Matt Gilligan - Interest Rates / Banking / NZ Market Update

[Hawkeye77]

Thanks for the advice Matt, I'm keeping a close eye on the rates as I have a lot on floating and will probably be making a decision on whether to fix long term after the next OCR.
I read that for all the talk about the US printing money they haven't actually done it yet, although I think it is very soon on the agenda, and might really be one of the few options they still have.
As opposed to the UK who have now approved printing money and are actually about to start doing it.

[k1w1]

Didn't I just read Tony Alexander predicting interest rates to be at 2% in the next year or so? If that's the case there will be a cerain level of political pressure on the banks not to lift the rates, and indeed to lower them further.

You MAY regret locking in at the high-5's. But you may not. Who am I to say?

[freezinhot]

Absolutely. Just tell your bank you want to enter into a "reserved rate agreement". You can normally hold a rate for 60 days, and if your loan expires next month then it means you don't have to pay any break fee whatsoever.

If rates drop below what you reserved, you'll still pay the higher rate though.

Hi Spurner

Thnks for that piece of advice, I can now lock in a rate before rates go up, if and when they finally do. Also wont have to pay a big break fee.

FH

[exnzpat]

exnzpat, let me offer some advice.

The easiest way to disagree with someone or challenge their assertions is to ask questions as to either why they hold that belief or how they arrived at their conclusion. It's called "leading to discovery"

So, instead of your incredibly arrogant post above which adds nothing, why don't you please begin with a few questions that may lead us to your way of thinking.

You obviously have time to post such condescending nonsense, so please dont offer the fact that you dont know where to start as an excuse!

In fact, to help you out, I'll start.

Matt, Thanks for taking the time to post your constructive and thought out contribution.

Have you considered any "lag" effect that may have delayed the real deep seated recession that could still occur, making things worse before they're better ?

Outspoken,

Matt’s post is just opinionated nonsense – taken from the spin of the right-wing media. Boring and predicable – but that’s the Matt we’ve come to know and love at PropertyTalk.com. As for arrogance – you’ve confused me with someone who actually cares whether people pay attention to me or not. I’m pretty sure you all consider me an oddity – an aberration –that will eventually fade away when the market takes-off again.

Matt is only offering his opinion – cloaked albeit as truism born of experience but at the end of the day – it is his opinion (based on the real journalistic efforts of others who have tried to piece this mess together). So, I ask you -- who am I to take it away from him?

This is my opinion (I’ve changed it in recent weeks):

If anything, interest rates in NZ will be dropped again. Though, having said this, it doesn’t mean that Matt is wrong about locking in rates. Basically, as I’ve said before, locking-in makes very little difference to a borrower’s relationship to NZ/Australian banks – they will get you eventually.

I now believe that we are facing a full-scale, world-wide depression. Some countries will be hit harder than others. New Zealand will be hit hard – how hard? Not sure.

Property Values will plummet by a clear and obvious 30% by June 2009.

Almost 80% of REA’s will be unemployed by March 2010.

Most private sector (house) rental-properties will plummet to 65 – 75% in value over the next two years.

I could go on – but what’s the point – my opinion is my opinion. I wish it were otherwise, but based on clear and present evidence, experienced here -- at the eye of the storm -- there is no silver-lining to this Monster. I got no sugar for any of you!

[Matt Gilligan]

Expat you twit

Outspoken,

Matt’s post is just opinionated nonsense – taken from the spin of the right-wing media. Boring and predicable – but that’s the Matt we’ve come to know and love at PropertyTalk.com. As for arrogance – you’ve confused me with someone who actually cares whether people pay attention to me or not. I’m pretty sure you all consider me an oddity – an aberration –that will eventually fade away when the market takes-off again.

Matt is only offering his opinion – cloaked albeit as truism born of experience but at the end of the day – it is his opinion (based on the real journalistic efforts of others who have tried to piece this mess together). So, I ask you -- who am I to take it away from him?

The thing is Expat, I don't think too many people are interested in your opinion.

And unlike you, I form views based in actual market feedback and personal experience. That's why people like what I'm saying - they relate to it and know its up to date.

You don't even live in NZ, yet you profess to have on the ground knowledge...

My views are just one person's opinion, published for critique and in public interest. I'm trying to help people, and enjoy debate.

What I don't enjoy however is 'try hard' pseudo intellectuals,you for example, who try to look clever but simply reveal themselves as wanting attention.

So as I have previously asked you, please don't contribute to threads I'm starting, unless you want to break form and be a bit constructive.

That's polite speak for go away and stay away...or improve your attitude.

Or in Monid's words to you in other threads you are trashing with stupid posts, - play the argument not the man.

[Matt Gilligan]

Didn't I just read Tony Alexander predicting interest rates to be at 2% in the next year or so? If that's the case there will be a cerain level of political pressure on the banks not to lift the rates, and indeed to lower them further.

You MAY regret locking in at the high-5's. But you may not. Who am I to say?

He's talking about floating rates, the 4-5 year rates are on the rise. That's one of my points K1w1.

Cheers

[freezinhot]

Hi Mathew

If we have a drop in the OCR on thursday what do you think the chances are that the banks will drop the long term rates also, and if so how soon after will they drop them.

Thanks
FH

[Matt Gilligan]

There's a lot of money made in recession

Matt, Thanks for taking the time to post your constructive and thought out contribution.

Have you considered any "lag" effect that may have delayed the real deep seated recession that could still occur, making things worse before they're better ?

Hi outspoken,

I guess you are saying this could be a dead cat bounce. And you may be right, as interest rates will rise and things will slow again.

As I said commercial, capital growth property ( low yielding) and apartments are still difficult assets to own in NZ. ( IE Still falling in value and hard to sell, hard to fund.)

However right now I believe low end housing in Auckland and main centres around NZ can be purchased at significant discounts off peak valuations in 2007. ( 25-40% discounts). Property is selling below construction cost and is positive cash flow with interest rates where they are at. You need to hunt it but its there.

All the de-leveraging and freight train of mortgagee sales ( in the pipeline) will hold values down for the 1-2 year picture, and I am sure we will see some terrible financial results and events over the next 2 years as markets revalue assets. It's defintiely a mess !

However I am equally sure it will all recover, in the next 3-5 years. It always does. This recession will go deeper, longer, but it will turn again.

This means that if you can buy say $1.0m of property ( at 2007 values ) for $600k in 2009, and its positive cash flow for 5 years with a 5 year fixed interest contract - then this is a pretty good bet. And frankly, what's the alternative if you want to have a crack at making money out their ?

I can remember in the last two recessions, common feedback that the economies have fundamentally changed, the market for property and shares will never recover to previous peaks, that the international markets would never embrace leverage to the same degree again, yadi yah. I didn't believe it then and I don't believe it now.

What I do believe is we have a mother of all crashes around us, that lots of money is being lost by everyone, and equity and private markets are de-leveraging and risk adverse. It's going to continue for a while and lots of people are going to get more depressed and more sucked into a view that leveraged businesses and property is no longer the way.

I am of the opposate view.

The banks will decide its at the bottom, and decide to loosen credit again. Business will turn and be on the up. And its will start over, with a recovery and one day more growth.

Perhaps the next boom will be simply the recovery of losses from this crash...but if you're a buyer in this market right now, - that recovered equity is a big gain and enough to make investing in this environment worthwhile if its cash flow positive.

There's a lot of money made in recession - I am very excited by what I see out there.

[Matt Gilligan]

Hi Mathew

If we have a drop in the OCR on Thursday what do you think the chances are that the banks will drop the long term rates also, and if so how soon after will they drop them.

Thanks
FH

Well I'm not fixing until after the OCR announcement and after the banks give their response announcements as to rate changes, - because they may knock a bit off the 5 year rates. But I doubt they will, and if they do I believe it will be a small change.

It's the floating and short term rates that will see benefit.

I believe we are nearing the bottom of the interest rate cycle for 4-5 yr rates and I will fixed long after this OCR. That's my pick.

[Gibber]

The thing is Expat, I don't think too many people are interested in your opinon.

Matt,
I think the starting post of yours was great.

And while you may not want exnzpat to contribute, I do. Why? Because its the people who dissent and disagree who cause me to examine the information I've got and see whether they may have come up with some valid information that may cause me to change my opinion.

If you think exnzpat is a troll who is trying to derail the thread then ignore him. Troll's thrive on attention. Any post in reply to a Troll's will "feed the troll" and keep him going.

If this site became one where everyone who posted had to post pro-property then we would miss the stages of the cycle.

Your post indicates you believe the cycle is turning / has turned. exnzpat's indicates to my he is viewing it as a "dead-cat" bounce. And there is significant further downside.

July-August should tell who is correct.

With respect to interest rates, I rate about a 10-15% chance that floating NZ interest rates will be over 10% by the end of the year. A small but significant risk. Hungary and Iceland probably didn't think their floating rates would be where they are now this time last year.

The Global Financial Crisis is not yet over. There is significant bad news continuing to come out on a daily basis. The punters who are going into the real estate market now are betting unemployment in NZ will not affect their rental income. And in my opinion, unemployment and under-employment is going to be knocking at 10% later this year. I simply don't believe the bank economists / treasury. They have been wrong/late so far. The news coming out of Japan, China, Europe and the US is dire in terms of NZ's customers being able to continue buying NZ's exports.

People getting in now should have a good buffer and do their sums conservatively. If they roll the dice and it turns out well for them, then good on them. For me, there is still significant downside coming.

In summary, in my opinion, the downside risks to be considered are:
small chance of much higher floating interest rates later this year
unemployment / underemployment rates rising....

[Matt Gilligan]

Matt,
I think the starting post of yours was great.

And while you may not want exnzpat to contribute, I do. Why?

Because he chases me round like a stalker, making nonconstructive posts.
If he makes constructive posts, pulling apart my arguments in debate, - great. If he makes personal comments and is condescending - not good - annoys everyone.

I have found if you bash trolls, they behave.

[Matt Gilligan]

Matt,


With respect to interest rates, I rate about a 10-15% chance that floating NZ interest rates will be over 10% by the end of the year. A small but significant risk. Hungary and Iceland probably didn't think their floating rates would be where they are now this time last year.

The Global Financial Crisis is not yet over. There is significant bad news continuing to come out on a daily basis. The punters who are going into the real estate market now are betting unemployment in NZ will not affect their rental income. And in my opinion, unemployment and under-employment is going to be knocking at 10% later this year. I simply don't believe the bank economists / treasury. They have been wrong/late so far. The news coming out of Japan, China, Europe and the US is dire in terms of NZ's customers being able to continue buying NZ's exports.

People getting in now should have a good buffer and do their sums conservatively. If they roll the dice and it turns out well for them, then good on them. For me, there is still significant downside coming.

In summary, in my opinion, the downside risks to be considered are:
small chance of much higher floating interest rates later this year
unemployment / underemployment rates rising....

Well said.

I would make the further point that people need a place to live regardless, and recession or even depression will not change that.

The government will pick up the tab for low end housing on unemployment benefits, so rents may fall but it's reasonable to say there is a floor within how far they fall.

If you have fixed long at 6.5%, - and you have a net yield around that, - then you are in a good starting place to weather a storm if it goes the other way and rents crash following a huge rise in unemployment.

But as you say, investors must have something in reserve.

There are a truck load of mortgagee sales in the pipeline, - 2500 being drip fed by the banks now ( so says a mole in one trading bank that spoke to a mate of mine), and a mole in ANZ told another friend of mine they have 2500 PLA's out their on top of that alone.

So 5 trading banks, - maybe 15,000 PLA's ? Plus 2500 mortgagee sales. That's a lot in an NZ context.

I hope to buy a few of them extra cheap !!

[outspoken]

Thanks for the reply Matt

Alot of what you say has merit.

The problem at the moment (again) is the banks. They lent the money out like crazy, packaged it up into worthless securities and sold them to everyone. Their balance sheets have taken a hammering as a direct result of that deleveraging now.
So, the solution by Govt's worldwide is to throw more money at it, but this time the banks hang on to it to repair the holes in their balance sheets.
This printing of money has been suggested will cause inflation but the problem is that it will only cause inflation in commodity and resource prices, not wages or unproductive asset classes.

You're investing for Capital gain right? common be honest! why else are people buying houses at 6-7-8% yields and borrowing the whole lot at similar rates?
The problem with that theory is that if wages dont inflate and asset classes like property dont inflate then what's the point? Why expose yourself to unnecessary risk?

Different story if you have cash - then you need something more productive than bank interest rates so 6-7-8% in Property looks good.

But if there is still considerable risk of de-leveraging in all asset classes why leverage yourself up?
Genuine question.

[Matt Gilligan]

Thanks for the reply Matt

But if there is still considerable risk of de-leveraging in all asset classes why leverage yourself up? Genuine question.

Because I believe that market will turn and the capital gains will come, albeit in the form of recovery of former gains. It's just a waiting game.

Also if hyper inflationary / high inflation times kick in, the more debt you have, the better you do. The debt devalues and becomes worth less, while the asset values rise rapidly.

But you need to survive the high interest rate environment that comes with high inflation, - so long term fixed interest contracts are important. BNZ offer 7 years for example. A nice way to ride this all out.

I think a lot of investors think very short run - to their detriment. I am taking a 10 year view. It will recover, and the bargains around this year will be fondly remembered as 'the good old days', just like we were saying in 2007 about 2001 - the last time we saw cash flow positive property.

[whitt]

Almost 80% of REA’s will be unemployed by March 2010.

Now there is a decent predicition for 2010