Roost Home Loan Affordability report

Property

Home Loan Affordability in January at best levels since February 2004, Roost report shows

23rd Feb 11, 10:43am by Bernard Hickey

By Bernard Hickey

Home loan affordability improved sharply to its best levels in almost seven years in January as a drop in house prices and continued low interest rates lifted home buyers’ purchasing power, the Roost Home Loan Affordability report shows.

A slight rise in weekly wages and the ongoing benefits of last year’s income tax cuts for those on higher incomes boosted affordability to its best levels since February 2004, which was just before house prices surged.

However, there are renewed signs of a two-speed housing market where prices of more expensive homes in Auckland and Wellington are firmer than entry level and investment properties in the outer suburbs and in provincial cities, where prices are weaker and buyers are in a stronger position.

“Home buyers have the upper hand in many areas where house prices are flat to falling and they are seeing relatively low and stable interest rates,” said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

“Affordability for young couples has improved dramatically over the last five years to the point now where less than a quarter of after tax income is required to service the mortgage on a lower quartile priced property,” Maxwell said.

A young couple earning the median wage can afford to buy a first quartile priced house with 21.7% of their disposable income required to service an 80% mortgage. This is down from 21.9% in December and down from a June 2007 high of 35.1%.

The national median house price fell to NZ$340,000 in January from NZ$352,000 in December. However, the first quartile house price fell to a lesser extent, dipping to NZ$245,000 in January from NZ$245,250 in December and remains below its March 2010 peak of NZ$257,100.

The Roost Home Loan Affordability report measures affordability nationally and regionally for individual income earners and households, taking into account median house prices, interest rates and incomes.

The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median house improved to 51.7% in January from 53.8% in October.

Affordability improved across most of Auckland as median prices fell. Queenstown reclaimed the mantle as the most expensive city in the country after a rise in its median house price. Wanganui took the top spot as the most affordable city from Invercargill after its median price fell.

Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by interest.co.nz in association with Roost found.

Most home owners are still on fixed mortgages, but more new borrowers are choosing to float, given floating rates at around 6.2% are cheaper than average longer term fixed rates at around 6.6%.

The Home Loan Affordability reports are now using the floating rate as most new mortgages are now floating rather than fixed. Home loan affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%.

Affordability is difficult in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable. Households with two incomes are also in a stronger position, particularly those bidding for homes priced in the lower quartile.

Affordability for households with more than one income improved in January because of the fall in the median house price. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house fell to 34.4% from 35.7% in December.

This measure assumes one median male income, half a median female income aged 30-35 and a 5 year old child that receives Working-for-Families benefits. Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past.

The survey’s measure of a ‘standard first-home-buyer household' found the proportion of after tax income needed to service the mortgage on a first quartile home fell to 21.7% in November from 21.9% in December.

This measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

See the report for first home buyers here.

Question and Answers about the report

How does interest.co.nz work out these numbers?

Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?

The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?

It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?

It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

Why use floating rather than fixed?

Up until December 2010 this survey used the 2 year average bank fixed mortgage rate to calculate the interest costs for home loan borrowers. But from January 2011 it was changed to the floating rate because more than 50% of new mortgage borrowers are now using the floating rate.

About Roost

Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996. For more information please visit www.roost.co.nz

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

43 Comments

by Wolly | 12th Mar 11, 10:19am 1299878341

"...and 2 year mortgage rates were close to 10%"

We won't see rates that high again will we.......I mean it would kill off property wouldn't it......and there's just no single reason why they should go so high.....there are actually several bloody good reasons why they will go higher....oh dear oh dear....will the govt waste taxpayer dosh on a bank bailout...as in the BNZ in the 90s....maybe the govt will opt to pay the mortgages for those who cry loud enough....using money they borrow from the banks...so they can make the payments to the banks.

by Justice | 12th Mar 11, 11:52am 1299883960

The key factors to home affordability are first:

1: having a job with substantial income to pay for your overpriced tin shed

2: keeping that job

3: income and savings MUST outclimb inflation and localized living costs

I see little of these factors in the overall economy at present so.................

Let's make no naive mistake as to why the OCR was cut. Our biggest Aussie banks here are struggling to sell debt and thus face a massive debt problem themselves in paying back their forieign banking investors who funded the decade long property ponzi scheme.

This cut had nothing to do with CHCH or inflationary pressures.

It's 'sole' purpose was to stem what is slowly but surely looking like a future NZ banking crisis which like Wolly points out above is likely to make the NZ taxpayer very poor along with naturally occuring problems like in CHCH.

The 'perfect economic storm' in NZ is growing by the week. It won't matter whether your a saver, a spender, or a debt or property hoarder. We are facing 'austerity' for all. The party is well and truly over

by Money Man | 12th Mar 11, 12:48pm 1299887284

The OCR reduction has nothing to do with Banks telling the RBNZ to drop it so they can lead more. Rates have been and are at a historic low and Banks aren't been flooded with loan applications.

You do not need substainal incomes (which I take at over $100k pa) to get a mortgage, unless you want to buy the best house in best street.

Unemployment is up from a low base but we are not up to the 9% odd which ecomony has experienced in last 20 years or so (Early 1990s)

Úsing your theory if the banks have a massive problem (face a massive debt problem themselves in paying back their forieign banking investors who funded the decade long property ponzi scheme) why would they want to actively lend out more money. why would they want to take on more bebt making it more diidfcult to repay foriegn investors. 00000hjhbbjhb n,,,,,,,,

by Wolly | 12th Mar 11, 1:14pm 1299888890

Hard to fathom isn't it money man...so why don't you tell us why Bollard decided to cut the ocr!

He didn't do it for the hell of it....nor to get headlines...and it won't mean a pay rise...nor a knighthood!

Could it be that the banks made enough noise pre the cut to make it very clear they wanted a cut.....now why would they want a cut in the cost of deposits and the price of their floating rates (more off deposits by the way)....what reason do you have money man....

What you will find hard to accept is that the banks everywhere have got themselves into so much of a hole they must keep the property splurge going or risk total failure.

Bollard received this warning....."cut deep or risk a bank collapse"

This madness will come with a govt exercise in BS and spin aimed at idiots unable to recognise the dangers of going into debt and quite incapable of seeing the coming property collapse nor the wave of inflation and the much higher interest rates.

by Money Man | 12th Mar 11, 7:55pm 1299912900

Wolly (is this your real name?) the simple reason he dropped rates was to endevour to restore some confidence and stave off further reduction in economic activity.

Why was this this rate cut only on the cards post CHCH earthquake?

Maybe it has something to do with the drop in economic activity in our second biggest city and effect on GDP. (That's Gross Domestic Product) .

Debt is not an issue so long as one can service it.

Savers need borrowers to pay them interest.

If you look at the average loan to vaue ratio across most banks portfolios you would be surprised how low this is (be close to about 60%) so can withstand a drop in property values.

While there has been an increase in the level of mortgage sales during the boom period there were next to none as properties could sell reasonably easy by distressed property owners before Banks has to act under its mortgage.

PS the Banks didn't just make a noise over possible OCR cut but actually cut their rates as based on what the RBNZ were likely to do with all the infomation in front of them. It was arisk as if RBNZ didn't move they might have had to reverse these cuts.

by Justice | 12th Mar 11, 10:27pm 1299922029

" the simple reason he dropped rates was to endevour to restore some confidence and stave off further reduction in economic activity."

Yes MM, Restore confidence via encouraging borrowing and more debt. Please highlight where I stated the Aussie banks TOLD the RBNZ what to do?

Fact is the RBNZ protects the street banks interests above everything else. All this sympathetic BS that Bollard made regarding the CHCH EQ was nothing but balony

by Justice | 12th Mar 11, 10:42pm 1299922958

"Debt is not an issue so long as one can service it."

that's just it MM, the banks can't unless they get the sheeples wallets out buying more tin sheds and tv's. Make no mistake, these banks have very big creditors who themselves will be wondering what the hell Bollard is doing by cutting the OCR. Wrong way Bolly, earthquake or no earthquake. He just made another disaster on this

by Money Man | 12th Mar 11, 11:12pm 1299924738

Wolly, the Banks dropped their rates days before before Bollard dropped the OCR!!!!!!

I would agree if he dropped the OCR and then had by his actions forced the Banks to drop their rates so how could the Banks wonder what the hell Bollard had done when they had already "dropped their rates.

If your arguement held any creditability you should have been say wonder what the hell Banks are doing dropping their rates

Servicing of existing debt has nothing to do with getting more people to take up more debt. I have a mortgage. My ability to service it (and thus Bank pay interest out to savers) is contingent on my ability to earn an income, not taking out more debt.

You are great at avoilding the issues. Do you really think Bollard would have dropped OCR by 50 basis points if it was not for earthquake?

If you really want to have a look at what Banks are thinking in regards to income from interest margins, than Kiwibank getting into Insurance will give you a hint. Most of the Banks already ahve a largefoot print in this space and its not new. BNZ started BNZ Life in the 1980's.

Non Interest income has been growing over last few year and Banks now have a bigger spotlight on this as they see little to no credit growth over the next number of years (infact you may see some Banks balance sheets contracting as the sheeples retire debt).

by Justice | 12th Mar 11, 11:21pm 1299925293

"Wolly, the Banks dropped their rates days before before Bollard dropped the OCR!!!!!!"

Not true, Even Bernard noted none did UNTIL about 15-45mins after Bollard's speech which was still pretty amazing

by Money Man | 12th Mar 11, 11:33pm 1299925980

Wolly,

Banks had priced in a OCR reduction earlier in the week in their fixed mortage rates (for example 6 month rate across most Banks had dropped by 50 basis points on Tuesday or Wednesday). Term deposit rates had also dropped as well.

The fixed rates are priced using an expecation of the OCR which influences the 90 day rate.

The 6 month rate is based on an expectation of the rolling set of 90 day rates.

The Banks would have only cut these rates on the basis they firmly believed the OCR would be cut.

Yes the floating rates dropped almost in line with OCR rate cut.

Which comes back to my point about the Banks wondering why the hell he cut the OCR.

The Banks were wonderiing why the hell not and Bollard delivered!!!!!

by Justice | 12th Mar 11, 10:33pm 1299922399

Debt to pay for more debt Money Man is NOT a new concept if you haven't noticed! Jezz..........Even banks do it, along with governments

by Money Man | 12th Mar 11, 12:51pm 1299887479

Sorry something went crazy with computer. In any event Banks are now having to conform to RBNZ Core Funding Ratio which requires a very high relience on domestic deposits to funds their books so the Forieign banks gravy train has been slowed down or stopped.

by Wolly | 12th Mar 11, 4:37pm 1299901052

Oh yes the core funny rate....what the banks tell Bolly they can manage...if he let's them sell covered bonds in Europe! Hey presto the rules on covered bond deals changes overnight. Bond buyers get double protection and depositors in NZ get screwed.

The message money man is that the money men rule the roost and the reason is a mountain of debt built up during the mad era of Clark...pity she was too busy signing paintings to ask the guru what he was doing about the bubbles..... Or is it all the fault of her personal highly qualified economics advisor...you know ..the one with an economics degree from dreamland.

by Justice | 12th Mar 11, 10:28pm 1299922133

Exactly Wolly!

by Money Man | 12th Mar 11, 7:25pm 1299911100

Yes retail term deposits over 90 days or offshore wholesale deposits over 12 months (excluding funds from other financial institutions) quailify for the Core Funding Ratio. There may be a few other rules as well. I know a little bit about it as I am in the mist of it.

The issue has been the difficulty in sourcing offshore wholesale money over 12 month term and the premium attached to this (pricing it over retail deposits) , hence the fight over retail term deposits and how Banks will fight for these.

For example RaboDirect Bank are still offering rates over 5.00% (5.35% to 5.55% for terms up to 12 months whereas most other banks are in the 4.5% to 4.70% range). These rates are bing held to 31/03/11 as per their website yesterday.

Rabo Bank is one of the worlds biggest and strongest banks (Triple A rating which is same os NZ Soveriegn rating) but still needs to fund 65% (from memory increasing to 75% by April 2012) from retail deposits, even if it can sourced cheaper funds offshore.

If one of the worlds biggest and best banks can't get the RBNZ to dance to their tune what hope do the other have.

I think you are all deluding yourselfves if you think the Banks really have as much clout over RBNZ as you proclaim.

by Justice | 12th Mar 11, 10:30pm 1299922242

No one claimed that MM! What we claimed is the RBNZ protects the banks!

by Vera Fayed | 13th Mar 11, 9:01am 1299960085

"What we claimed is the RBNZ protects the banks!"

I would've thought you would be pleased someone is looking out for them Justice. Y'know, the banks, the ones where you put all your money.

by Justice | 13th Mar 11, 4:48pm 1299988093

Not the aussie banks Vera. Anyone with funds in the Aussie banks is a traitor so I don't give a thuck. Banks are businesses like every other, If they fail then sorry tough! If that is no longer the case like it clearly was in the US then the game is over. You can't have a set of rules for one and no rules and bailouts for the rest.

When the market suits them they love it, but when it does'nt they expect a hand out like all the other bludgers in life. My wealth is protected by something called "knowledge".

by Money Man | 12th Mar 11, 10:54pm 1299923693

Oh yes the core funny rate....what the banks tell Bolly they can manage

Reading this seens to imply the Banks are telling the RBNZ what is what.

Yes the RBNZ is set up to protect the intergirty of the Banking system which is diffirent to protecting the Banks (but you could argue the RBNZ is protecting the banks from themselves).

Of course the banks would prefer less rules and regulations but they would be no different to every other industry, be if farming, retailers, importers etc.

by Justice | 12th Mar 11, 11:07pm 1299924420

"Yes the RBNZ is set up to protect the intergirty of the Banking system which is diffirent to protecting the Banks (but you could argue the RBNZ is protecting the banks from themselves)."

What integrity? The RBNZ has none either. C'mon MM, look at the last decade of total mismanagement by Bollard & Co. They followed the Greenspan plan like a child too the piper and we are all paying for it. I wrote too Bollard again the day after this decision much like I have since 2003 when I saw the writing on the wall. They are just clueless.

As for protecting the banks from themselves, Id say Bill English is looking into that via thinking of ways to replace the GGS with something that doesn't sound like a 'bailout' but IS

by Money Man | 12th Mar 11, 11:19pm 1299925140

Justice,

The intergrity of the Banking Sysytem does not just relate to credit functions but includes liquidity, currency, settlements, management of foriegn reserves, etc.

Be interested to know what the exact decision you are talking about when you wrote to Bollard:

What did Bollard do, when and what did you advise him?

by Justice | 12th Mar 11, 11:35pm 1299926100

Your lecturing the wrong person in the banking system I'm afraid. And your "deflecting"

What decision? the OCR drop

What I told him is for me and my businees to know. Let's just say they know me & my views quite well.

As for integrity, If there was any Bill English wouldn't be needing to do this:

http://www.stuff.co.nz/business/money/4759896/Failed-banks-may-keep-tra…

What these people do and say in pubic is quite different to what they say behind closed doors as you surely know.

I will say it again. The OCR drop in reality had nothing to do with the CHCH earthquake. Just think Greenspan post 9/11

by Money Man | 12th Mar 11, 11:44pm 1299926689

Simply question:

Would Bollard have dropped OCR by 50 basis points had it not been for the CHCH earthquake?

(what the bet you don't answer it with a yes or no).

And from what I see from the article quoted it talks about core banking functions to continue?

Isn't ahving a plan or contigency in place should the unlieky happen good risk manahement or should we just fly by the seat of our pants.

I assume you would have some idea what would have happenned to the banking system had the Govt of the day allowed the BNZ to fold?

PS I also have a reasonable insight into the NZ Banking system so are not some outsider making uninformed comments.

by Justice | 13th Mar 11, 4:59pm 1299988779

MM, seriously your losing it and I can tell cause your spelling is going out the door.

Some of us live with NO debt. Debt only makes you a slave and a victim to such problems should they occur. This simple fundamental make the current banking system 'doomed' to fail globally and you know what? IT IS, IT HAS and IT WILL AGAIN.

The BNZ never should of been bailed out and neither should have Air NZ at the time which yes I was around and totally disagreed with then. Businesses, INCLUDING banks must be allowed to fail regardless of consequences. It's a fundamental rule to free markets and economics. They fail because they cocked up. If my business failed who saves me? That's how it works. This is how quality, business confidence and good credit is maintained.

by Money Man | 13th Mar 11, 5:36pm 1299990969

It a bugger without spell check.

Agree a lot of people live without debt but many of those people have had debt in the past, (like todays retired who bought their home and paid it off) taken on debt for the right reasons with clear ability to service.

As you no doubt say its the plonkers (of which I see enough of in my job) and those due to events outside their control become the slaves and victims.

Debt can be like a stick, help you walk or used to hit you over the head with.

Its your choice on how you use it.

If my business failed who saves me?

Well only you should save your business as owner and shareholder and if you think its worth saving then you will inject some capital to save it (no different to the Govt with BNZ and Air NZ as they were the shareholders) otherwise you will let it fail and walk away from it.

Many businesses with sound business plans and products / services have come close to the wall but have been able survive and florish. AIr NZ is back in the black I see and trading reasonable well in difficult times.

One side effect of the reccession is that it does clean out the business world of those ineffective and inefficent operators (the weak) and allow the strong to survive in a better posoition to trade though the difficult times which always sone through from time to time, in varing size and length.

by Wolly | 13th Mar 11, 7:14am 1299953676

So there you have it folks...in the run up to the election we have the RBNZ porking activity with lower floating rates...more cash in the hands of the indebted so they can spend and splurge...the aim to generate confidence!....Do you feel confident?.....

Meanwhile elsewhere on the planet the truth about the debt crisis is starting to drive up the cost of money...while Bernanke works his mouse to make more billions every minute....to pay for Treasury promises so they can feed the monster....

Of course NZ is different...we are in a different part of the universe!....the rising rates will not arrive here...not until after the election.

Post Nov this year the tune from Bollard will change abruptly from "happy days are here again"....to "in the hall of the mountain kings" and all those who borrowed, whether on floating fixed or a mix, will feel the squeeze...the crushing demand for every bloody penny they have and then some.

Well.....Do you feel confident......do you?

by Vera Fayed | 13th Mar 11, 9:08am 1299960533

"the rising rates will not arrive here...not until after the election."

Three years ago Wallace was here saying exactly the same thing. Warning everyone in the most emphatic terms that by 2010 mortgage rates would be 15% and you would swap a 3 bedroom house for a dozen eggs. Keep doing your rain-dance Wally, eventually the clouds will roll in and you can shout "I told you so".

by Wolly | 13th Mar 11, 11:17am 1299968268

Them would be some eggs VF...can't recall promising that...I failed to see the corruption at the US Fed with Bernanke bailing out the banks and buying all that shite with mousemoney...but the worm is turning VF and Bollard knows bloody well he is facing a serious wave of imported and home grown inflation...oh he will wait until post the election but from that point on you will find rates going up...higher and quicker due to the 3 years of silly cheaper for longer games.

Now perhaps you can tell us all what happens with each 1% rise in the average cost of credit for all sectors in the economy....that's 1% on top of interest paid right now on the $300billion dollars of debt...and don't forget the expanding mountain of govt debt...growing by $50million a day.

by Money Man | 13th Mar 11, 5:13pm 1299989593

Wolly,

the run up to the election we have the RBNZ porking activity with lower floating rates...more cash in the hands of the indebted so they can spend and splurge

You will see that people aren't out there sprurging on Flat TV's or trading in their 3 year old car or buying a second beach house.

From what I see must people (and I see enough to make this comment) when rates are droppingthey are retiring debt by keeping payments at current levels, that is they are used to paying a certian level and this will insulate them to against future rate rises. I am still seeing people coming off rates over 8 odd percent which they fixed 3 to 4 years ago.

Funny neither you or your side kick Justice have answered a simple question without reverting to some sort of rant:

Would Bollard have reduced the OCR by 50 basis points had the CHCH earthquake not happenned? Yes or No?

PS Yes I personally feel condident as I can personally afford to service my mortagage even if it went to 25%.

Just about everyone I talk to know that rates will increase, its a matter of when and by how much and if they can use this time to retire more debt then normal they see that as a bonus.

The real world is a bit different to what you see through your tined glasses.

by steven | 13th Mar 11, 8:53pm 1300002830

"not til after the election"....good one to put you in your place come december for being wrong....mind you I take u mean substantial rises and not putting back on what the RB just took off? say a 1%+ by december is what u mean?

Im not so sure the spend and splurge ppl are out there spending and splurging right now...shops around me are pretty quiet....enough ppl have lost their jobs and enough ppl around the Govn in wgtn are concerned they will that Wgtn seems subdued....

"Crushing demand for every bloody penny"....yes thats quite possible, but that doesnt signal inflation, the reverse happens, the consumer part of the economy which is about the largest contracts because other parts take up the money first, net result break even if we are lucky which will kill any recovery, which measn the OCR will stay low or drop, its becoming irrelevent in today's post peak oil world anyway....and un-emplyment will rise.

Personally im watching what the oil price does to the world's and in particualr the US's economy. If it stays at $100+ and even goes to $120+ and looks to stay there its all over IMHO and that could be this year....easily, look at how fast things crashed in July 2008....

regards

by Wolly | 13th Mar 11, 7:35am 1299954900

Sunday homework for moneyman.....

http://www.marketoracle.co.uk/Article26866.html

"The Continuous Commodity Index – CCI, (60% food, 17% energy and 23% metals) has almost doubled since the low in early 2009 and has gone up 42% in the last 12 months. The almost vertical rise of the CCI is one of the best indicators of hyperinflation being imminent."

‘There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.’ – Ludwig von Mises”

by Justice | 13th Mar 11, 4:43pm 1299987782

Pointless trying to teach them anything Wolly, they are all in denial. All you can say later is "I told you so" but they will still find some BS logic to justify their deluded assumptions. All this debt has worped their minds.

by Money Man | 13th Mar 11, 5:39pm 1299991140

Justice I can assure you my mind is not worped or deluded by any debt (or anything else) and again you guys simply revert to personal attacks when you have nothing else to contribute to a robust debate.

by Justice | 13th Mar 11, 10:11pm 1300007493

Cry me a river

by Justice | 13th Mar 11, 10:19pm 1300007964

Nothing to debate MM, Your simply wrong. Your understanding of even the most simple economic realities leads me to believe you along with the fools at the RBNZ who's record this past decade along with moronic US clones at the US FED speak for themselves.

Many of us on the outside knew the koo from very early on (2003) but they all failed to listen and now that the shit has hit the fan globally YOU ALL still pretend you actually know something. The shit i read on here from some of you armchair experts is just laughable.

If you really want to learn something about this subject and don't trust people like me who run ZERO debt businesses then I suggest you go listen and read Peter Schiff

Goodluck and all the best.

by Money Man | 13th Mar 11, 10:41pm 1300009266

Again personal attacks and you wonder why no one took your seriously.

I have a reasonable understanding on economc realities but as I don't know your background I am not going to personalise it and personally attack your or your knowledge.

I am not that arrogrant just to simply say you are wrong.

One should say as you put it:

The shit i read on here from some of you armchair experts is just laughable.

For all I know you are just another armchair expert and some of what you blog is laughable.

But you do have valid opoints about debt when there is too much, whether on personal, business. corporate or soveriegn level.

Debt is at all levels: Trade Creditors, Letter of Credit, Bill of exchange, Performance Bonds. These are all diiferent forms of credit which you say should not exist?

I will goolge Peter Schiff and then be able to debate on a more imformed basis.

Meantime I am not about to lose any sleep over what I have read to date.

by steven | 13th Mar 11, 7:33pm 1299998017

Within the context of what I see written here, I agree with MM on this one....certainly in my case Im using the time to pay off my mortgage as fast as I can....this drop means more gets paid off....however I know other ppl who are not so conservative....but I dont know anyone who has brains and is splurging....

In terms of interest rates well I stayed floating, looks like 2 odd years ago I made the right choice despite all the ppl claiming interest rates were going to rocket....it has not happened in that two years, its staggered along as I expected.....I seem to recall that there were calls then that the rates would increase and fast and it was foolish to stay floating....before this drop I was ahead....even if we now see 10%+ inside 2 years Im ahead....and debt paid down attracts no future interest.

For rising inflation / interest rates maybe try pointing me at examples where the situation is similar, ie not more money than goods which is what we might see coming out of a recession too fast or well into a boom...right now its the other way around, we are going into a recession/depression....so increases in food and petrol means less buying of whiteware because ppl dont have more money....they have less....This means any future rises in residential interest rates forced on us by external creditors will mean the OCR will stay as is or drop because those extar costs will be dqueezing our economy and wallets and not fattening them...

regards

by steven | 13th Mar 11, 7:42pm 1299998552

First para......I dont agree and it seems neither does Paul Krugman if Ive read him right....he's way more worried about deflation and so do I.....consider that un-employment is still way high, debt is still crippling....so for me looking at the CCI I see other prices dropping to compensate...when you look at core inflation this is the case, its very low....

2nd para, I tend to agree but conext is impotant it depends on whose National currency....also I think credit is no longer expanding....its contracting....hence the boom is failing....

regards

by MortgageBelt | 13th Mar 11, 9:39pm 1300005570

Agree, Steven - Interest Rates are not going to rise substantially in the next 1-2 years as the economy is too sick.

The rebuilding in Chch will not start for 12 months or more - it's still shaking. This growth rate of 5 - 6 % by bank economists 2012 is laughable. According to them last year we were to have 9% interest rates right now.

by Justice | 13th Mar 11, 10:09pm 1300007397

The state of the economy has NO relevance to what the OCR or interests rates should be!

You people just don't get it! The OCR and interests rates are supposed to be set on the basis of inflationary pressures to help control currency value ONLY.

They are not a tool to stimulate ANYTHING!, They are a tool to 'regulate' and create 'stability'

We are in this mess (GFC) because fools like Greenspan and Bollard misused their tools as a reaction to 9/11!

Why don't you go blog about something you know about?

by steven | 14th Mar 11, 7:17am 1300040232

Interesting point of view....however there is little if any evidence I have seen to say that the OCR is used to control currency value....please provide some I'd like to read pls. From what I ahve read mp stated aim is to control inflation....ie regulates behaviour yes....it improves stability, yes it probably does, however hmmm what does the legislation say?

Greenspan wasnt a fool as such....he is an idelouge, an lifelong libertarian republican, maybe more like an objectivist....his broken political/economic model is the major reason we are in this mess.....IMHO, his time in office seems to consist of dropping interest rates to hold away recession, which only work so long, as proven today, and cleaning up the messes of his lack of regulation and foresight.

Bollard and 9/11 seem a bit of a stretch....

Now you are into tin foil hat territory.....howabout providing some evidence to back up what you blog on? because right now I see none....

regards

by MortgageBelt | 13th Mar 11, 10:40pm 1300009200

It is annoying when Reality does not synch with your Worldview, Justice.

Perhaps you should read Bollard's statement last week - making the correlation between the economy's performance, growth and the need for a lower interest rate. I guess he also lacks economic insight according to you.

What stability? Last time I checked we were on Planet Earth, 1/3rd in poverty, political unrest, natural calamities, economic cycles etc etc .... something FX Traders are somewhat removed from ... but still profiting from ....

by Wolly | 14th Mar 11, 8:06am 1300043174

"Unemployed men took one or two rucksacks and went from peasant to peasant. They even took the train to favorable locations to get foodstuffs illegally which they sold afterwards in the town at three or fourfold the prices they had paid themselves. First the peasants were happy about the great amount of paper money which rained into their houses for their eggs and butter. . . . However, when they came to town with their full briefcases to buy goods, they discovered to their chagrin that, whereas they had only asked for a fivefold price for their produce, the prices for scythe, hammer and cauldron, which they wanted to buy, had risen by a factor of 50. -- Stefan Zweig, The World of Yesterday, 1941" http://www.marketoracle.co.uk/Article26882.html