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We had a Monty Python moment this week with the first OCR change in almost four years. The RBNZ has been signaling for months that a rate change was coming. At the prior announcement in January we were left crystal clear that the official cash rate would change in March. For weeks bank economists (bar none) have said the OCR rate would increase by 0.25%. Financial markets of course already fully priced in a quarter percent increase. Yet in the few days leading up to the OCR and the days that have followed, there was panic and a rush out to fix the mortgage.
Such is our collective short-term-ism we fail to act on anything unless it’s right in front of our nose. Our reality is distorted by a Media that is almost always sensationalist. Why let the facts get in the way of a good story. For example the word “hike” has been used in the media all week. The word hike means a sharp price rise. Lifting rates by a quarter of a percent is the smallest increment the Reserve Bank does. It’s hardly a hike.
Reading headlines this week you’d have thought that a small 0.25% increase in the OCR was the onset of the end of the world. But, it sold newspapers and it made people watch TV and listen to the radio.
The worst headline this past week was compliments of REINZ. It stated that house price inflation rose from 7.7% in January to 8.25% in February and was reported unquestioned. Little wonder most of the population thinks house prices will continue to increase. That’s what they are feed by media. The headline suggests that houses prices are steadily growing again. House price inflation at 8.00% is a big figure and it's irresponsibly misleading. It is a year-on-year comparison of price so it still includes very strong price growth in March 2013. When this comes out of the figures next month there will be a big drop in house price inflation – and that will be news! The way house price inflation is reported hides the fact that house prices are down 5.00% in Auckland since peaking in November. Yes, there has been no house price inflation since November. And yes, compared to November prices have actually fallen.
At the same time we have also seen sales volumes in Auckland drop by 15% compared to the same month last year. Yet it will take another three or four months before the media work this out. If we allow for 2%-3% inflation, real house prices have started falling. I’m not suggesting that will continue. The trend is too short to jump to conclusions. But on the ground, I feel the market has shifted, and shifted fairly quickly. I wouldn't be buying on the basis that prices continue to increase. House prices jump, house prices crash, RBNZ hikes rates. Always the same news, but different. Welcome to our Goldfish economy.
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