Will mortgage interest rates go up in 2021 or 2022? And more more insights affecting investors in property news this week…
Our aim is to glean the important economic and property insights affecting investors from the torrent of information filling the newsfeeds each week so you don’t have to. We then present them in digestible snack form so you can update yourself over morning tea.
Read on and enjoy your economic and property news this week.
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In property news this week…
- Will mortgage interest rates go up in 2021 or 2022?
- ASB Bank increases deposit requirement from investors.
- New residential building consents hit record high.
- Another Nido-linked company goes under.
- Government was repeatedly warned money printing would cause house price inflation.
- A crazy story about an eccentric entrepreneur.
Will mortgage interest rates go up in 2021 or 2022?
Our best prediction is that we are at the bottom of the cycle and that interest rates will remain low for several years.
The risk is now to the upside, not the downside. In plain English, interest rates are not likely to fall any further.
Mortgage rates will start moving up first; term-deposit rates much later.
It is obvious now that economists called it wrong. Massively wrong. They’re even making weather forecasters look good!
A slew of economic data released this week was far more positive than economists had previously predicted.
Unemployment dropped from 5.3% to 4.9% in the December 2020 quarter, shocking even the most optimistic economists who instead had predicted it would rise following the end of Covid-19 wage subsidies.
New dwelling consents also hit a record high in the December 2020 quarter. New home consents were up nearly 5% compared to 2019, which is impressive considering how affected 2020 was by Covid-19 lockdowns.
On the back of better than expected economic data, business confidence bounced back strongly too.
Economists have only yesterday abandoned their predictions that the Reserve Bank of New Zealand (RBNZ) would cut the Official Cash Rate (OCR) again this cycle – something that has been obvious to us for some time.
Bank economists are now predicting the first OCR rate hike in May 2022.
Once again, we think they’ve got it wrong. With the housing market running hot and inflation pressure to the upside, we predict the first OCR rate hike in February 2022.
Even now with property prices increasing at a crazy rate, NZ inflation for the December 2020 quarter was only 2% on an annualised basis. This is bang on the Reserve Bank’s target mid-point in its 1%-3% range. StatsNZ
That means there is no inflation pressure to either increase or decrease interest rates. Furthermore, the Reserve Bank is under political pressure to not further stimulate house prices, so further cuts are out of the question.
The Reserve Bank could surprise us and act as early as November 2021 if inflation threatens the upper limit of the 1%-3% band it is mandated to keep inflation within.
ANZ Bank’s business confidence survey released yesterday found that businesses are concerned about the rising cost of freight and staff, due to the skills shortage.
About half of the businesses surveyed are less confident they can maintain their current levels of profitability and plan to increase prices to cover their costs.
This feeds into heightened expectations of upwards pressure on inflation, despite the drag from the loss of tourism, and therefore upwards pressure on the OCR.
Don’t expect anything dramatic though…
When interest rates do start moving, which we think is likely to be as early as February 2022 (and maybe even November this year), expect a slow creep upwards rather than dramatic changes.
We see the OCR remaining below a 1% ceiling throughout 2022.
What about mortgage interest rates? We expect the long rates to start increasing in 2021 in advance of the OCR, and increases in the short rates to lag OCR increases.
If you want to lock in a long rate, now’s the time. As ex-BNZ chief economist Tony Alexander says…
“Borrowers should seriously consider forsaking the candy of cheap short-term fixed rates to lock in long rates at levels they may never see again in their lives.”
What about term deposit interest rates? ASB Bank had this to say in their Term Deposit Report of 5 February 2021…
Another year of low interest rates expected
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- Interest rates are expected to stay low for several years, and we could still see some declines from today’s levels.
Note that the third bullet point relates to term deposit interest rates, not mortgage interest rates or the Official Cash Rate (OCR), both of which have seen the bottom this cycle. We agree with ASB’s view.
Get more insight on our NZ Interest Rates Forecast page
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ASB Bank increases deposit requirement from investors
ASB Bank chief executive Vittoria Shortt announced tonight that, effectively immediately, the deposit required from investors would increase from 30% to 40%.
It is the second time in three months that ASB has adjusted its loan-to-value restriction.
In November, the bank reinstated a 30 percent LVR restriction after the Reserve Bank indicated it was considering reintroducing LVR restrictions in March this year.
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New residential building consents hit record high
The number of residential building consents issued in the December quarter has reached an all-time high.
The latest figures from Stats NZ shows 11,291 new homes were given the green light over the three month period, surpassing the previous record set back in 1973 of 10,713.
The total number of new homes consented last year was 39,420, up by nearly 5% on 2019.
Another Nido-linked company goes under
Nido-linked company that guaranteed $25m loan fails.
Another company connected to ambitious Auckland furniture mega-store Nido has gone into liquidation.
Magsons Investments, a property company, went into liquidation on January 28. The company dates back to 2000, and held a stake in the joint venture which owns the unfinished Nido building and property.
It was the guarantor of a $25 million-plus loan owed to the development’s mortgagee.
Government was repeatedly warned money printing would cause house price inflation
Grant Robertson and the Government were warned in January 2020 that there was a ‘significant’ risk Reserve Bank money printing would push up house prices and deepen inequality.
“Despite calls from the Reserve Bank that the Government would need to act to blunt the effects of this, nearly 13 months later, nothing has been done,” writes Thomas Coughlan for Stuff.
“Robertson had initially been sceptical of the link between the Reserve Bank’s money printing and high house prices.”
But his now famous letter to Reserve Bank Governor Adrian Orr last year marked his acknowledgement that the Bank’s money printing was driving house prices up.
“He took a long time to reach that conclusion. Earlier in the year, he’d been sceptical that there was a strong connection between the Reserve Bank’s money printing and out-of-control house price inflation.”
“The Reserve Bank warned Robertson in January  of nearly all the adverse consequences of money printing on housing and inequality.”
Policy advice released under a series of OIA requests warned that an LSAP (Large-Scale Asset Purchases) programme would lift asset prices like housing, deepen inequality and require some kind of intervention.
The Reserve Bank called for a coordinated response from across government, and pointed out that it was the Finance Minister’s job to ensure the social consequences of any monetary policy changes weren’t unfairly carried by one group in society.
“As of February 2021, there has been no fiscal response targeted at mitigating the effects of unconventional monetary policy on wealth inequality.”
Read the full article here (Stuff)
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And finally, in not-property news this week something too good not to share…
A crazy story about an eccentric entrepreneur
His best thinking happens during the third movement of Beethoven’s Fifth, in a gold-plated room, and when he’s mere moments from death. Dr Nakamatsu is dapper, 92 years young and has over 3,500 inventions. Take that, Thomas Edison!
Japanese inventor Yoshiro Nakamatsu, also known as Dr NakaMats, has more inventions than anyone in history and has even licensed 14 patents to IBM.
He invented and patented the world’s first floppy media 17 years before IBM’s floppy disk patent was filed, a syphon pump, a pillow that prevents sleeping while driving, a condom with an embedded magnet to heighten sexual pleasure, a toilet seat lifter, the karaoke machine, jumping shoes with leaf springs on their soles, and a wig for self defence.
This all goes to show that he is rather eccentric. He describes his “creative process” as listening to music and then diving deep underwater, holding his breath until shortly before death to bring on a flash of brilliance. He notes them down with his waterproof memo device.
In the book The Legend of Dr NakaMats Inventions Nakamatsu states: “Lack of oxygen gives me ‘the flash'”.
Nakamatsu was the subject of the 2009 documentary The Invention of Dr NakaMats.
In the documentary, Nakamatsu discusses some of his successful inventions and shows the process he uses to come up with his ideas. The video has over 4.2 million views.
Nakamatsu says he is “dead set” to live to the ripe old age of 144. He follows a meticulous health regime (one, of course, that he invented) to ensure he achieves it. (allthatsinteresting)
Dr NakaMats likes to unwind each evening in his “Calm Room,” a bathroom constructed without nails and tiled in 24-karat gold. He says it encourages creative thinking by blocking out radio waves and television signals “that are harmful to the imagination”. (Valuer.ai)
That’s it for this week, thanks for hanging in there.
Cheers, Brandon 🙂
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