Maintenance budgets for Landlords
Find out why a Landlord maintenance budget is essential for all Landlords. Read More…
by Nick Gentle on
Article appears under:
About Property Investment,
Investment Strategy,
Mortgages,
The Numbers
What a difference a week makes. The Reserve Bank's OCR announcement release last week came with a major shift in tone. The RBNZ did
not adjust the OCR setting as expected, to the disappointment of many businesses that are struggling (and many economists hoping for
the bank to look forwards and not backwards), however the bank acknowledged that the economy has worsened quicker than they had
predicted, much to the the surprise of nobody who actually works for a living. Predictions for OCR cuts quickly shifted from
"sometime late next year" as of their previous release, to this
side of Christmas.
Two things:
Job ads and building consents are down, as is freight, inflation-adjusted consumer spending is down, and there are a lot of stories in the news about local businesses, especially hospo and tourism, doing it tough. It's hard yakka out there and there don't seem to be many shining lights in the economy. The RBNZ acknowledged all of this and basically hinted that rates might need to be eased much sooner.
Straight after the OCR announcement, financial markets shifted to pricing in interest rate cuts this year, banks lowered term deposit rates, and over the last week most banks have started to reduce their interest rates on offer.
Beyond the obvious relief that holding costs are going to go down, at the coalface we saw an immediate change. Our Rotorua sales team in iSellProperty noticed an immediate bump in interest; on a wet Sunday most of our open homes saw more people through than that last 4 weeks combined.
Very small sample size? Yes, it couldn't be smaller. Will prices rocket away soon? Absolutely not, the economy usually turns at the pace of an ocean liner, not on a dime :-)
What it does signal is folks are feeling that they can buy with more confidence now that the RBNZ appears to have done its thing. We are still in the winter and the painful after-effects of this tightening cycle will take quite a bit more time to play out, so monthly data will bump along the bottom for a while. However, at the macro level it feels like there is a floor in place now and more people will plan for the future instead of hunching down and waiting for it all to be over.
There is a saying that the RBNZ shows up too late for every party, does too much, and stays too long. That was certainly the case with how long low interest rates were left in place, and I feel they have overcooked their response too and left the OCR high for longer than needed to take heat out of the economy.
The economic pullback will probably end up deeper than the bank would have anticipated, and the only thing that might prevent a sharper-than-predicted decreases in OCR is the fear of inflation making an unwelcome return.
In short, I think the pull back has been faster than the bank anticipated and will require an equally fast economic response. Don't be surprised of rates drop more and sooner than the latest round of economist predictions.
I think we are. A "buyers market" is when there are more buyers than sellers and buyers have time and choice. That has been the case for a while now, however we have shifted since the change of government to what I call a "good buyers market" - where the above holds true, but policy changes that are outside our control won't make things worse, so a buyer can invest with more certainty.
I believe we have perhaps a 12 month window, where buying will be quite good (and news cycles will be grim).
Looking through the bad news still to come, once market confidence - particularly jobs confidence and consumer spending - returns, I believe the baked in wage increases from the last few years will combine with lower interest rates and values will lift again. Recently introduced DTI limits may hold the market in check in the future, but it will be in check at the top of a range, and not where things are at now.
In 2022 I published a two-part series on inflation (part1, part2). We are just coming out of a sharp increase in rents, which I mentioned in part 2, and I believe we will soon see the big benefit of inflation, erosion of debt, materialize as interest rates come down.
From someone who invested through the GFC and got a bit wrong, as well as a bit right, and has had many years to reflect and grow, here are some tips:
Happy investing.
Nick Gentle
Business Owner & Operations Manager
nick@ifindproperty.co.nz
027 358 3855
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