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

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

Westpac's economists think the current housing boom will continue well into next year and wonder if the Reserve Bank has over-stimulated the market.

The bank's chief economist Dominick Stephens says the current strength of the market has surprised his own economics team and the Reserve Bank. Real Estate Institute of New Zealand figures show the housing market recorded its strongest September sales volumes in 14 years last month, with the national median price hitting a new record high of $685,000.

"Back in July we upgraded our house price forecast to an 8% increase over 2021 and in September we shifted again to a forecast of 6.3% house price inflation for 2020 and 8% in 2021," Stephens says.

"It seems we were too timid - the lift-off in house prices is turning out earlier and faster than we expected.

"We expect the current strength in the housing market to continue well into next year.

"The boom is being driven by very low interest rates, and if anything, interest rates are going to fall even further," he says.

Stephens says the strength of the market would also have sneaked up on the Reserve Bank.

"The house price boom will be a big surprise to the RBNZ," he says.

"As recently as August the RBNZ was forecasting a 7.7% house price decline over the six months to September, and was predicting further declines in the December quarter.

"The RBNZ is going to have to make a major adjustment to its house price forecast, and therefore to its consumer spending forecast - because one reliably influences the other.

"This may call into question just how much monetary stimulus the RBNZ really needs to deliver.

"We continue to forecast that the OCR will drop to -0.5% in April next year, because the inflation outlook is so low.

"However, we do acknowledge that today's [housing market] data is a mark against that forecast," he says.

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148 Comments

28
up

The RBNZ bods won't be surprised at all! They know exactly what they are doing....or do they?
(NB: I'll suggest a Form 1 Economics student could have foreseen what's happening here. The ONLY justification for the policies will be touted as being: "But things would have been a lot worse had the RBNZ not done what it's done" and that is false thinking. No one knows that. "Things" arguable would have been a lot better had they left their current policy on the shelf, but that's not knowable. What is knowable is what happens when regulations are relaxed; cash is spewed about at negligible cost and what a populace constrained within its borders will do)

25
up

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.

24
up

They already keep repeating the "wealth effect" bullshit as the reason for stimulating the housing market...

And Govetnment always keep repeating that are doing to help FHB....

Do they actually believe what they say, are they ignorant that people could see through their fib but still havr the audicity to repeat the recirded resoonse.

Jacinda Arden... What is your response. What is happening, is it for FHB?

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.

He knows exactly what’s coming and with his contacts probably close to when by now. What’s he up to during this recession...oops pandemic, do you think?

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?

11
up

This was not predictable until the government started throwing money around and interest rates were hinted at falling. The subsidies then looked like being extended indefinitely and the party therefore continues. To put it simply house price discovery was NOT allowed to happen so its time to move on and base your future decisions on continued government and RBNZ interference in the housing market.

Yeah agreed, you can't predict the market when government and RBNZ went all out and use their policies that are specifically made to push the housing prices up, to interfere the market. That's why I always say that it's stupid to think you can predict what's going to happen.

So you think it's stupid of BW to predict house price deflation then

Predictions are just that. While you could point at a slew of actual figures and facts to support any prediction, you cannot know what you cannot know.

End of Q1 2020, pretty much everyone was saying house prices would drop by the end of Q4 2020. Then the wage subsidy and mortgage holidays kicked in. Then the RBNZ slashed the OCR. Then the Government extended the subsidy. Then we went to Level-1. Now they are saying that a price drop is probably going to happen by the end of 2021 because the subsidy and mortgage holidays would have ended.

Who knows? If it was certain, it would not be a prediction.

Personally, I'd rather buy now than wait a year or two for a "miracle" price drop. Would I kick myself for not waiting if I went into negative equity? No. Why would I? I'd be in my own freehold and paying for my own mortgage. I'm not looking to buy a house as an investment. I'm buying one to turn into a home.

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.

12
up

hardly surprising, for anybody with any sort of savings are they going to leave their money in the bank earning a taxable 1% or are they going to buy another house for some nice tax free capital gains.

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.

11
up

Yep. If I remember correctly it was 50% of kiwis who have less than $5000 in the bank. People tend to be surrounded by friends & family with a similar financial situation as theirs, so it's easy to think there are hundreds of thousands of people out there with $200k+ in the bank.
Most people live paycheck to paycheck.

People tend to be surrounded by friends & family with a similar financial situation as theirs, so it's easy to think there are hundreds of thousands of people out there with $200k+ in the bank.

I think 80% of households have much less than $100K from memory (I'm being generous). There is no real hard and fast data on the cash savings of h'holds. But assuming I'm correct, $100K is about a starting point for buying property. That would leave most h'holds with zero cash savings.

19
up

Yip and every drop in interest rates and money printing exercise is destroying purchasing power of those holding cash.

Part of me feels like the actions of central banks are treasonous. They appear to be a cult that is working for the interests of the wealthy.

15
up

Yes, I strongly agree; I don't know if they are incompetent, reckless, treasonous, plain stupid, or a combination of the above.

They are too smart.

Work for Rich and pptray working for less fortunate and all in the name of economy.

May be like WHO even reserve banks will have to be changed/ replaced in future as a part of reset.

Only if they don't have a house, with equity in it you don't need that much

Its pointless having much more than about 10K in the bank if you have a mortgage. Any more should be on reducing that mortgage and if you loose your job a pile of cash in the bank does you no favors at WINZ because they ping you for your savings and reduce your benefit accordingly.

If I lost my job, I'd rather be using some of my savings while job hunting than to have to deal with WINZ.
By the way, term deposits are included in those stats.

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.

So Dominic Stephens is 'surprised'. Perhaps he needs to lever himself away from his fancy pants models and spend more time listening to the people around the water cooler. At least he's not accusing the RBNZ of pushing people up like sheep on a sheer cliff face like his counterpart ot Kiwibank.

15
up

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.....

Winning analogy.

Makes Adrian Orr the judas sheep then...

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...

14
up

If only housing costs were adequately captured in the CPI...

An 8% price increase is quite huge for owners of multiple properties.

Imagine a hypothetical scenario with someone who had leveraged up to the eyeballs paying 4%+ interest only on six properties with a value of 4M. Lets say one million in equity, three million mortgage. Each property getting $450 rent. 140k pa in rent. Mortgage interest of 120,000. Rates and insurance and management fees of 32,000. A loss of 12,000 a year. Interest.co commenters used to point and laugh at this sort of person.

Now the six properties rents have gone up to $500. Mortgage dropped to 2.55%.
Mortgage interest of 77,000 and rent 156,000 with other expenses still largely the same, say 34,000.
Now a gain of 45,000 a year. Will have to pay tax now.

On top of that if the houses appreciate by 8% in one year that's +320,000.

Poor sad sack negative geared person has won rather bigly.

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?

I think the aspiring landlord seeking to build a rental portfolio expects rents to slowly edge up. Often losses occur in the early years but the expectation is that all properties would eventually become positive to create a modest business return. I think rents in Auckland have been consistently rising this century.
Even so even if the rent remained static or only rose by $20 the results are still impressive. They are certainly not declining in Auckland at the moment. Things in the future could well change but the outlook is rosy currently for my hypothetical landlord.

I don't want to imply that this was clever business just rather lucky and against the expectations of a year ago. Kind of very Auckland.

OK. It's a fable or fairy tale.

It's not a fable, it's precisely how property investment works, you'd be better off accepting reality

Is that why you sold your rental? Nothing to do with capital appreciation - just getting too cash flow positive.

I have not sold any investment properties, I sold my own house (so my original post still stands)

DP

10 days until the next CPI update. That will determine if RBNZ has overcooked the stimulus. Everything else is noise.

18
up

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.

That's my point, RBNZ is only concerned with the CPI beast, the asset price inflation beast is not its problem. As to the effectiveness of monetary policy on CPI, modelling indicates there is bang for buck (see https://www.interest.co.nz/bonds/101245/rbnz-modelling-finds-economys-re...).

10
up

I disagree - why did they shit their pants then when they thought house prices were going to fall? And even come out and say that recently - that if house prices fall, that would be the worse outcome. Yet they've created that problem by measuring inflation only via consumption price inflation, causing loose lending on property, and the associated debt level is now so high that any fall in prices could bring down the whole economy and banking sector. So they're the policeman trying to catch the arsonist, but also the arsonist. And they wonder why they have fires, but can't catch the criminal.

Great they get bang for buck - but where is the consumption price inflation? Why might we have deflation on our hands? And yet at the same time keep pumping asset bubbles that risk destroying the whole economy?

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...

I hope you're not hinting that house prices (or other assets) should be factored into CPI, that old chestnut has been done to death on this site (and everywhere else).

Of course they should. People live in houses on land don't they? Both these items should therefore be in the basket of goods & counted towards cpi

CPI measures "consumption", you don't eat your house, or shares, or bonds...

No, you just have someone else consume it by paying rent.

and rent is included in the CPI...

Yes, I know..

12
up

Semantics. People purchase houses on land to live in. They consume these items. It should be included in the basket of goods. The only reason they don't include them is they can't fudge the values down using quality adjustments/hedonics. So leave them out. CPI is a sham.

Bingo

Yet they do have house prices in the CPI... only new build prices though.

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?

CPI in Japan and EU has been positive for years. Even if they had not been still wouldn't indicate monetary policy is broken.

See https://tradingeconomics.com/european-union/consumer-price-index-cpi#:~:...(cpi)%20%2D%20values%2C%20historical,updated%20on%20October%20of%202020.

and

https://tradingeconomics.com/japan/consumer-price-index-cpi)

Our CPI figure will confirm whether RBNZ is doing its job i.e. CPI between 1-3% with the target of 2%.

All the Q Anon, baby eating pizza restaurants, alien lizard politicians wanting a ponzi housing market claims are just noise.

Your European data is not up to date - try this: https://tradingeconomics.com/euro-area/inflation-cpi

The main intention of western central bank monetary policy has been to raise CPI to around 2.0% by "stimulating" GDP qualifying demand growth to out strip production capacity to meet that demand.

With LVR removed and unheard of rates the RBNZ is doing its job. Protect banks shareholders at the expense of NZ taxpayers.

Ultra low interest rates verse prices any benefit is well past, furtheromre the principal still has the be paid.
This is all moving into the irrational exuberance space.

35
up

I came to New Zealand by choice, thinking that there had to be more to life than just the columns on a spreadsheet - lucrative though that endeavour was.
Since then I have owned and run a small farm; owned and run restaurants; established and run a small clothing manufacturing business, as well as having built my homes, and moved on, across several parts of the country. And do you know what made the money?
Not growing food; nor selling it; nor clothing New Zealanders nor building a home (as such)...but the escalation in the price of the property assets underlying them all. The figures on the spreadsheet win again.
What kind of lunatic policy setting favours the spreadsheet results over food, clothing and shelter? One that is destined to end.

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.

I blame something even more fundamental than the measures - giving the RBNZ the mission to manage inflation (ie prices), which they do by trying to control the price of money via the OCR (the price of money). "RBNZ, Please go out there and muffle market signals as much as is necessary to make them almost go away. Thanks, Govt".

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.

We even welcome whining ones

The increase hasn't impacted CPI and unemployment is still below potential so the RBNZ will continue to lower rates

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

11
up

And guess what - 3 years later (2002) house price appreciation moves away from its 100 year trend line and appreciates like never before!

And we wonder why we have debt/price bubbles in property - well its because our money supply (historical measure of inflation) has gone into land prices and that isn't measured in the CPI. This is very painful to watch as the outcome is bad. If land were still included, we would have had interest rate rises and stable prices (i.e. a few % price rises each year). Madness...'we so dumb'.

https://images.squarespace-cdn.com/content/v1/5040821ce4b03f02b1034187/1...

The LVR removal is clearly far more influential than the interest rate cuts.
Look at Sept sales figures.
Of the 2861 sales in Auckland only 468 were in the mooted FHB bracket of $650-800.
That is 16.3%
Meanwhile sales over $1.5m amounted to 545
Sales over $2m increased threefold. Sales in the lower bracket by only 11%
These are not average or median folk making huge purchases and they are not the average people that supposedly gov and RBNZ wants to help be confident and spend.
This is socialism for the rich

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.

11
up

Why should it be a big surprise to RBNZ. Just recently, last Thursday they came out openly in public to support rising house price and also very clearly spelt out their intention that they are in favour of rising house price and will do everything to promote the same so why be surprised !

RBNZ is getting the result that they intended bybtheor action besides if are really surprised by BIG jump in house price in just few months, why are they not taking any action, What are they doing.

LVR to remove took a day and to reintroduce LVR for Investor (support FHB) need year to think so their being surprised is a farce and who will be responsible if after all their efforts, still if house price falls even by few percentage, which will be enough to wipe away equity of many who were on 5% deposit.

12
up

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.

Lot of FHB are disapointed and ranting but does RBNZ or Labour party cares (Labour party as knows that are getting majority).

Sad but True.

Labour are going to let the fire burn. National want to throw petrol on it.

Labour Government is silent, Still two third voting to go, so think as now Labour = National so why not Green though am not a fan but still......

RBNZ and gov think that nominal GDP they are pumping up by printing/QE and debt, is equivalent to real GDP.
In fact it is highly misleading.
Real CPI should be how much you are increasing M2 by.
Printing is debasement of currency.
It produces nothing extra. And production drives consumption.
Debt merely stores up problems whilst making things look ok on the surface.

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??

Hold on we just had P8 on another page saying that everything they did was for price stability.

(as I pointed out you can't be the arsonist and the policeman trying to catch the arsonist at the same time! Oh there's a fire, who did it? Why do I have matches in my hands?)

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.

Perhaps "Independent" was looking at their website where price stability is mentioned in the first sentence. https://www.rbnz.govt.nz/

'Note that this is all about economic stability; not sure what you mean about "price stability" is that a typo or lack of understanding????? :) :) '

No typo. I'm assuming you haven't done any high school or tertiary level econ study. Here are a few helpful links. Please take a look before spinning more uneducated propaganda to younger people or your coffee group. Am I allowed to use smiley faces as well or is that limited to people who know so many things that just aren't so?

https://www.rbnz.govt.nz/about-us

https://www.investopedia.com/terms/p/price_level.asp

https://en.wikipedia.org/wiki/Price_stability

IO
Cheers :)

But _that_ price stability is for consumer goods and services.

Correct - what is your point?

Starts with House prices, flows to massive rate rises. Then watch them moan that rates are outstripping the interest on their hefty mortgages. Meanwhile those retired on fixed income's will start to feel the pinch, even if they are sitting on overinflated asset. reverse mortgages may become really popular.

Or people start selling capital assets to hold cash.

The same contributors making the same tiresome, banal complaints ad nauseum. Ponzi waaaaahhhh.

This is your classic short squeeze, probably the most vicious price action. The 3 years I have commented here the overwhelming majority have been talking house prices down, talking the economy down, talking Aotearoa down. 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. Even if you had cash in shares, you missed the leverage of housing.

Back in March I said the RBNZ would do whatever it took to support the economy because there was no moral hazard, and was predictably attacked. I guess I have the last laugh.

Yes if you find this all funny I guess!

It's a figure of speech, why would you think I find this funny? It's deadly serious, our futures are evolving daily and will determine our quality of life, children's education and so forth.

Maybe if you had complained a little less and started asking some questions and listening, you might not be in this position.

What position might that be exactly?

I guess we really will see who has the 'last laugh' as you put it. Are you talking this year, this decade, or this century? Always helps if you define a timeframe. I'm thinking 30 years - does that work for you?

Feel free to change your original comment (and this one as well) if you like so that we don't laugh about such a serious matter and so that you don't come across as so smug assuming others might be in a bad 'position' without knowing anything at all about their 'position'. Like what the hell does that mean? (I have investments all over the world by the way - different currencies, different asset classes, purchased at different times - my gold and mining stocks have doubled in value the last few years - do you want to swap a house for that or something so you don't feel so bad for me?)

Why would I change my comment? I would far prefer to hear about your investments than you relentlessly bleating about NZ housing and the RBNZ. What is wrong with debt by the way, do you realise how immature you sound?

They're don't involve the property market so almost nobody responds to a post that isn't related to the housing market. Try it sometime and see how many people engage with you. If you talk about how you're going to manage your asset allocation, across currencies and industries during a period that was labelled as one of the worse in a 100 years - nobody replies. I tried it earlier this year as the markets around the world were tanking. All kiwis want to talk about is house prices (hence I think we have a slight mental retardation). But yes sorry, my immaturity for not being as infatuated about a property bubble as other people (I've already lived through one in America and witnessed the negative outcomes of that so really how stupid it is).

You come across as a decent guy IO, I don't mean to be rude or lecture you. I think you could have more of an open mind about the topic.

Which topic exactly? I'm happy to be as open minded as you are. If not its really not a fair discussion.

Would love to hear more lectures from you Te Kooti
Unfortunately, a lot of plonkers on here wouldn't appreciate your wise comments
Thanks for all your contributions and terrific burns

I think you might mean I would like to hear more information that stimulates my cognitive bias (i.e. debt and property investment are a zero risk - high return endeavor...a banker will tell you that if that is the lecture you want. They get paid for it).

IO, no one has said property was zero risk, that's just another of your lazy generalisations. It's the risk/reward that I find compelling. Look at where we were in March with the forecasts of 20 to 40% falls, investors that held their nerve have done very well in shares and houses. If the banker comment is aimed at me, you need to grow up. Maybe I was a bit generous towards you earlier.

Think we just need to be open about our biases and heuristics (especially if you are a banker?) Haha generous by telling me I was 'close minded'. Yes that was very nice of you :-)

I'm not biased, I'm speaking from experience. I referred to you as a decent guy, but you choose not to reference that.

Hmm..your a one trick pony Too Kooti as I think you are all in on houses and that's it. You come across quite smug so when we talk about other investment classes you label other "lazy"?

Please stop trolling and name calling
We need more successful investors commenting here ideally

by MadMax | 13th Oct 20, 5:38pm

Investing with debt...
You've got a big learning curve ahead of you sunshine
Keep at it, you'll get there
Good luck to you

Actually Frazz I have a reasonably diversified portfolio, it's just that property has been by far the most profitable. I think they refer to that as wisdom.

It's "you're" btw.

Thank you!

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.

Good for you, your investment process is solid. The issue is that most houses are levered and that increases the roe significantly. Most stock traders don't lever.

Not bad. What's that, 30% after tax? 60% annualised?

Call it 30%, I only held for 3 months so more like 120%.

As a trader you will be declaring that profit as income I take it?

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.

That's not what I said as I referenced shares. You are correct, we could sit here and identify stocks and assets that out-performed houses. However, who leveraged those assets 2, 3, 4, 5 times?

However, who leveraged those assets 2, 3, 4, 5 times?

Gold, silver, and bitcoin can be leveraged if you wish.

I think Te Kooti might be a banker - is into gambling with debt.

Investing with debt...
You've got a big learning curve ahead of you sunshine
Keep at it, you'll get there
Good luck to you

At this stage in a debt cycle - 75 years since Bretton Woods, it looks more like gambling to me.

I prefer IO, but you can call me sunshine - thanks!

Investors don't stop investing whatever the cycle IO
They try and get smarter, or develop a hedge or an edge
Learning from other experienced investors and gleaning insights is key
I think Te Kooti, Yvil, Gingerninja and P8, amongst many others, are very generous in sharing their insights
Sure they can be a bit gruff, abrupt and frank. And that can come across as rude, but unfortunately that is how short comments come across on forums. I'm pretty certain in real life, they would genuinely like to share their wisdom to help their fellow countrymen/women
I'm very grateful to them...

Ok - tell me about your housing market hedge, or edge (or whatever).

I'd just be careful who you take advice from and who your mentors are. It can be difficult to spot biases and flawed heuristics.

I assume that you have read a wide variety of books on finance, economics, history, psychology etc to determine who you think is 'right' and who you think is 'wrong' or who to be dismissive of?

During my time in America I got to know a lot of people who thought they were very smart until 2008 rolled around. Most of them were over leveraged against the property market and come out the other side much worse for wear. Hopefully that isn't you in the future.

IO.. exactly.

Thanks IO, your assumptions about me are broadly correct
My hedges and edges are specific to my skills and knowledge so are nuanced and customised to my individuality so can’t really be generalised for the general public
Includes forestry, some cash, some fx, some indexing strategies, some small cap shares
Mainly real estate, but that’s where I can add the most value and I’m playing for very long, ie never selling
Is actually rather boring and just takes a lot of time

Boring is good MM. I am a pretty average equity investor as I tend to get impatient/bored and take profit too early. Housing keeps me locked in, that together with the leverage is what has worked for me. Having some FX can diversify as well, definitely want to be short Kiwi with this property rally.

Yep, biggest advantage with RE without a doubt is leverage and illiquidity
Take note grasshoppers ;))
Also very hard to whack an extra bedroom, sleepout, carport or subdivide the backyard or do some landscaping on your share portfolio

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 !

Shoreman... didn't pick you for a seller but if you made $1.8M thru the price jump thru some quick-fire sales, then congrats. Also if you had made $1.8M playing roulette would you expect us to accept your profit was due to your ability to "maximise your decisions to the conditions" without us first evaluating the risk we perceive you undertook together with analysis of your decision making process before providing you with the validation that you seem to be craving? If you read The Black Swan (N.N. Taleb) no doubt you would cry propaganda, that is, if you even understood the text.

Good for you Shoreman.

Yep, I'm an ECB fan
Best part of the country IMHO

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.

It is not about lower rates but removal of the LVR restrictions what really made a difference, rates have been low for quite a while. This has probably been the worst mistake in economic policies ever made by the self appointed economic lords of the RBNZ.

Every govt Nat (no DTI), Lab (no CGT) won't have a gut to understand what austerity means, which left the brilliant RBNZ tinkering with LVR from 2013, now? rather than being flipflopping slow, decaying reactions? what would it better? than to capitulate the current Biological event? I'll do the same push it up, quickly & hard. The only way to get notice by whomever in the govt next - to deal with the aftermath. Govt, won't do the drastic measures, which left RBNZ to do the dirty work for them.

16
up

Insanity. Mania. Cultlike.

I split my life and work between Japan and California. Homes in both places average less than half that of Auckland and are at least twice the value. At least. The “quality” of typical NZ houses is shockingly low compared to those here. You just get so much more for your money and you pay so much less, and there’s so much more you can do in both Japan and the US. In almost every developed nation outside NZ, really.

There’s not even a single sane justification for New Zealand’s hilariously over-inflated house (fetish) bubble. None.

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.

Until no one is willing to pay millions for a small rotting pile of pine and gib on a muddy scrap of land in a dank country where there is very little worth doing.

Animal spirits guiding the boom?
"Animal spirits is the term John Maynard Keynes used in his 1936 book The General Theory of Employment, Interest and Money to describe the instincts, proclivities and emotions that ostensibly influence and guide human behavior, and which can be measured in terms of, for example, consumer confidence. It has since been argued that trust is also included in or produced by "animal spirits""

Good comments from Stephens, did the RBNZ overstimulate? I'd say yes, will the RBNZ now cancel its Funding for Lending Programme and negative OCR next year? I don't think so

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.

b21
Learnt in sport never pays to write anyone off - to do so is being arrogant and foolish.
To suggest RBNZ have a "total lack of understanding about how the most basic economy concepts work" and "I doubt they learned anything" is being a little arrogant and foolish.

I have merely mentioned facts, they have not learnt anything from their recent mistakes. Removing LVR restrictions would obviously cause the effects we now see, but they didn't see it coming? Even worse, they have already said they have no intentions to fix their mistake.

Using ad-hominem when you don't agree someone else's opinions is something you tend to do, one could say this is arrogant and foolish.

b21..The RBNZ understands perfectly. They are making these decisions with the purpose of assisting the banks, which OFC makes it far far worse.

Interesting commentary from Michael Reddell around the RBNZ view of the housing market
https://croakingcassandra.com/2020/10/13/housing-the-reserve-bank-and-in...

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.

Interesting read from over 4 years ago... Good to see a broad policy response has been implemented since then to reduce theses risks.. O wait.

https://www.rbnz.govt.nz/research-and-publications/speeches/2016/speech2...

Is cost of housing included in the CPI? Or is housing costs included in the data that formulates the inflation % that the RBNZ is targeting?

All Economics have cut a sorry figure again including at RBNZ ? Kiwis love affair with property was/is/ will remain . We have a larger pool of Kiwis now competing against limited supply . The home ownership declined due to affordability in the last few decades but those who have missed the buss and now back with vengeance and are pitied against rich Kiwi Investors adding fuel to fire . 5 years of relatively flat market is changed 180 degrees due to sheer changes in interest rate making a sense of even 1-2 milion dollar investment serviceable at 2.5% p.a. Most of the stock on the market is now selling at prices which still does not make an investment negatively geared . The other options are not appealing to kiwis due to this strong love affair with the property .

The fact is our government and Adrian Orr are all property investors. The conflict is mind blowing. They will only execute policy that drives property prices higher. This time .. through the 64 billion.. they are giving the taxpayer's money to property investors for free. Oh and then any gains made off your taxed money is tax free The rich get richer and the poor pay for it...All mandated by the government and the reserve bank

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?

Hi all, does anyone know what percentage of mortgages are in mortgage holidays expiring March 2021? Or where I would find those stats? Cheers!

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.

As the risk free rate of return (Bond yield%) approaches 0% or even -ve discounted cash flow calculations create values that go to infinity! Or that's assuming people / investors do not adjust the risk of collecting future cash flows in this unpredictable environment.
See Professor Aswath Damadaran - https://www.youtube.com/watch?v=vR19Wsp4ks4