Four reasons not to panic about a property bubble in NZ

[Rosco]

Some good points in this article.

Four reasons not to panic about a property bubble

Most commentators are saying that the property market is cooling and that the Reserve Bank's tools such as the LVR changes, the interest rate rises are working. So why does the Reserve Bank have to kill the market by increasing floating rates to 7-8%??

I just can't understand the overkill? It's as if the RB wants NZ people to suffer!
- makes it harder on business as finance costs more
- makes it harder on renters as rents go up
- it makes it harder on home owners as they could be paying another $10,000 a year on a $500k loan
- Exporters, including farmers, are going to find it hard as our dollar is going up, making their product more expensive overseas.

The new rules on 5+ properties doesn't seem very well thought out. As most investors with 5+ properties are in a strong position and are lower risk than the average first home buyer. So penalising 5 + property investors because of higher risk just seems a joke. I listened to ANZ speak about this a couple of weeks ago, and they still didn't know how these rules would play out!

If Auckland and Christchurch house prices are the issue, why not just increase their interest rates 0.5%?

Ross

[Bluekiwi]

Number 5 is "Jesse is a first class Pratt".

Even Bernard Hickey dismisses him as a twatt.

If he was a weather forecaster we would call him "Ken Ring".

Still, there are funny things happening in auckland property right now, and if you are not aware of what is going on you can easily be caught out.
Certainly not the time for your average novice to be diving in.

[Bluekiwi]

The RB wants inflation to stay within its target range.

I have investigated the 5+ rules and found it applies to fruit and vege's Rosco !!!

As apparently all that it does it ensure the exisiting rules on property investor's with large portfolio's are treated as business banking.
My "sources" tell me that is basically all it does, unless you know something I dont, but I have investigated this quite thoroughly with certain people.

[Leftette]

It's hard to disagree with Brian Fallow, however Rosco has a point re the interest rate. Push it higher and currency rises, killing exports further, which means loss of jobs. And anyone who's over-extended themselves, whether that be an investor or 1st time buyer caught up in all "The Block"-style property hype could be burned badly.

[speights boy]

And anyone who's over-extended themselves, whether that be an investor or 1st time buyer caught up in all "The Block"-style property hype could be burned badly.

There have been, and continue to be, plenty of warnings.

Interest rate peak poses big risk

Interest rates could peak at a level which would see first-home buyers in Auckland spending two-thirds of household income paying the mortgage, or even more, ASB economists say.

[teamchase]

Some good points in this article.

The new rules on 5+ properties doesn't seem very well thought out. As most investors with 5+ properties are in a strong position and are lower risk than the average first home buyer. So penalising 5 + property investors because of higher risk just seems a joke. I listened to ANZ speak about this a couple of weeks ago, and they still didn't know how these rules would play out!


Ross

Forgive my ignorance but which rules on 5+ properties are you referring to?

[cube]

Forgive my ignorance but which rules on 5+ properties are you referring to?

These ones http://www.propertytalk.com/forum/sh...ore-properties

[flyernzl]

But then, of course, a rise in interest rates does benefit those poor ignorant people who are stupid enough to save money.

[Davo36]

But then, of course, a rise in interest rates does benefit those poor ignorant people who are stupid enough to save money.

Yep, the ones who have been totally shafted over the last 6 years.

[McDuck]

I just can't understand the overkill? It's as if the RB wants NZ people to suffer!

Ross

It might seem that way, but only because you're not looking at the big picture.
This is all still a reaction to the last global financial crisis.

In order to slow down the crisis, huge amounts of credit was pumped into the global economy,
Think of it as a temporary bandage on the bleeding global economic infrastructure.

While the bandage was still only just holding, the global economy was precisely reconfigured.
Now that the flows have been secured, the temporary credit can be withdrawn.
The fire-walls should hold.

They correctly identified the problem to be the interconnectedness of all systems.
(This is one of the main reasons I don't like J Key's idea of having a direct (N.Z. to China) currency exchange...just one more firewall gone.)

[speights boy]

Yep, the ones who have been totally shafted over the last 6 years.

Not my Aunt Mavis.
She still has 11 months to run on her 5 year bank term deposit happily earning 7.0%

[Rosco]

Yep, the ones who have been totally shafted over the last 6 years.

I don't think getting 5% with no risk is 'getting shafted'!

NZ interest rates are a lot higher than other countries, so in fact NZ savers have been doing very well compared to other countries.

Ross

[Rosco]

It might seem that way, but only because you're not looking at the big picture.
This is all still a reaction to the last global financial crisis.

In order to slow down the crisis, huge amounts of credit was pumped into the global economy,
Think of it as a temporary bandage on the bleeding global economic infrastructure.

While the bandage was still only just holding, the global economy was precisely reconfigured.
Now that the flows have been secured, the temporary credit can be withdrawn.
The fire-walls should hold.

They correctly identified the problem to be the interconnectedness of all systems.
(This is one of the main reasons I don't like J Key's idea of having a direct (N.Z. to China) currency exchange...just one more firewall gone.)

Why is the NZ interest rates above other countries, and rising when no other country is rising? Is NZ just that fantastic?

But yet when you talk banking, we are higher risk than other countries, so have a higher premium than say Aussi.

What I would like to see is a balanced approach, rather than boom and bust. The GFC hits, so lets drop interest rates to 5%. Now it's looking good, lets raise them to 8%. Oh no, now its busting, lets drop them to 5% again. Couldn't we just go in small steps. If the 0.25% increase is working, and the LVR rules are working and the 5+ properties rules might work, shouldn't we wait 6-12 months to see how these plan out. Rather than making another increase in interest rates, so close to the last that it is too early to fully see how the first worked?

Ross

[teamchase]

It might seem that way, but only because you're not looking at the big picture.
This is all still a reaction to the last global financial crisis.

In order to slow down the crisis, huge amounts of credit was pumped into the global economy,
Think of it as a temporary bandage on the bleeding global economic infrastructure.

While the bandage was still only just holding, the global economy was precisely reconfigured.
Now that the flows have been secured, the temporary credit can be withdrawn.
The fire-walls should hold.

They correctly identified the problem to be the interconnectedness of all systems.
(This is one of the main reasons I don't like J Key's idea of having a direct (N.Z. to China) currency exchange...just one more firewall gone.)

Good comment here thankyou, consider the macro economy as well as the micro economy #biggerpicturethinking

[Davo36]

I don't think getting 5% with no risk is 'getting shafted'!

NZ interest rates are a lot higher than other countries, so in fact NZ savers have been doing very well compared to other countries.

Ross

The OCR was dropped to 2.5%. Interest rates were in the 3s immediately after. I know because I had all my money in cash at that time. It forces you out of the banks and into other more risky assets such as shares, property.

Ross, you're not the first one to say the RB over reacts. Have you seen Bob Jone's book "Prosperity Denied"? Says the same thing you said in your original post, just more in depth.