As expected, last week Reserve Bank Governor Graeme left the
official cash rate (OCR) unchanged at 1.75%. What was unexpected was the tone
of the comments made in the Monetary Policy Statement that went with it.
That surprise was evident in the reaction of the foreign
exchange market where the Kiwi dollar
fell a cent against the Australian and US currencies. That reaction was because
the "market" had been expecting interest rates to rise faster than
the Governor is now forecasting.
The Bank's outlook for interest rates now remains unchanged
from February. Many had expected the Bank to bring forward its timing for
interest rates increases to curb rising inflation, but the Bank has returned to
the view that wage inflation is not likely to appear in the near future and
inflation generally is likely to be stable. It also made comment that the
economy had not been as strong in the last half of 2016 as forecast, despite
the surging building industry.
The Reserve Bank will also be mindful that interest rates
have risen slightly, even without the Bank increasing the OCR. Essentially the
banks are doing what the Reserve Bank may have done anyway.
So, it's all steady as she goes as far as the Reserve Bank
is concerned.
On the housing market Graeme Wheeler said he was pleased to
see the Auckland market cooling, saying
"over the last eight months they've actually fallen slightly." There
is now clear evidence that the boom is over, although demand remains strong.
The fact that the market is coming off the boil will certainly take the fizz
out of property prices and may well spill over to the provinces. Most are
expecting the residential property market to be stable rather than
spectacularly good or bad.
Mr Wheeler also indicated that some banks no longer have the
capacity to take on more overseas funding and will start competing for local
funds in order to satisfy the demand for finance. That is already evident in
the six monthly deposit rate increasing 0.2% in the last year. Over the same
time the two year mortgage rate is up by about the same margin.
That will be welcomed by savers, but will in itself place
upward pressure on mortgage rates. How intense the competition becomes for
savings will be a major factor in how much homeowners have to pay on their
mortgages.
On a lighter note, the most recent Register of Interest
disclosures from MPs reveal some facts about MPs and property ownership. Of the 121 MPs, five do not own their own
home. That's a little surprising given an MP’s salary and the generosity of
their superannuation scheme. Of the 116 MPs that do own property, 53 own three
or more. In total MPs own 302 properties.
Given the housing crisis debate, multiple property ownership
is hardly something MPs are likely to promote in their election pamphlets, and
true to form some MPs said they did not own property because they could not
afford it and home ownership for them was a "pipedream".
Coming from a high income earning MP, one can only conclude
they are shocking managers of their own money, which does not inspire a lot of
confidence when they aspire to control billions of dollars of our money! What
is evident in the make up of the House of Representatives is how few appear to
be financially successful.
One MP who is prepared to offer some financial advice is
National's Chester Burrows, who owns two properties. His gems of wisdom for
would be property owners are:
- Get on the ladder early and slightly over-extend beyond your comfort level. Don't expect a mansion.
- Have friends with Sky or watch the rugby at the pub. (Stay away from pubs totally is also a good tip.)
- Drive a five to ten-year-old car that will start every time but won't lose thousands of dollars as soon as you drive out of the yard.
- Expect to limit your lifestyle; cut your own lunch, eat at home or go for picnics.
- Take holidays within New Zealand and even just the wider region for five years and stay in motorcamps not hotels.
- Pay lump sums off your mortgage as soon as possible.
- Don't over capitalise on bells and whistles in the house, make low cost but high quality renovations. (I am not sure how one does high quality renovations at a low cost but the idea is certainly a good one.)
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