Interest Rates

[HouseWorks]

Wasn't expecting wheeler to cut .... Such good news

[PTILoveYou]

Wasn't expecting wheeler to cut .... Such good news

I think what happened to Fonterra ultimately forced Mr Wheeler's hand.

[elguapo]

Wasn't expecting wheeler to cut .... Such good news

It's bad news mate.

[HouseWorks]

It's bad news mate.

maybe fir some

[Wayne]

Wasn't expecting wheeler to cut .... Such good news

Peoples perception of what this means is interesting.
On the one hand some (like you) think this is good news because it might mean lower interest rates.
Others may think it is bad news as it is a reaction to a worsening economy.
Which is better - a strong, robust, growing economy or lower interest rates for a few property owners?

Many years ago a person I knew complained that they had to pay so much extra tax for their investments.
Those without the investments could only see that they were lucky to have any extra income at all.

[ivanp]

apart from the obvious (rates cut means that economy is weak), thinking in long term, lower interest rates mean lower rate of capital appreciation (read: slower growth of house prices)

[PTILoveYou]

apart from the obvious (rates cut means that economy is weak), thinking in long term, lower interest rates mean lower rate of capital appreciation (read: slower growth of house prices)

House prices are driven by demand, and demand from immigrants has always been the biggest driver in the last boom, and the current one.

Also lower interest rate means borrowing capacity is higher, which means housing affordability gets better, and more room for house price increase.

Back in 2008, floating rates were 10%+

When the GFC hit, the OCR dropped, and interest rates went to 5%.

That meant the house were effectively 50% cheaper affordable wise.

Hence we saw house prices jumped 50% in less than 5 years. This is just to bring the affordability back to even.

[Wayne]

House prices are driven by demand, and demand from immigrants has always been the biggest driver in the last boom, and the current one.

Also lower interest rate means borrowing capacity is higher, which means housing affordability gets better, and more room for house price increase.

Back in 2008, floating rates were 10%+

When the GFC hit, the OCR dropped, and interest rates went to 5%.

That meant the house were effectively 50% cheaper affordable wise.

Hence we saw house prices jumped 50% in less than 5 years. This is just to bring the affordability back to even.

Conversely expect prices to reduce if the interest rates go up at some stage (following the affordability theory).

[PTILoveYou]

Conversely expect prices to reduce if the interest rates go up at some stage (following the affordability theory).

Yup just like 2007 when a lot of people can't afford 10% interest rates.

[elguapo]

Yup just like 2007 when a lot of people can't afford 10% interest rates.

I think you have a seriously myopic view of past events.

[Damap]

I doubt they'll drop Wayne they'll just stagnate. People forget that even in the GFC values fell (I think it was) 11.4% nationally and 5.6% in Auckland. A few distressed sales were massively lower than that but the market didn't really suffer. Growth stopped and sales volumes collapsed but not values.

[speights boy]

It's bad news mate.

The Reserve Bank's move to cut interest rates is an indication of an economy deteriorating faster than had been believed

http://www.interest.co.nz/opinion/75...aster-had-been

[PTILoveYou]

I think you have a seriously myopic view of past events.

I'm 32, and my brain only switched itself on in 2007/8 so yeah you are right in some ways.

[ivanp]

House prices are driven by demand, and demand from immigrants has always been the biggest driver in the last boom, and the current one.

Also lower interest rate means borrowing capacity is higher, which means housing affordability gets better, and more room for house price increase.

That's why I've wrote "long-term" (30-50 years), where you are talking medium-term at best. Economists (overseas of course) have enough data to see correlation between interest rates and rate of capital appreciation.

Once NZ interest rates fall down to near-zero values like in the rest of the world, you won't see such a huge growth any more, except for few hotspots like Auckland, where demand/supply is so badly broken as it is now. And I believe this demand/supply in Auckland will be eventually fixed as well - by construction of tall apartment buildings (again, like in the rest of the world). Building "know-how" (and probably builders as well) will be imported from overseas; construction quality will be increased to acceptable level...

[PTILoveYou]

That's why I've wrote "long-term" (30-50 years), where you are talking medium-term at best.

Once NZ interest rates fall down to near-zero values like in the rest of the world, you won't see such a huge growth any more, except for few hotspots like Auckland, where demand/supply is so badly broken as it is now. And I believe this demand/supply in Auckland will be eventually fixed as well - by construction of tall apartment buildings (again, like in the rest of the world). Building "know-how" (and probably builders as well) will be imported from overseas; construction quality will be increased to acceptable level...

30-50 years? Lol I never look that far ahead!

I might even immigrate to Canada or somewhere that has better health care system lol!