary policy. However, just what maximum sustainable employment is, is somewhat vague. It's not a specific unemployment percentage.
The Reserve Bank is next due to review the OCR on October 5.
Wanted: Spare capacity
Zollner says recent economic data shows although the economic growth profile isn't strong, it’s not clear that beyond the housing market the rate hikes delivered to date are succeeding in opening up much spare capacity in the economy.
"That requires meaningfully lower household spending. In our consumer confidence survey, those with mortgages were more likely to report that it is not a good time to buy a major household item, but on the other hand, they were more likely to report a better personal financial situation. That likely reflects that those who have houses are typically higher income earners and therefore are being put under less pressure from the lift in the cost of living," says Zollner.
She says wage growth is at least the highest it has been since 2008 and is yet to peak.
"The share of jobs receiving a pay rise of greater than 5% has surged to the highest level since 2008. Median weekly earnings were up 8.8% year-on-year in the second quarter of 2022, the fastest increase since the data began in 1998. Firms’ wage expectations remain very high. The unemployment rate, at 3.3%, is highly inflationary and likely to remain so for at least another year."
Additionally Zollner says core inflation measures are all at least 4.8%, and it’s unclear they’ve peaked.
"While retail volumes are lower, ANZ card spending shows spending on discretionary items like restaurant spending holding up. Both business and consumer confidence are lifting from their lows. Firms’ four biggest problems are all inflationary: finding labour, costs, wages and regulation. Anecdote is consistent with demand holding up."
And while house prices continue to fall, with falls almost reaching double-digits, Zollner says they appear to have found a floor.
"In our updated forecasts, the OCR rises by another 175 basis points, from its current level of 3%, to 4.75% by the middle of next year, and we assume that goes into floating mortgage rates 1:1. But headline inflation does a lot more of the work of lifting real interest rates, dropping from 7.3% in the second quarter to 2% by mid-2024 – that’s 530 basis points of lift in real floating mortgage rates. That highlights that if inflation doesn’t fall as far or as fast as our forecast, for whatever reason, then there is still upside risk to our OCR forecast peak, even at 4.75%," says Zollner.
'Neutral OCR is rising'
She also suggests the neutral OCR, the level where it's deemed to be neither stimulating nor constraining economic activity, is higher than the Reserve Bank's latest estimate of 2%.
"Given how far inflation is above target, expectations that it’s going to remain that way for some time, and strong wage growth, it’s not unreasonable to think that the neutral OCR is rising. That is, on the street, people’s idea of what a 'good' mortgage rate looks like is likely lifting as the shock of the abrupt rise wears off and 7% wage growth takes some of the sting out of the increase in both debt-servicing burdens and borrowing capacity," says Zollner.
"While both uncertain and unobservable, the neutral OCR matters a lot. If it is indeed lifting, then the OCR is chasing a moving target. It needs to rise along with neutral 1:1 just to stand still in terms of the real contractionary impact it is having."
"We suspect the neutral nominal OCR is currently around 3%, or at least will be soon. That might sound high, but it’s worth noting that unemployment is currently lower, and inflation higher, than in the mid-2000s, when the Reserve Bank estimated neutral was around 5%."
"We are not anticipating that the Reserve Bank is going to make a sudden step change in their estimate of neutral. Rather, we are anticipating a slow-burn story of inflation pressures just not cooling as quickly as the Reserve Bank is forecasting. We therefore are predicting a series of 25 basis points [OCR] top-ups, rather than a continuation of aggressive double-sized moves," Zollner says.
"The mythical median household is actually well-positioned to cope with the consequences for mortgage rates of an OCR rising to 4.75%. As figure 3 [below] shows, the debt-servicing burden is a fraction of what it was in 2008, when the OCR was 8.25%, and still will be at 4.75%. Household debt relative to incomes is actually about the same as it was then, though this statistic masks a large wealth transfer from a younger cohort to an older one."
ANZ is New Zealand's biggest residential mortgage lender with total housing loans of $102 billion at June 30.
191 Comments
They are not predicting, they are persuading - persuading commentators and the public that rates are going to get higher so that the banks can push mortgage rates up and / or get more customers fixed at high mortgage rates for longer. The banks want to feast on the diminishing disposable income of households whilst they can - they know inflation is cooling and time is short!
Do you mean the US Fed that has just seen a 0.1% month on month rise in CPI and still seems insistent on creating a recession?
... Europe where gas prices are driving everything? Thankfully, we don't have the ability to export our gas so we are insulated from that madness.
Financial markets are now pricing in the possibility of a 100bp raise by the Federal Reserve soon.
It may not happen, but the markets are showing that it is a real possibility. Whatever comes out of the Fed next will not be gentle. They are on a path to raise rates in a big way, and fast.
What instead contributed to the “miss” to expectations for the core CPI, in particular, was how the index accounts for rent and shelter. Nearly a quarter of the whole consumer bucket consists of something called owners’ equivalent rent (OER).
This isn’t actual rents collected, charged, or even advertised; rather, it’s a placeholder the BLS uses to infer notoriously difficult to pin down shelter costs from housing prices. Without getting too far into them, OER tracks home values at a lag of 12 to 18 months.
Long story short, the summer acceleration of OER in the CPI and core CPI is last year’s housing bubble finally showing up in the mainstream “inflation” measure. Over the past three months, it “unexpectedly” offset the deceleration in other goods prices alluded to by the domestic retail sector that has been lately overwhelmed by inventory. Link
Perfect liberal Labour othodoxy, we need to create a mindset of renting in perpetuity and owning nothing. Push rates up to 10% and let's get the homes of the young reposessed so the State can look after them. Crush priviate landlords in favour of the state. Labour and Orr know what's best for you.
Hmm. An actual real Labour party instituted Land Value Tax in NZ, and broke up speculative land banks to get land into the hands of many average Kiwis, including owner-farmers. An actual left-leaning party wouldn't be subsidising property speculators as this lot have continued to do for years, and indeed have increased subsidies to in recent weeks by lifting FHB grant thresholds. A "labour" party wouldn't be over-taxing working Kiwis while subsidising property speculators.
It seems in NZ we have generous welfare for the older and wealthier and "rugged individualism" for the young, while we tax them and indebt them to fund that welfarism.
It comes from the ANZ report, so to me looks like a deliberate "read between the lines please" request from Zollner and her team. They seem to have been directionally correct in saying rates will move higher than RBNZ forecast across every forecast in the chart you refer to. My interpretation is they believe the reserve bank will have to push the official cash rate above 5% but can't say that out loud.
https://publications.anz.com/SingletrackCMS__DownloadDocument?uid=99702…
Yes. Going by the ANZ teams form of 7x upwards OCR track provisions - more upward revisions would be a dead giveaway.
5% pls in 2023 are very likely. 7-8.5% mortgages are coming.
If you listen to the "independant expert" likes of TA and AC "rates have peaked, buy now punters" - you are being sold a lemon and down a course to financial oblivion.
The FED will pull up their funds rate hard and it will be shocking to all (US stocks will shock and property will go flacid) ......US 30year mortgages are now skipping past 6%.
RBNZ must only watch the FED and can but only, go bigger.
The 3/4 hike priced into the FED meeting next week....a biggie!. If they go the full 1%... WOW....the RBNZ may have to do an out of schedule, emergency hike?? Maybe. Or the NZD goes well into sub 58c.....
Yeah agree. The RBNZ should lead this charge and it should require banks to be testing all housing borrowers at 8.5%. RBNZ have dropped many balls, lets stop crap performance it now.
This is all in keeping with the current knowledge that inflation will haunt us for years and energy scarcity will be here for another 10 years at least, maybe longer.
Oil drillers are all largely preferring to produce what they have already discovered (2 to 10x years ago) and not risk big on new rounds of risky exploratory drilling. This is due to the world govts saying in unison "we hate your guts" and may regulate you out of existence.
We need increasing oil/gas production for at a minimum of the next 10 years.......and will use its many, many products, for many, many decades.
Energy shortages are very likely to increase - inflation is the new norm.
Stress testing at 8.5% isn't enough.
If they forecast 4.75% OCR ...so 7-8% rates and know they are throwing darts so to speak then shouldn't they add a buffer....so they don't lend money to those who cant repay.
In these times testing at 10-12% seems more prudent.But that would mean tightening and we know where that leads.
What does the bank do.
Must be classic to be a fly in the wall in these organisations.All the hoopla of "profitable sustainable growth" meetings to now a few people being asked to join special meetings with legal to discuss "other scenarios".
And half the middle management must be hoping the game can be kept up because they bought a rental or two, and the other half hoping it falls in a great fucking heap because housing is the biggest pain in the arse they didn't think they would be dealing with when they started.
Fitzgerald i bet she didn't have property managers either
did she visit the tenants on thursday evenings, every thursday evening, and collect the rent in cash?
good god...she probably paid tax on the earnings!
if we went back to that the price of housing would be a third to half from now...but the banks much smaller
i think thats where we are going...ouch for the couple of hundred thousand "landlords" who got into rentals
but we have been here before.....farmers know all about lean years, kiwifruit investment in the eighties ended up bloody hard going and vines were pulled out, manufacturers too...we used to have plenty of them.How many drawings were shredded and the machines sent to the tip.How many people with the ability to employ fifty staff and make something are still doing it twenty years later.How many lost their deer investment over the fence and into the bush....supposedly.oh....remember miami vice and the vbg...how many lost the lot.We will look back and tell stories of the auctions too one day.
some will find a way through.....roosters to dusters for others
but who really knows.....putin could capitulate before the upper hutt market does.governments will have to manage the banks knowing full well they have the populations heads on the block.maybe national will get in and commit to building the hundred thousand houses that we need.
and the not knowing part is the most f**king annoying part
and so many of the population are living in a state of complete uncertainty
no wonder we are dealing with mental health issues like never before...probably one hundred thousand kiwis don't know for sure where they will be living next week.probably half a million don't know about next year for sure. dinner,teeth,bills...no idea how
should someone buy a house or not buy a house...when did it become a life wrecking risk?
and becoming a society we aren't so proud of.....looting...really? don't mention the family violence...oops i did
living in new zealand is like living in the matrix.....how many kiwis are using the banks lending to fund a lifestyle and/or funding their lifestyle with a government payment.how many kiwis worry about a letter or a phonecall from the bank or government next week
we get told all these bloody numbers......ocr,pmi,balance of trade, twi,fixed rates...floating rates,gdp,gdp per capita
but we never get told how may are free of the banks and the government...it seems the two options mostly taken for "getting ahead" or "keeping your head above water" are the banks or the government.
how many don't give two hoots about what happens next week or next year? is it 6.8% of the population aren't in debt ,fed, housed and /or need a working for families payment to top them up on tuesday
is it 16%
is it 24%
any takers
how many don't rely on the banks,govt or a pay check?what's that number
how many kiwis are in control of their lives...let me guess
1%
I think it is gradualist delivery of higher expectations which they can't do abruptly or face losing their jobs (as the banks/RE industry pay their wages after all) or risk losing face if they are too far away from consensus/RBNZ views and are wrong. Hats off to Zollner though for leading the charge.
At least they intimate that given current inflation rates, real interest rates are still accommodative which appears to be lost on many commentators globally.
Why doesn't anyone hold these bank economists to account? As a customer, could this not be taken as misleading information... the inconsistency and flip flopping in forcasts certaintly doesn't help one make good financial decisions. What purpose are they there for if they really have no idea...
A bank is different to most businesses surely, in that one of their main functions is to look after their customers money. I just think it's a conflict of interest. If banks have no concern with their customers own financial wellbeing, that's a bad thing. I don't know, just my opinion.
I think the picking of winners and losers and how the pie is shared (when the additional money is created) is where the problem falls in my opinion.
2008 - now, it has been decided that asset owners were going to be the beneficiaries of the money creation. Then we wonder why we have financial and social instability. How could that possibly happen! (um....)
And yet if you voice this opinion, you get ridiculed as a doom gloom merchant by the people who don't appear to care at all about financial and social stability - they only care about have more of the pie unevenly served on their plate for them (for no benefit for anyone else) and at the expense of the other members of society. It hasn't made society or the economy better, it has made it worse in many regards.
(and by no means am I a socialist, but what has happened 2008 has been ethically and morally wrong in so many ways that it should be prevented from happening again....well at least until the next long debt cycle is ready to come to an end 75 years from now....by which point nobody will be alive to remember the stupidity, just as nobody appears to remember the stupidity of the 1920's and 1930's).
Yip, as I've pointed out previously, if Luxon had any political smarts, he'd sell all his assets and put them in a blind trust.
If he did that, I'd consider voting for him.
Exactly what Key did.
In the interim, him owning 7 houses for his own financial benefit, during a 'housing affordability crisis' just comes across as being a hypocrite to those who are stuck in poverty (in my view).
What are they trying to achieve through these predictions though... are they trying to help their customers, are they deceiving their customers to increase profit, are they trying to put pressure on RBNZ and or political parties?
If they're consistently wrong they should atleast disclose that the probability of them being right is very slim. Yet they can't, because they're meant to be seen as the experts.
It's interesting though that it's the first time I've seen Zolner/ANZ acknowledge their incorrect predicitons... it's getting ridiculous now and even they're worried and/or embarrassed.
The met service get the weather wrong all the time and that is much easier to predict. Yet I still look at the weather forecast and don’t complain if it is a degree or two out, it is still useful information. As I said above I don’t think the banks have been that wrong, a few percent out here and there is expected, but they have vary rarely got it completely wrong. It’s up to you whether you listen to their predictions.
also it’s quite possible that their predictions influence the market thus causing them to be wrong. Imagine if they could accurately predict a 20% drop in stock prices, everyone would then sell hence there could be a 40% drop and they would be wrong. It’s a bit like back to the future, predicting the future can alter the future.
Can I offer a different interpretation?
It's not that 'more of peoples' money handed over' is the answer, or the desired outcome. Rather, what has to happen is that the populace as a whole needs to stop making promises.
To explain further, 'money' is at the end of the day, just a promise that you will do something. Imagine an economy where it's just the two of us. You sell shoes, and I sell books. I need shoes, but you don't need any books right now. So, instead of me giving you books, I give you a promise that you can come and get some when you need them. Expand that out to a larger economy, and you get the concept of 'money' - lots of promises made to other people, that they can at some point in the future collect their books, or whatever else they desire.
When you introduce credit into a system, then you facilitate people making promises over and above what they can currently deliver. Perhaps I have 5 books in stock, but promise you 5 for the shoes, and another 5 to the butcher for some lamb chops. I'm confident that business is going well & I'll be able to deliver, so this isn't a problem. The problem comes when everyone gets enthusiastic, and starts making too many promises - the collective economy can't deliver on those.
So, what happens? Inflation, whereby my promise to give you 5 books becomes a promise to give you 3 books. At the same time, central banks seek to curb peoples ability to make promises, by increasing the cost of doing so. In the long run, Inflation + Higher Cost of Borrowing = a reduction in animal spirits. Which is arguably good & necessary, though somewhat uncomfortable in the short term, as people realize they've written a bunch of cheques that they can't cash.
That's very kind. Although given that I just made it up, I'm afraid not! Having said that, It's not original thought - more a distillation of other peoples insights, so am sure there's something out there if you're inclined to go down a google rabbit hole & see what you can find.
Capital and labour - absolutely. But all workers are not impacted equally - some have more power in the labour market than others.
We are seeing this already in NZ - earnings for low earners have increased by 1% ($8 per week!!!) since the start of the year, whilst higher earners have seen earnings increase by 3.2% ($52 per week).
What should rent and property rises be following instead of "thanks for needing a home"?
Maybe employee's should be treated as valuable members of the organisation rather than expendable resources and wage slaves. Maybe the pyramid should acknowledge that it's those at the bottom that are holding the structure up and the gains shared better. Employee's in a better position to invest in the business would have more reason to improve the business instead of shareholders who don't really contribute anything. Consider this; when the CEO leaves there's a lengthy replacement process but the business continues to operate. When a number of lower ranked workers leave there is no business to manage. Who's really more important to the functioning of the business? Imagine if the masses woke up to this. "Quiet quitting" just doesn't seem to be the most effective protest.
There's a reciprocal relationship involved with employment.
You forgo a higher wage in exchange for job security and benefits (paid holidays, KiwiSaver, etc).
Your employer finances your wage, paying you weekly/monthly, generates sales, handles the legal requirements of opening the doors, finances R&D and the growth of the company, and so on and so forth. They do that using the surplus between what you cost them and what marketable value your time generates them in the open market.
What's more important, earning a crust, or being showered in fake platitudes by your employer, as if you're a school kid getting handed another meaningless certificate?
The great thing absolutely anyone can go and start their own company. Go go independence!
Since people are allowed to change their minds, and indeed ANZ have changed their minds many times this year, I am also changing my mind - but not massively.
rather than subsiding to circa 3% by May 2023, I now don’t think it will get there till September 2023.
I also think it will take longer to get to 5% unemployment.
And finally, with inflation persisting for longer, and the OCR going higher, I think the ultimate economic crash is going to be even nastier.
I have also changed my mind housemouse, I thought inflation would be coming under control by now but I’m starting to think this low unemployment rate is actually structural not just a hot economy. I thought 7% was the peak but it might not be or it might take a long time to cool to reasonable levels.
But I am fairly convinced the RBNZ will eventually overcook their response as they always do.
I switched into all cash funds late last year (and I know and really like shares!) making a certain 1-4% is preferable to possible losses of 20 to 50% in the moderate or high equity retirement funds.
With banks in the Western world all increasing rates at a pace, many of my favoured shares will plumment into 2023.
Disc- still holding energy/oil stocks....the only winner currently and going forwards imho.
Yip agree...I'm about 20% equities at present and most of those are focused on energy, resources, metals etc so very defensive.
With share markets down 20% this year and inflation running at 7%, that 13% difference by holding cash is a gain...even if 'cash is trash'.
Even gold, the ultimate inflation hedge is down substantially, so cash is outperforming gold aka hard money right now.
And yet people constantly say fiat is shit. But it’s doing much better than any of its hedges. You can’t beat the value of money that everyday people use to trade with - unless of course your government are a corrupt bunch of numpties the likes of Zimbabwe / Venezuela / etc.
So are you saying inflation isn't eroding general purchasing power with cash? Have you been buying food, gas & general goods lately - finding you've been able to buy less? Seen the government giving cash away with the cost of living payment because peoples cash salaries aren't enough to cover basics? How's NZD looking with the likes of USD and AUD aswell - much purchasing power there?
There's this perception with some that holding cash is safe, the way the world's going it's actually pretty worrying. Ironically alot here that want the housing market to crash also hold their cash in banks... good luck with that.
You have got it all wrong Nifty1. The weekly outgoings for food and power etc is negligible compared to the price changes in the big ticket items. House prices in this country have gone up and down each week to the tune of $1500 or more over the years. Money is pouring into the USD, the liquidity crunch is coming and people are building their vulture fund to clean up when it all tanks.
Exactly what I was going to say.
The value of cash has been eroded for weekly cost of living stuff, but has more value for big purchases / investments.
Keep cash for either property and/or shares in 2023... (as I say above shares might be worth buying in 2022 if there's a steep fall)
So diversification is getting it all wrong? Inflation is not diminishing purchasing power?
The weekly outgoings for food and power etc is negligible compared to the price changes in the big ticket items
So rising costs and dimished purchasing power would have no influence on your cash holdings & potential investment purchases?
Some people here are so risk adverse that they'll never make moves... even if an opportunity is staring at them in the face... it'll always be too risky.
I'm sure many here didn't take advantage of the last couple of years, they're we probably sitting in TDs because it's 'safe'.
Holding cash long term is not a winner... it's a slow burning loser.
No TDs longer than 6 months.
TDs less than 1/3 of total equity.
Recently bought a small business, independently managed, at less than 2* EBITDA (my workload 5-8 hours/wk, and that's in the start-up phase)
Looking for more
Why would I buy shares at 20, 30, 40 price earnings ratio?
Yes, but shares are eroding at a faster rate than cash. And NZ residential property is eroding at a faster rate than cash, Even NZD cash cf. to USD cash. So, some of us are holding cash, because it's a less bad option than shares or property at the moment and biding our time for when shares or property are sufficiently deflated, that one can earn a sensible return on the income they generate.
Gold aka real/hard money is dropping so cash is outperforming nearly everything right now.
But when real interest rates are negative, its hard to know who is doing well and who is not.
Perhaps similar to my experience during the GFC, capital protection is the name of the game while you wait for the storm to pass.
Not for me it isn't I'm actually living on mine and so I don't have to work, how do you actually put a "Value" on that ? That's right you cannot because its its priceless not having to work for some of the clowns that I had to put up with working in New Zealand. Currently on track for a 100% pay rise in Feb.
Real wages are negative so everyone is getting poorer. If you're sitting on a pile of cash I agree, buying in 12 months time might be a good opportunity....but these things are complicated because you don't want to lose your fingers catching the falling knife.
And if affordability ratios/fundamentals count for anything (which history says they do), then it might be difficult to tell where the bottom is for this market.
A 700k mortgage over 30 years stressed tested at 9% is $1300 per week in mortgage repayments. And that for a 2 bedroom shoebox.
Good luck to the residential property development and real estate sector sectors, let alone Architects, civil engineers, builders, contractors etc, if that’s where all this lands.
welcome to unemployment of over 7-8%.
Not on medium density development which is the majority of development in Auckland, at least.
Unless land values fall at least 40-50%.
If land values only fall 20-30% then it only makes a marginal difference when spread across a number of townhouses. Especially when construction costs have increased so much.
WRONG.
I said 5-10% falls THIS YEAR, as my central prediction, with 10-20% falls as my next most likely. It looks like they might be around 10-15% for this calendar year.
I was always predicting 15-20% overall, from peak to trough.
If ANZ are right, and the OCR goes to 4.75, then I think 25-30% is quite likely.
So the price of a new build has gone up over the past few years due to input costs, rather than manufacturers and suppliers responding to price demand factors from loose credit conditions? I.e. Existing house prices rise 30% in a year, but that's not due to interest rates hitting rock bottom, but the cost of building a new house???? I suspect your cart is leading the horse.
I'm fairly close to the coalface. At the same time interest rates went down, due to an unexpected virus of unknown origin:
Labour up a significant amount (I want to say 20%, but it varies on trade)
Materials up a significant amount (or not available, pricier substitution used)
Time to complete jobs up 200-300%.
It's a great example of correlation not equalling causation, and how inflation since covid isn't just a story about low interest rates.
Perhaps we are being chastened to an even higher terminal OCR? The last 15 years have been extraordinary in anyones' terms, and if 'getting back to normal' is what is now required, then may 'this' is it?.
It has not been that high since December 2008, when the rate was 5%, having dropped from a peak that cycle of 8.25%.
After all, look at where all this recent monetary madness has brought us to - right here. Is this 'as good as it gets'? If so, then no wonder the Central Banker's thoughts of 'more of the same, but even bigger' have been cosigned to the dustbin of experience.
What will happen is an over-reaction, and whammo we'll be in recession and unemployment will be up. We are now seeing net migration out of NZ as those folk who entered NZ during the time when things were bad overseas are now returning back to those countries from whence they came.
The net result will be fewer people working here in NZ, lower demand for everything, and house prices largely un-doing all the price gains of the last 3 years - especially in the big cities.
Any attempt to control inflation should have a light touch.
If you’d told me a few years ago that interest rates were going to more than double while house prices were in decline I would have said the economy would tank causing rampant unemployment. Yet somehow that hasn’t happened at all, we have low unemployment and decent GDP growth. It’s hard to see how anyone sensible could have predicted this.
There once was a man named Taylor. His Rule stopped the 1970's/80s inflation monster.
https://www.investopedia.com/articles/economics/10/taylor-rule.asp
Tough medicine, but it worked. Interest rates above actual inflation or even 1.5x inflation.
So 25% fall is done thing and have to see how much more from here on
https://globalnews.ca/news/9134253/canada-housing-market-prices-rbc-spr…
... a generation has been addicted to house prices only going up ... to massive tax free capital gains ..... they're kidding themselves that the current price weakness is just a blip , an aberration ...
But , in the immortal words of that great property development group Bachman Turner Overdrive :
" You ain't seen nothin' yet
B-b-b-baby , you aint seen nothin' yet
Here's something that you're never gonna forget "
And start your slaving job to get your pay
If you ever get annoyed, look at me I'm self-employed
I love to work at nothing all day
And I'll be taking care of business (every day)
Taking care of business (every way)
I've been taking care of business (it's all mine)
Taking care of business and working overtime, work out
Randy Bachman - Legend!
An OCR peak around 4.75% is exactly what I did forecast very recently. Actually, if there are any risks, they are on the upwards side - an OCR peak of 5% is not an unlikely possibility at all. I would not be surprised at all if swap markets started pricing a 5% peak in the near future.
Moreover, rates will stay at or around this peak for a significant time, and only very slightly (50 to 75 bps max) decrease in 2 to 3 years' time; and such decrease will only happen if and only if the fight with inflation is won here and overseas, which is not a certainty at all. Even is such fight is won, central banks will not be keen on repeating the same mistakes of the past and reignite inflation with a return to ultra-loose policies.
The era of ultracheap money is finished - time to pay the piper - and time for the housing Ponzi to end once and for all, with a progressive return to sustainable house prices aligned with economic fundamentals.
If only we could have known earlier, oh wait....
Best subscription I have hands down
Banks keep lifting rates forecast. Central banks got as many people and businesses to load up on debt as possible now pulling rug out and anyone with mortgage, loans, credit cards, will end up paying some much more some who are over leveraged will just go insolvent many countries are already in this position you have to wonder if it was all planned.
As per Bernard Hickey, housing market in Auckland has bottomed out and is ready for the next move upward.........really.......is it lobbying or is it trying to influence or it is actually happening that market once again gearuping up to be in boom territory with high interest rates and still going up along with other factors.
- REINZ figures showing Auckland City and Wellington City house prices down 17-23% from the peak in October/November, but with signs the market is warming up again in Auckland in particular;
Bernard said the best thing is to buy residential land and make tax free capital gains.
I saw this listing you may be interested in: Church tells us "Sell away!" https://www.trademe.co.nz/3769910770
Perhaps in other words, "You cannot run a Monetary System pricing risk at 0% forever".
The result would be/is the death of productive effort and the predominance of speculative behaviour. When the cost of Debt is 0% the borrower may never have to account for their actions; never have to pay off the loan if the cost of keeping it is 0%. Those days, 35 years in the making since we started all of this after '87, appear to have finally come to an end, and the cost of debt may be about to return to riskier levels.
Inflation, is perhaps not the reason, just the catalyst.
Also know as wisdom and gospel in the books of the Property Investor Association.
(how to enrich oneself at the expense of others for minimal effort/labour and benefit to society, while destroying the economy and society and community around you.....and anyone who thinks this is a bad idea must be ridiculed as a doom gloom merchant).
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