The Reserve Bank's (RBNZ) Monetary Policy Committee has lifted the Official Cash Rate (OCR) relatively aggressively by 50 points to 1.5%.
The Committee said it wanted to act quickly to avoid high levels of inflation becoming embedded.
It described the move as "bringing forward" monetary tightening, saying it "remained comfortable" with OCR outlook outlined in its February Monetary Policy Statement.
This stylised outlook sees the OCR hitting 2.2% by the end of the year, 3.3% by the end of 2023, and 3.4% in 2024.
The Committee said, "Members noted that annual consumer price inflation is expected to peak around 7 percent in the first half of 2022. The risk of more persistent high inflation expectations has increased.
"The Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future."
It also said, "A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment."
Most New Zealand bank economists were expecting a 25-point hike, however financial markets had priced in a 50-point lift. The OCR hasn't been lifted by this much in 22 years.
The news saw the New Zealand dollar rise against the US, before dropping right off.
The Monetary Policy Committee is tasked with ensuring the Consumers Price Index (CPI) rises by between 1% and 3% each year. In the year to the December 2021 quarter, the CPI rose by 5.9%. March quarter figures will be published next Thursday (April 21).
The Committee is also required to support "maximum sustainable employment".
It said employment is "above its maximum sustainable level". The unemployment rate was 3.2% as at the December 2021 quarter. March quarter figures are due out on May 4.
The Committee will next review monetary settings on May 25, when it will also publish a quarterly Monetary Policy Statement and provide commentary in a press conference.
Below is a statement from the RBNZ following today's review.
The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 1.50 percent. The Committee agreed it is appropriate to continue to tighten monetary conditions at pace to best maintain price stability and support maximum sustainable employment.
The Committee remained comfortable with the outlook for the OCR as outlined in their February Monetary Policy Statement. They agreed that moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations. A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment.
The level of global economic activity continues to generate rising inflation pressures, exacerbated by ongoing supply disruptions in large part driven by COVID-19. The Russian invasion of Ukraine has significantly added to these supply disruptions, causing prices to spike in internationally traded commodities and energy.
However, the pace of global economic activity continues to slow. There is an elevated level of uncertainty created by the persistent impacts of COVID-19, and clear signals that monetary and broader financial conditions will tighten over the course of 2022. Added to this is the high level of geopolitical tension and related economic sanctions on Russia.
In New Zealand, underlying strength remains in the economy, supported by sound balance sheets, continued fiscal support, and strong export earnings. There has been some economic disruption due to the outbreak of Omicron. However, the high vaccination rates across New Zealand are assisting to reduce this disruption.
Heightened global economic uncertainty and inflation are dampening consumer confidence. The rise in mortgage interest rates – amongst other factors – have acted to reduce mortgage demand and house prices. However, economic capacity pressures remain, with a broad range of indicators highlighting domestic capacity constraints and ongoing inflation pressures. Employment is above its maximum sustainable level and labour shortages are impacting many businesses.
The Reserve Bank’s core inflation measures are at or above 3 percent. Inflationary pressure is being further accentuated by current high imported energy and commodity prices, which are lifting headline CPI inflation. The Committee will remain focused on ensuring that current high consumer price inflation does not become embedded into longer-term inflation expectations.
Summary record of meeting
The Monetary Policy Committee discussed developments affecting the outlook for monetary policy.
It was noted that global consumer price inflation is high, well above most central banks’ targets. This general inflation pressure is due to the recent recovery in global demand running up against severe supply shortages and trade disruption. The economic disruption caused by COVID-19 has been exacerbated by rising energy and food prices resulting from the Russian invasion of Ukraine.
The Committee noted that global economic growth is slowing, given supply constraints, consumer price pressures cutting into real incomes, and heightened geopolitical tensions causing investment uncertainty. Central banks globally are also tightening, or looking to tighten, their monetary policy stances over 2022, in an effort to constrain consumer price inflation expectations consistent with their policy targets.
Members observed that financial conditions have tightened in New Zealand, with higher interest rates, a stronger New Zealand dollar exchange rate, and lower asset prices.
It was noted that mortgage interest rates have risen broadly consistent with the outlook for the Official Cash Rate (OCR) in the Reserve Bank’s February Monetary Policy Statement. The Committee noted that the higher New Zealand dollar against trading-partner currencies has assisted to partly offset higher import prices for local consumers.
In discussing the underlying influences on higher domestic inflation, the Committee agreed that both international and domestic factors were important.
Headline inflation is rising largely as a result of disrupted supply chains and higher world commodity prices. These higher commodity prices are increasing both imported inflation and also the incomes of some New Zealand exporters. Domestic demand pressures, relative to supply capacity, are also pushing New Zealand’s core inflation above the Bank’s 1 to 3 percent target range.
Capacity pressures are apparent across a wide range of domestic indicators. In particular labour shortages remain heightened, impinging on domestic economic output. Nominal wages are rising in response to these shortages, as would be expected. However, the increasing cost of living is putting pressure on household budgets. Consumer confidence has been declining as domestic price pressures are outpacing nominal household income growth.
The Committee discussed the outlook for labour supply with the reopening of New Zealand’s international border underway. Members agreed that while the medium-term outlook is for ongoing net inward migration, as is the historical norm, this level would take some time to rebuild. Near-term indicators highlight that New Zealanders are currently leaving in larger numbers than visitors are arriving, as the border is opened in stages. The Committee noted that net immigration is assumed to increase only slowly, eventually leading to a gradual easing in skill shortages.
House prices have fallen from their recent high levels. The Committee viewed this as a sign that house prices are moving towards a more sustainable level. Home building intentions remain at record levels, which will assist this adjustment. However, construction activity faces challenges, including access to land, rising building costs, ongoing supply chain bottlenecks, and limited access to labour. The construction sector is operating around peak capacity.
Members noted that inflation is above target and employment is above its maximum sustainable level. As such, the Committee confirmed that further increases in the OCR are needed in order to meet their mandate.
The Committee discussed the pace and extent to which the OCR needs to rise in order to meet their inflation and employment mandate.
Members noted that annual consumer price inflation is expected to peak around 7 percent in the first half of 2022. The risk of more persistent high inflation expectations has increased. The Committee agreed that their policy ‘path of least regret’ is to increase the OCR by more now, rather than later, to head off rising inflation expectations and minimise any unnecessary volatility in output, interest rates, and the exchange rate in the future. The Committee agreed to a 50 basis point rise in the OCR, consistent with this least regrets analysis.
The Committee noted that the OCR is stimulatory at its current level. Members agreed that a larger rise in the OCR now is consistent with the forward path for interest rates outlined in their February Statement. Members also agreed that this ‘stitch in time’ approach is consistent with near-term financial market pricing.
On Wednesday 13 April, the Committee reached a consensus to increase the OCR to 1.50 percent.
Attendees:
Reserve Bank staff: Adrian Orr, Christian Hawkesby, Adam Richardson
External: Bob Buckle, Peter Harris, Caroline Saunders
Observer: Caralee McLiesh
Secretary: Gael Price
253 Comments
As expected. Good.
EDIT: Look at the price action in the NZD and swap markets since the announcement - that is the market reaffirming RBNZ’s credibility. They’ve sent a hawk out over the horizon to find a dove (hopefully it doesn’t have to kill and eat said dove on the long flight home).
Pragmatist called it this morning.
Key outtake for me:
House prices have fallen from their recent high levels. The Committee viewed this as a sign that house prices are moving towards a more sustainable level. ...Members noted that inflation is above target and employment is above its maximum sustainable level.
As I have been saying for months house Prices will need to come down to a level where average wage earners can afford to buy a house this would be around 450k max. Some people and investors with huge loans a million plus for 3 bedroom place on tiny lot crazy prices.We are now in a downward spiral and will hit bottom around 2016 prices. Hopefully the people who purchased over last 4 years made money on way up because anyone purchasing in last 3-4 years will lose deposit and be in negative equity for years.
you know what would be funny.
If RBNZ supports the view above and defines this as sustainable. So when the govt says they need to take house price stability into consideration the RBNZ say 'great, we can increase rates and kill two birds with one stone!'
Just a thought, though for all the calls of govt supported Ponzi, it's conceivable that Orrs idea of what is an acceptable house market correction is to a far lower level than what most of us expect. Perhaps when the banks come out and ''predict'' (ie ask for what they want to see) they are trying to talk the RBNZ up from a lower target.
Just a thought...
Correct, others here need to update their little black book, I quit full time work years ago. By the way a 50bps rise is better for me than a 25bps rise with money in the bank so don't really care if I'm wrong. Said the last two rate reviews should have been 50bps its just the RBNZ is simply to slow to react. Basically I'm right if the next review is another 50 bps rise as that will put the OCR where I predicted it would be so who cares.
Which lunatic school did you go to?
Mine was the Hallowed Halls of Lunatics Chapter V11X. Subgroup FRP.
It was an expensive course but well worth the extra investment in my view.
The speciality of this chapter is of course Quality Lunatic web postings 101. Which allow people who pass this subject the ability to convey random thoughts in a convincing way. And if the opportunity arises to convey these in person, an important technique is to nod the head while conveying the key message, and to raise and lower the eyebrows in a seemingly random manner, but it is all just complying with a tried and tested system.
Housemouse, Housemouse
That is not fair, I don't misrepresent you . . . :)
by HouseMouse | 16th Feb 22, 6:19pm
Wouldn't touch the 3 year with a barge pole.
Mortgage rates will be back in the 2-3% range within 2 years.
by HouseMouse | 26th Jan 22, 12:09pm
. . . .
So raising the OCR to 1.5-1.75 max.
by H
ouseMouse | 24th Feb 22, 1:18pm
2022, and I haven't said inflation will be 'done'. I think from late 2022 through to late 2023 it could still be in the 3-4% range. So not 'done' but a lot lower than now. I guess you could say that I think *high* inflation will be 'done'.
And inflation subsiding is only part of the reason I think the OCR won't be lifted above 1.75.
by HouseMouse | 13th Apr 22, 7:40pm
No compelling argument?
So "piss off" is a compelling argument?
I don't have any time for people who intentionally misrepresent my position. I corrected him, and no apology or acknowledgement of that. Pathetic, childish.
People like you and HW2 seem to think misrepresentation is fair, as if I don't have a valid gripe. Good for you if you think misrepresentation is fair...
How would you feel if I misrepresented you on several occasions? Would you feel like engaging with me after that?
'Yvil said at the end of 2021 that house prices would increase by 15-20% in 2022'
HouseMouse
Desperate stuff.:)
Never said such a thing . . . posted late 2020 that I thought then increases were unsustainable and that market would be flat or show some decline. It took a year to come about. Even your mate IO has been critical of me for having that view.
Happy for you to show otherwise.
HouseMouse
You need to keep it honest and stop telling porkies that I was predicting 10 to 20% rises for this year.
by printer8 | 18th Dec 20, 9:19am
Clearly the current rate of housing inflation is unsustainable (even Bindi has publicly said so) and it poses risk of significant correction which is neither in the RBNZ nor the government’s interest.
and
by printer8 | 3rd Mar 21, 11:35am
Yvil
Yes, I think that most are now seeing current price rises as unsustainable.
HM,
Again, you make some good, smart comments but then you lose your temper too often and go off the rails. This is a character trait, so not depending on a topic but something that will happen in social settings as well. It's really not good, I hope that, in time, you will find a way to control your anger and more peace within yourself.
Come on, people. Everyone involved in the above scuffle has a lot to add to the debate. Nothing is right or wrong in economics and predictions are all but worthless. What matters and adds value is the reasoned argument behind the prediction and I certainly get a lot of value from HM's line of thought, without worrying too much about what was predicted, when, and who may or may not have misrepresented it.
by HouseMouse | 13th Apr 22, 8:35pm 1649838956
Man your [you] are dumb, [ I ] can't believe you fell for my bait...
Now you know what gross misrepresentation feels like.
Walk on, old man.
What a dumb and disturbing way to act, HouseMouse. You lose any credibility you might have had
Flying High, some people with big mortgages are pissed and angry because it seems only like yesterday the RBNZ were talking about negative rates. Many on here claiming that interest rate rises simply could not happen and were in fact impossible. Looks pretty clear to me that the RBNZ will push this now to the safety limit of between 6 and 7% mortgage rates for 1 to 2 year terms. This is going to have a very bad effect on discretionary spending for some time to come. Its now time to pay up for that free money lolly scramble of the last couple of years.
... if followed by a further 50 points rise in May , this'll be just what the housing market desperately needs ... and a boon to savers , the elderly , with term deposits ...
Question is : why did the Reverse Bank choose to crush the OCR so low in the first instance ... time to repair the damage , huh !
Definitely a fair bit of building of affordable housing supply which helped NZ to attain its once high home ownership rate by the 1980s and 90s. All undone with policy changes in recent decades, to the benefit of those who had that affordable housing left to their generations by predecessors.
If we are interested in what the facts say, we could say that the Boomers led a building "boom" (couldn't resist) and built more house in 73-74 than ever before or since. Yeah Boomers did that. They also built the sealed roads, all the motorways, almost all our electricity generation, our airports our harbours etc. Yeah Boomers did that.
But they can go to hell amirite???
https://www.stats.govt.nz/news/45-year-high-for-new-home-consents
Are you saying that Boomer's "led" the construction boom in the 1970's? 20 - 30 year olds were in charge of managing the delivery of all these projects?
Or were they merely employed to do a job by the golden generation before them? You make out like they did all this for charity.
I guess considering how likely it is I will have any savings at all if I'm lucky enough to retire before I drop dead, I have some suggestions about possible methods you could use when you're taking these red pills yourself. Not all of them are orally administered :)
I mean, it's easy to be sarcastic about it but theres a significant portion of retirees who went into retirement banking on a small but predictable return on term deposits. People who because of their age probably shouldn't be investing too heavily in risk assets.
I would call them one of the many victims in all this.
"ungenuine" would be a better fit.
That the NZ annuities market sucks is part of the issue. IMHO the Superfund should offer KiwiSpend annuity products with a guaranteed return for whole of lifetime. No money back on death (so guaranteed rate can be decent) but that's OK because it's patriotically supporting the NZ sovereign wealth fund. No obligation to buy but at least an option for a predicable source of income for retirees.
How did your Ban Application get on atknz ?
by Brock Landers | 11th Apr 22, 3:29pm
To be fair, he is correct, 7% is a certainty. It would be financially astute to listen to him.
Listening to the "be quick" clown would have been catastrophic.
Up
12
"7% interest rates this year Guaranteed !"
That's a very vague prediction, for which term? 1 year? 5 years? floating? Or are you just throwing a number out there, hoping that any term, at any time during this year will hit your number so you can claim you're Nostradamus?
Gummy bear you are on to it today, correct they have fooled a lot of people pushing up house prices to crazy levels as rates return from emergency levels people, speculators with million plus mortgages will be wiped out this is what FOMO and greed with bad advise will do.
Whoever posted this gem the other day takes the cake.
https://www.trademe.co.nz/a/property/residential/sale/listing/3543966606
Price reduced. Be quick!
Why do you think Adrian Orr deserves compliments at this point? Inflation is almost 3% outside the target band. We have had 12 months of data (pricing intentions, employment figures) all pointing to this, but he chose to stick his head in the sand and keep massively stimulatory policies in place - not "neutral" monetary settings, emergency stimulatory settings.
So when he starts to remove the emergency stimulus, months after it was clear it was necessary, after letting inflation get out of control, we are supposed to congratulate him?
Really?
I thought Michael Reddell’s comment put the rise in perspective. https://twitter.com/mhreddell/status/1514086922200961024?s=21&t=DSp3GF-…
‘Better than 25bps I guess, but this is the move the MPC should have been taking 6 months ago. The real OCR is still well below where it was in early 2020 pre Covid, and the challenge now is to get core inflation back down again.’
Hmmm - will be interesting to see how much impact this creates on the house market. The OCR is now back at the same level it was at on the 8th May 2019 - 3 years ago and before the majority of regions house prices took off. One more rise will take the OCR back to the Sept 2016 OCR.
Now on that note here's this weeks Hutt Valley Housing Market update. Are we facing the perfect storm
1. High levels of housing stock and rental stock- exacerbated with high numbers of new builds
2. Rising Interest Rates
3. Low immigration.
4. Lower demand due to investors leaving the market - low yields and lots of competition coming.
I've added a new measure in this week number of houses on the market > 90 days - effectively those that listed in 2021.
Current Market Listings
665 houses on the market- increase of 13 on this time last week and an increase of 70 houses since the 9th March. I’m predicting over 700 houses could be on the market by the end of April.
Based on the REINZ data which showed that 96 sold in Feb – 672 houses means there is 7 months stock on the market
Using the 20/21 data where 40 houses a week sold then there is 17 weeks of stock on the market
House Price Reductions
294 houses have a listed price and again this week prices have continued to fall, although only 50% of the houses listed have reduced prices The average markdown is steady at 70K. Previous reports have shown markdowns as high as 60% of the market. In the last few weeks more houses have listed with prices but fewer are reducing their prices. Looks like a number of listers are taking a longer wait and see approach , this could also indicate recent listings don’t have the same urgency to sell as previous listers may have had.
The data continues to show the majority of houses listed are under 900K. The Median house price for all 665 listings is now 839K. (10K drop on last week)
Most sales on the market continue to be at the 800K-$1 Million mark. The bottom quartile still seems to be very sluggish with very few sales.
Length of time on the Market
Given how slow the market now is – I’m adding a new Length of time – which is houses that have been on the market for over 90 days- effectively these houses listed in 2021 and remain unsold.
- 428 of the houses have been on the market for over 30 days - 64% (last week it was 403)
- 256 of the houses have been on the market for over 60 days - 39% (last week it was 243)
- 130 of the houses have been on the market for over 90 days – 20% (last week was 134)
The percentage and number of houses on the market longer than 2 months is growing each week – indicating a stagnation of house sales.
Rental Market
Meanwhile the rental market has 175 properties for rent (up 5 on last week), up 53 on this time last year.
A number of properties are taking some time to rent and having to drop their rental price up to $100 a week in order to rent the property. Average rental price reduction YTD is $47 a week and 40% have dropped their prices since listing.
Three brand new properties are advertising this week – with first week rent free and have had to 2 of the 3 have dropped their rental price from the original listed price.
I do have that data ( please note in my data i record only those houses that have a listed price If a house has never listed with a price then I wont know if its been withdrawn from the market) . For those that have had a listed price 78 houses since the 1st Jan 2022 have been removed from the market unsold and 13 of those have been rented instead.
"The Committee noted that the OCR is stimulatory at its current level. Members agreed that a larger rise in the OCR now is consistent with the forward path for interest rates outlined in their February Statement."
Since 1.5 percent is a historical low for the OCR pre 2019 wouldn't it be a safe bet that this current rate is still stimulatory?
Glad to see them start making movements. be interesting to see what the next desiscion is.
The OCR peak will have to go to between 4% and 5%, regardless of the RBNZ's wishful thinking. They probably already know that it is a likely scenario, but they are hoping that it will not eventuate. The Covid excuse is disappearing fast, and they are now running out of excuses for not finally normalizing interest rates.
Overpriced is relative... thinking that a market will move 40% down is speculation, it's possible but unlikely
The key drivers (population growth, interest rates, tax policy) are pointing to a decline. Employment is still strong (for now) which supports higher servicing ability...
My guess is that a 10-20% decline and then sideways market for a couple of years would stabilise prices and tackle inflation, rather than the doom and gloom prediction which would ultimately cause more pain than it solves
Being a FHB is tough now as I know I had to move cities to do it myself, a correction in the market is a positive thing for everyone
This is excellent news in many ways.
But perhaps the government will need to think about ways to support people who they lured in (with loose lending policy) to taking out huge mortgages to buy houses during the biggest property bubble in NZ history. Many of these folk (if they haven't fixed for a few years) may find themselves in serious financial straits over the next year or two.
I feel very fortunate I didn't buy a house last October now! not by luck. But from experience. After seeing my parents get burnt in in 2008 after buying in 2007 at the height of the UK bubble. the pain they went through. the stress it causes. They managed to hold on to it fortunately. only just sold the house last week due to illness. they got what it was valued at. but it was still 5KGBP less than what they paid for it 15 years ago!
Gosh. Can you imagine what 🤡WBW's "boys" and those who were "lining up" for his financial advice are doing to him at the moment? He will never be heard from again.
Time is certainly showing how idiotic it was to be buying towards the end of last year. Those unfortunate FHB that were not saved by their own common sense are going to be cannon fodder.
suckered in by the likes of these folk
This is good news . Also good for first home buyers, as they will be getting more interest on their deposits, and hiuse prices will hopefully drop quickly to accommodate the shift. Sellers will need to accept that prices are dropping. Agents are dropping prices on houses for sale all over the place by 5-10% already based on houses on my watchlist.
Today is definitely a good day, with NZ going finally to orange, and with a decent 50 pbs increase to the OCR. Even Orr is starting to understand, very belatedly, what actions have to be carried out, and urgently so, in order to control inflation. 50 bps increase is very insufficient, as the OCR should already have been raised to 3% by now, but 50 pbs is better than nothing. We are very likely going to see another 50 pbs increase next month. Still way too slow, but still pretty good stuff, if compared with the RBNZ's attitude in the recent past.
Moreover, international rates are going to go up significantly in the near future, which will help as well with normalizing swap rates (and consequently mortgage and deposit rates) in NZ too.
Members observed that financial conditions have tightened in New Zealand, with higher interest rates, a stronger New Zealand dollar exchange rate, and lower asset prices.
The MPC is wrong about stronger NZD, if 68c is a strong dollar, what does MPC think of a weak or stimulatory NZD... 55c?
Anyone importing stuff would know currently NZD is not strong, it's neutral at best. Makes me wonder about the abilities of these high priests in positions of power
Considering we keep getting told it's 'over-valued' despite trading in this range for the better part of a decade now, you have to wonder what possible basis there could be for it's abnormally 'strong'.
God help our imported inflation if the dollar was where these clowns think it should be
Some nice juicy short term deposits (eg 6-months) in store for depositors. And if you have a reasonable sum to invest you can always squeeze the banks for a rate slightly higher than their carded rate. I'm predicting a 4% rate for a 6-month term later in the year.
I can see house prices dropping by at least 20% particularly in outer low socio-economic suburbs, by the end of the year.
Wow those who bought last year will be kicking themselves as it is going to get ugly out there. So many buyers had that "fear of missing out. " It just staggers me to think that there were people out there who just thought it was going to keep going up. Some agents and their vendors have a lot to answer for. The agent got the commission, the vendors got their cash and some of the buyers have a problem. Interest rates as well all other living costs will continue to rise for some time. Talk about passing the parcel.
I could not give a shit about property investors. I do care about thousands of owner occupiers who face going underwater after years of the government falling over itself to protect a property investor class that got to spike prices and cash out their tax free gains - who will now benefit from rising interest rates on the other side of the equation.
But John Q Homeowner, who owns one house they bought in the last three years? They're in trouble, through no fault of their own, simply for the crime of trying to keep a stable roof over their family's heads.
What lesson, exactly, are you learning if you've watched a politically protected class price accommodation out of reach? People seem to think it is reasonable that people sit on the sidelines forever, while literally every indicator up to this point was that house prices would not be allowed to fall.
So what is the actual lesson you're expecting people to learn here? Because it just sounds like more paternal finger-wagging, in which young people in this country are somehow always at fault, even when trying to navigate a world in which almost everything is stacked against them?
No one forced us to import tens of thousands of people a year. Or treat property investors like immortal Gods, at huge social and financial costs to the rest of us either. Wild, huh?
But sure dude, keep defending this weird idea that people have some sort of ‘choice’ when renting in this country means moving every 12 months or less as your landlord decides to cash-up and realise some of those sweet untaxed gains – while you’re trying to keep kids in schools, deal with mega-commutes and spiking rents. But nah man, no one has a gun to their head at all in this country. Everyone is definitely choosing to live this way.
I will not make light of this, sounds like a very tough situation.
However in all seriousness please do look into Australia, the young people I know who have gone have done well for themselves. Not sure what you do for a living but the trades are really seen as roles to aspire to over there and very well paid.
Again, as I said, nobody held a gun up and forced anybody to buy a lousy Auckland house. It's a voluntary action.
Many of us have been quite vocal about the extreme risks of doing so because this situation was bound to happen like clockwork. "Doom goblins" they called us.
The signs were all there... Auckland more expensive than Sydney or London. It's laughable.
The unfortunate renting circumstances that you mentioned may end up seeming like minor inconveniences compared to the lifetime of debt servitude, negative equity and bankruptcy facing those that abandoned common-sense.
Yes, many of us can also see the risk of what was happening. But up until extremely recently, even the current PM/Finance Minister were saying house prices would should be stable or rise slowly, ideally. So at that point, what do you do? Like I say, a traditional economic cycle is seven years, and we're in year fifteen. How much longer do you sit on the sidelines waiting for a more reasonable price? Fifteen years is a long long time to spend waiting while watching everyone bend over backwards to keep house prices rising and avoid doing something about it. At that point, being able to see risk is literally worthless as a decision making tool.
And with all due respect, switching houses constantly, finding new rentals and dealing with a new landlord every 11 months is pretty awful, having watched friends go through it. It's the kind of thing people deal with in the hope that maybe, against all political and institutional odds, houses might actually get cheaper. Ironically, in the end, the people I know either left the country or suffered relationship failures and I just have never heard from them again. I can't up up sticks and head overseas due to family and medical reasons, so I'm stuck here dealing with it.
New Zealand is, when it comes to providing for people under the age of 50, effectively a failed state.
New Zealand is, when it comes to providing for people under the age of 50, effectively a failed state.
I do sympathise and I entirely agree with you.
At the end of the day, we can only play the cards that we are dealt the best that we can.
That said, the PM is a serial liar and the finance minister can't even count calories. Pay no heed to their utterances.
GV 27, I empathize with your plight, and am not making light of it.
That said, you could sell now if you wanted to. You seem a bit angry/resigned/hard-done-by about a crash that Hasn't Happened Yet.
None of us are ever locked into one path. Yes, renting sucks. But you DO have that option. Houses are still selling.
This is not fair. Unless you have bought a house this year you will not have been able to forecast the interest rate rises.
There are plenty on this site that held off buying in 2020 because the market was stupidly over-valued then, only to see 50% uplift in costs.
If you bought in June 2021 you will be genuinely unlucky.
Like giving into their fear because of what media has been influencing them on FOMO and carrying huge amount of debt without thinking what they get themselves into in next ten years? I'm not only talking about first home buyers here but also investors. Young people need to learn how to do critical thinking and not just believing so call "experts" saying "buy now or never" "interest rates never go up" "housing price will just go up" these lies.
Ah yes, it's the young people, not the morally corrupt political class who used their plight to get into power and then run the government as a protection racket for property investors who pushed them out of the market. Yup. The young people who need to 'learn how to do critical thinking' were the problem.
Buying a house is a long term investment, if it's investment, there is risk involved. No one is forcing any one to buy houses. There is no such a thing called risk free investment. Obviously the system is flawed, that's why smart people need to see through that, if not, at least make efforts to learn and analyse the information they have. Again, I am not particularly pointing finger at one generation.
"They will still have the home that they purchased and the price that they paid for it hasn't changed."
They'll also have the debt they took on to pay for it, which is my actual point. The price they paid doesn't cost them money on an ongoing basis, but now they have to wear the increasing cost of the debt on something they paid over the odds for because governments were too cowardly to meaningfully reform property until an external shock came along.
But of course, it's the fault of young people not putting their lives on hold forever waiting for a seven year economic cycle in its fifteenth year to actually correct, and not the idiots who priced something as basic as owning a house out of reach. They're definitely the ones who need to be taught a lesson.
For the record, I appreciate this will make housing more affordable if prices drop, which solves half the problem. But it also loads a further economic burden on the cohort of Kiwis who have copped it at literally every step so far. This really needed to be done well before now, as part of a structured walkback of house prices, and not just 'oh well had to happen at some point' where the same group of Kiwis loses out over and over and over again.
Ah yes, fools, couldn't see the bubble, etc. Got any more bangers? Keep them to yourself.
We all saw the bubble. We voted to do something about it. The people we voted for over multiple decades instead protected the people who caused the problem.
Keep ignoring that though, I'm really digging this "I'm so much smarter than everyone else" thing you're going for. I'm sure there's a bunch of women out there struggling with declining fertility who put off having kids who would just love to hear more of your reckons.
You want some more reckons? Ok...
Contrary to common belief, you do not need to own a house in order to have children.
If you find yourself in a situation where your fertility is declining and you really want to have kids... stop making excuses to put it off and just do it.
It's what us "smart" people did and we are much better off for it.
I know 2 couples that were so fed up with getting moved on from their rentals and having to find somewhere still within reasonable distance of the schools their children were already in that they ended up buying late last year or early this year that yes, for them they did need to own the house for the sake of their sanity..
one couple were just 3 weeks home from the hospital of child two when they were told you need to find somewhere else to live... ironically that house still sits with a B&T sign outside
Here's a free one: The boot you lick today may be the one your throat tomorrow.
It's all well and good treating the people coping with the fallout of a broken system as if they're the one with the problem, but see how far that gets you when you've got someone standing at the end of your bedroom with a baseball bat in the middle of the night trying to turn your place over.
Frankly people with your attitude are the cause of most of the problems in this country. No matter what young people do to try and get ahead, or what they do to try and make life easier for themselves, there's always someone with a low-rent 'bootstraps' talkback opinion that usually involves blaming them for everything they're trying to deal with.
But if this is the best self-appointed 'smart' people can come up with - snark, finger-wagging and back-patting masquerading as informed opinion - then I'm starting to understand how we ended up where we have.
Only if you bail out the speculators / investors, the hoarders. The governments and Reserve Bank created the FOMO and drove young people into the market by actively pumping and manipulating it. They should bear some responsibility in cleaning up.
But it should not be a bail-out per house. Something more like the Australian New Liberals debt jubilee plan that also helps renters would be preferable. I.e. a per adult amount, not per house, and being used to significantly downsize overall debt at the same time. Because it's per adult, not per house, it would not bail out speculators.
Otherwise, young renters and FHB could be excused for getting out their pitchforks and going after bankers central and retail, governments and NIMBY councilors who prevented supply.
Agreed we had nearly 50% house price inflation in a couple of years, this is an economic disaster for those who bought right at the peak. I think we should recognise this, at least they were really trying to get in the mix, some tax relief would be fair.
We give plenty to people who do not try at all.
I state that bankruptcy is a good idea sometimes...
Like "I owe 1.5M to a bank" and I can't afford to pay the current mortgage, My house now is valued 900k, so even by selling I still owe 600k to the bank.
At that point you need a good conversation with the bank, but if they are not considerate you better clear your debts as fast as possible.
In this case bankruptcy means 3-4 years of troubles, instead of a life.
(btw... the bank knows that, bankruptcy is a formidable weapon for a debtor, they will be nice-er if they smell you can use it)
You can't threaten a bank with giving you a break because you will declare bankruptcy. It's like robbing a bank and threatening to shoot yourself if they don''t give you the money. If you truly have no money, then it is more fun for them to shoot you.
For starters, banks have underwriters, and the rules state that all legal attempts will be made to recover the money. Saying they just asked you with a frown and a few leal letters making threats is not enough.
Even when they can legally see you have no money, they will take you to bankruptcy, just to prove that that peoples' threats, real or imagined, are no excuse.
If anyone is out there thinking they are going to use the threat of 'no money,' as an excuse of having to pay no money, then they are in for a rude awakening.
Banks are spiritless entities.
The manager/s that will look at your case will need to decide if accept 600k down or allow you to survive and postpone.
If you multiply this problem by 10000 the bank's survival itself will be in doubt.
Of course you can threaten the bank.
You can bankrupt, that is a fact, and if you do they will need to get the loss. Do it 10000 times and watch the outcome (lol)
Will the govt bail out the banks? Most probably something like that, with my greatest disappointment, again.
Finally, some sense prevails. Expecting .5 in the next one as well. Still a massive amount of unwinding to occur. Expect more FOOP, and expect a doubling down of FONGO. The only way out when selling today is to drop the price. People that have had listings up and not sold during the last couple of years, when we have had the lowest interest rate environment in living memory, are clearly just to bleeping greedy.
Well enjoy. The "popping noise" you can now hear is not my popcorn maker.
The 2-3 year swaps are actually down after the announcement. Delve into the message from the RBNZ - they are simply bringing forward the hikes/speeding them up. Their assumptions of the terminal level of rates (around a 3.25% OCR) are the same as their February Statement.
This is not a hawkish hike, here will be little to no change in mortgage rates in the short term.
Hard Landing can be delayed but cannot be avoided.
More the delay - Harder the landing.
https://i.stuff.co.nz/business/128332178/interest-rate-rises-and-the-ri…
Hard landing would require a "external geopolitical shock".
So an ongoing mutating global pandemic, Chinese manufacturing slowdown, global supply chain crisis, fuel and energy shock, invasion of Ukraine, Chinese property crash, Chinese company defaults (billions), money printing stop in the USA count for nothing. How about all of that at the same time?
The what does Craig Renney mean...?
Almost certainly should have been bigger (was calling for a full percentage point a couple of months ago), but at least they aren't sucking up to property markets anymore. The intentions here are clear - property isn't a one way bet. This and the next one is going to give a whole lot of kiwis the wake up call they need.
Keep going though team, OCR needs to be around 4-5% with inflation at these levels. The longer inflation is elevated, the harder it will be to turn it around with these small rises.
Very soon will see inflation officaly in double digit.
https://www.stuff.co.nz/business/128350343/us-inflation-hits-85-ahead-o…
Mr Orr should be applauded only if he follows up with another 0.5% in May.
Wait and Watch
I do wonder about the knock on effects of the raise interest rates. I have a few clients in the home improvement sector which have been absolutely booming recently. Huge wait list for things like Louvres https://www.shadedesign.co.nz/services/louvre-roof-system-auckland and the like. Be interesting to see how these types of home improvement products will fare when belts tighten..
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