Westpac's economists say they underestimated the impact of interest rate cuts and wonder if the Reserve Bank has over-stimulated the housing market

Well said. But don't worry mate, the RBNZ plonkers will always adopt some counterfactual excuse to justify their reckless, one-sided and short-sighted policies.
It will be interesting to see how they will justify the resulting creation or further inflation of asset bubbles (especially the housing Ponzi), the dangers to the financial stability of the whole system, and our descending into the big hole of long term phenomena of low growth, negligible capital formation, low productivity increases, diversion of resources towards unproductive speculation, complete mispricing of risk and zombification of the whole economy, that are manifest in areas (such as EU and Japan) where this experiment of ultra-cheap money has failed miserably.

They know exactly what they are doing....or do they?

Greenspan was the prophet of much of the orthodoxy they buy into. For his colossal fail, Greenspan admitted he was wrong at a later stage. Incidentally he has been a proponent of gold ever since.

bw: "I'll suggest a Form 1 Economics student could have foreseen what's happening here"

bw; are you taking the Mickey??? you have repeatedly, incessantly, claimed house price depreciation is upon us, now you say "a Form 1 Economics student could have foreseen what's happening" How come you have continuously been so wrong then?

What should of happened has not we now have to adapt to zero interest rates and a government that will do everything to keep house prices from dropping.
What is scary is what happens when they run out of options that is the million dollar question.
I was expecting 2008 again but we have a curveball at moment but one way or another we will pay for this increased costs/less purchasing power in the longer term unless you invest to get better than the average return which for many this year was approx 30percent.

You make that sound like the choice is so binary: cash in the bank or houses. However, data suggests that NZers don't actually have much cash savings to splash in one of the world's preeminent property bubbles.

Much more likely those with 4 houses realized that given they could now buy a fifth house & pay the same amount in interest as what they were at the start of the year with 4 houses.

Sheep you say?
Anyone whose run sheep will know that as you graze the paddock flat; opening the gate to the next paddock, that looks oh-so green from the outside, sees a stamped to get in and get their share before every other animal.
That training works really well when the last paddock that the sheep are 'encouraged' to go into is the one before the Big Shed that has all those nice men in white boots working in.....

I'm not sure that would help him (though maybe it will) given that most people around the water coolers he frequents are likely to be educated in economics and therefore just as prone to bias in their expectations of how people would react.

But I absolutely understand and second the point you're making. I always find it very interesting talking to people outside of property/economics/finance and am honestly blown away recently by how positive the average joe seems to be on the housing market. Blissful ignorance and all that.

Where I see interest rates dropping to record lows due to persistent undershooting of inflation targets and the problems behind this causing it, the average joe simply sees cheap money and puts more money in property.

Talking to people outside of the modelling team is a good idea if you want your models to be informed by how humans react...

Now the six properties rents have gone up to $500

Not a clever assumption to make when incomes are going backwards and rents are falling across the world. Where's the evidence rents are rising in NZ?

Um asset price inflation and consumption price inflation appear to be two completely different beasts, yet we use the lack of movement in one, to stimulate the increases in the other.

CPI has been adjusted over the years, for good reasons and arguably bad, and excludes many things that affect household expenditures. Yet policymakers treat it as 'the' measure of price inflation when the reality facing most people may be very different. So, policy responses address chimera rather than reality, and any bubbles wilfully ignored get bigger...

Core CPI in Japan and CPI in Europe negative, both have negative interest rate policies and active QE for years and years.

So what could our CPI release confirm?

I blame two abbreviations: CPI and GDP. The powers that be chase these two like the Holy Grail, ignoring the well-known fact that both are terrible at actually measuring what they were supposed to measure.

The hard work of the likes of you, who take risks and work hard in the real economy to produce tangible wealth and real growth, is not being rewarded by the current Ponzi system of inflating asset prices.
What is the point in working your a##e off in real productive enterprises when you can instead just invest your money in housing, sit back and reap the benefits (until they last) of the ever-inflating housing Ponzi ?

bw
Irrespective of the point you make in your comment - it is great to see that you have made a go of making a life in New Zealand. Great to have immigrants such as yourself.

It won't impact CPI as land is excluded from the basket of goods. It was taken out in 1999

This is socialism for the rich

Yes and no. It looks like musical chairs with bigger amounts of dosh.

Gambling is a serious addiction for some and our society tries to protect us against it in many ways. However, it seems we are being strongly encouraged, almost forced to gamble big chunks of our net worth by removing it from the relative safety of TDs or bonds and place it into an overheated, overinflated, seriously risky property or stock market.

Yes, they've made it explicit now (last week's comments) that they think house price falls would be a disaster 'at the moment'.
Unexplained is why house prices shouldn't fall during a recession. They expect a natural correction in asset prices during an economic boom, perhaps?
It's a one-way ratchet now. Either class war or incompetence.

Exactly M x V = P x Q
In reality Increasing M doesn't increase Q it will only result in a corresponding increase in P. No net gain to society.
In RBNZ's wealth effect wonderland, increasing M increases Q??

IO - great to see you pick up on my comments! :)
If you read my postings you will note that I have been saying that I think and been concerned that RBNZ have over-cooked it (not only this morning but first posted this some weeks ago).
Note that this is all about economic stability; not sure what you mean about "price stability" is that a typo or lack of understanding????? :) :)

It might pay to note what else I have been also posting in relation to this. As the housing market has been quite a bit hotter than one would expect you may find RBNZ delay actioning FLP (originally mooted/expected November or this year) and any OCR cut (stated last March as not before March 2020). RBNZ comments for past few weeks contain some hints indicating some likelihood of these.
As for LVRs they suggested (last week I think) that these would be "counter productive" but that could well be revisited especially for investors. Although both FHB and investors have been active the past three months, investors have been more so (RBNZ data:11,428 mortgages to 8,260).
I suggest LVRs for investors only: percent of FHB >80% is 38% and investors only 18% so I would expect LVR for investors maybe LVR at 30+% to give FHB a fighting chance.
These are only possibilities though.
Putting this into context - as also posted, RBNZ seem to be the most significant driver of the housing market at the moment. While redundancies may rise, this is likely to have a lesser effect on housing as many of these are low paid hospitality, tourism and retailing and all are mainly renters not homeowners. Immigration is clearly not a current driver - and that seemingly includes the number of returning Kiwis.

Or people start selling capital assets to hold cash.

Yes if you find this all funny I guess!

Took the profit on my Contact Energy punt yesterday, 41% gain + a ~4% half-year dividend. Transaction costs were 0.3%, and they transacted almost immediately - no lawyers or real estate agents involved. Lots of benefits to the sharemarket compared to property. Very similar situation as well - I was betting that the govt would not allow those businesses to fail, just as the RBNZ will not allow property to fail.

The RBNZ has done little that other G20 CB's haven't already done and if you consciously held off buying, then you took a huge risk - a risk most of you evidently did not have the financial acumen to be taking.

You're making the assumption that the only way to protect one's self against monetary debasement is to buy houses in NZ. Gold, silver, bitcoin have done far better than NZ houses in 2020 and in the past 12 months. In fact, Bitcoin has been a far better store of wealth than NZ houses for over the past 10 years.

Te Kooti - Like you I have ignored the constant DGM house price crash propaganda. I don't make the rules but maximise my investments to the conditions. My local RE agents reckon there has been 10-15% jump in prices on good coastal North Shore property. If it's 15% I just made 1.8 Mil that will choke a few DGM throats, got to be in to win !

Some of us actually went even further selling multiple properties. Even considering the current booming market it seems a little premature to be claiming the last laugh at this stage. Time will tell.
BTW most NZX50 stocks have 70% margin lending so basically can be leveraged in the same way as property.

There's only one justification that matters - in a few years time, you'll be able to sell it to some other chap for more than you paid for it. Nothing else actually matters at all.

I must agree with you this time, they have displayed a total lack of understanding about how the most basic economy concepts work. I doubt they learned anything about all this since it's actually worked in the interest of the ones they really represent. Banks.

A good read, thanks. The saddest part was the last sentence "And a few days out from an election we, of course, don’t hear a single significant political party either pointing this out, or promising to make a real and substantial difference."
I feel that when we get to a stage that no party dare to touch on this topic, we are in deep, deep trouble!!!

'And a few days out from an election we, of course, don’t hear a single significant political party either pointing this out, or promising to make a real and substantial difference.'

National party does not have a face to raise it and now Labour who promised to help instead joined national and now too believes that housing issue is a Good so why will it raise the issue.

Like National even Labour is talking about Supply side of problem only and is silent on speculative side demand. Biggest booster has been removing LVR for Investor even in Austrlia have removed LVR for FHB only.

As changes needed to other agencies like WHO, Reserve Bank....should also have reset in the way Democracy works.

Next time Any minister tries to justify as helping FHB should be......they should be made to realize that they now stand exposed so stop bullshitting with FHB.

Interesting article and he has some good perspectives.
However what he has been peddling for a while - deeply negative OCR - would just ignite house prices even more.

Exactly!

...higher house prices do not represent greater wealth for the population as a whole ....... their gain is exactly offset by losses to .... those in a demographic wanting to shift into home ownership.

Worse. Those in the demographic that "aren't in" will increase in number every year, as our young enter the family formation age (which is getting older every year), waiting for the owners of 'their' property(s) to die off.

This has been a significant driver of Un Zudd’s residential property fetish from the beginning. Almost everyone in parliament has a substantial property portfolio. Ardern’s bunch, Key’s mob, Clarke’s crowd. Helen Clarke herself owns a slew of houses, if I recall correctly. In any case, as you said there’s no way any of them will ever do anything other than encourage the house fetish. It’s in neither their personal or professional interest to try to fix the country’s out-of-control catastrophe of a house-based economy as it accelerates towards the yawning abyss. They can always go live in Hawaii with John Key. What will the rest of you do once those multi-million dollar mortgages are called in but your once high-value property is now worth about half as much as a latte at Starbucks?

The rbnz website. To find the actual data can be a bit of a mission. I'm not sure the rbnz is publishing the figures you are after. The banks do not have to declare mortgage holidays as non-performing so there may be some way by analysing already published data to get what you are looking for.
Its quite possible the rbnz have asked banks to supply this info and not just money amounts but actual number of houses etc but are keeping it to themselves for fear of alarming financial analysts who dig around rbnz data and would publish anything odd.
I'm also wary of their stress tests as they seem to specify numbers at high level, eg unemployment, GDP and leave the individual banks to fill in the gaps. Someone on this website with a better understanding may like to comment.
My interest is an OBR event. You won't know that until it hits you which to me means two main eventualities. The main banks withholding data from the rbnz until its too late or the rbnz sees problems with a bank and can't tell anyone until the rbnz declares an OBR event. The latter to prevent a bank run. Northern Rock comes to mind with people queuing up to withdraw their money.
I'm talking main banks here, not the small ones.