German Government's latest 10 year bond offer of EURO 3 Billion has a -0.24% interest rate. A pretty good indication on where rates are heading in the medium term. No need to fix long in my view.
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German Government's latest 10 year bond offer of EURO 3 Billion has a -0.24% interest rate. A pretty good indication on where rates are heading in the medium term. No need to fix long in my view.
Yes I agree it's nasty and for years the EU has told the people "Austerity Measures are a Must". I'm curious who exactly is putting money in German bonds, let alone putting money in the EU? Over in America they knew the cards would fall down when the EU bloc was formed after 2000. Their recipe to have a 'united of nations ; like the United States so they could compete competitively, but that didn't happen well.
We've been told the root cause is none of the various EU nations had 'consolidated it's debt'. You have Italy that is claiming Germany for war repatriations of their gold and $ taken away in early 19th century (hidden in a similar fashion as how Maduro in Venezuela moved the nations gold to Russia). Look at all the different languages and cultures within the EU ; how would any synergy exist economically?
Any explanation in the past 3 years why the US currency and their equity markets had done so well? It's because the smart wealthy folk in the EU (and many other places around the world) have moved their wealth to the US (China's been doing it for a very long time ; they send their cash to the US and buy the DOW, or real estate).
If there's any leading interest rate we should follow, then that would have to be the US reserve bank rate. These negative rates we see in the EU have minimal influence outside the EU. Just look at the buyers in the bond market. I recall during the Greek crisis, the US issued T-Bills and China had no problems buying it up. When the Greek gov't went to offer bonds, China wasn't there... When Italy wants to issue gov't bonds but is only able to pay 2%, no one buys any ; because the market thinks at that default risk level, Italy should be paying 8%. So Italy has no choice but to rely on the ECB which says well.. we'll buy the bonds somewhere in between. On the short hand, the ECB screws the rest of the EU nations and that's what we see happening in Germany (rob Peter to pay Paul).
I agree in part ... if we are talking about pure 1x investment NZ Res rental property Vs several NZ Blue chip higher yield shares then yes I agree the latter has some bonus facts ..like being able to sell online within seconds not days to years with NZ prop..
But on the other hand in "sanctus671" case and many like him paying rent ..owning a house is a no-brainer esp if you make a smart purchase and don't pay overs for a leasehold unit etc ..
But if sanctus can afford a freehold solid home and rent the rooms out he will be much better off longer term even if NZ property pulls back 20% if he made a smart purchase he should be able to add value and rent rooms out lifting his cashflows better than if he was just renting..
Then going forward sanctus will have an asset that is nearly as good as Cash ... unlike say commercial property that banks give 50% value or shares that if your lucky 5-10%...
And as he pays down the debt he will gain equity can borrow upto 80% to buy other investments at the lowest rates available
Personal Property a Great Core investment to then branch outwards from
I know a bit off original topic but here's a couple of charts to illustrate the problem with German banks - Deutsche Bank: (with reference on the equity / stock side ; not the bond issue side).
https://static.seekingalpha.com/uplo...5614645526.png
https://upcrypto.org/wp-content/uplo...on-660x330.jpg
Canada has no exposure and i'm certain NZ & Australian banks too have no exposure. This is the thing that even we live in a globalised world, capital flows of $ move freely and tend to pick safer places. I don't see a total collapse of the EU but I do see the average citizen living there will have a tougher time, especially for future generations.
On the Canadian front for 'doing something about' the problem of 1st home buyer ownership, it seems the Cdn gov't is taking it all the way to the bank so that low income or 1st time home owners can get their 1st home. Unlike NZ, we've stood flat and done absolutely NOTHING about making homes more affordable for the 1st home buyer.
https://www.cmhc-schl.gc.ca/en/media...uyer-incentive
and for more beefier details:
https://www.moneysense.ca/spend/real...yer-incentive/
"The federal government launched a new national program on September 2, 2019, that it says will help thousands of families across the country buy their first home. Aptly named the First-Time Home Buyer Incentive (FTHBI), the program offers eligible buyers up to 10% of a home’s purchase price to put toward their down payment, thus lowering mortgage carrying costs and making home ownership more affordable."
C'mon Ms Ardern, why aren't you doing anything about the issue of home affordability in NZ???
And the eligibility for FTHBI is pretty reasonable:
"are not only people who have never owned a home before, but also homeowners who have gone through a divorce or breakdown of a common-law partnership, or those who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the past four years."
And the Cdn gov't will:
"The government will loan buyers 5% of the purchase price for a re-sale home, or 10% for a new one. That works out to a possible $50,000 on a new $500,000 home, or $25,000 on a $500,000 resale property. "
This is on top of the 5% down payment the 1st home buyer needs to have. The FTHBI portion is payable after 25 years with no interest BUT the capital gain value of the house the Cdn gov't will also get the benefit; that is the home owner under this scheme SHARES the capital gain with the gov't, likewise in a crash (not likely house values would be less after 25 years) the gov't will share the loss. But it's interesting to see the Cdn gov't is making a bold move to tell 1st home buyers that they are willing to take the risk in lending. Again:
"Buyers don’t have to make ongoing payments and are not charged interest on the loan. But they do have to repay the incentive, either when they sell the house, or after 25 years—whichever comes sooner. "
Why even discuss home affordability when central banks continue to suppress interest rates and provide liquidity to pump up asset prices. Why not look at the main reason for house price growth, instead of encouraging the next generation to take on even more debt to keep the ponzi scheme going. I guess it is easier and ensures votes.
Modern Monetary Theory (MMT) is what pulled the US economy out of the GFC in 2008. Unfortunately MMT is not working in the EU as we see artificial interest rates that are well below what the market expects (their negative interest rate policy does not work buyers of their bonds expect a much higher rate). Anyways in respect to NZ, the RB also adopts MMT but I would not say it's anything near what the EU is at. Key distinction is we still have a we ways to go to zero. The better indicator is to watch the NZ currency.
Housing is only 1 segment of the interest rate variable. Commercial & gov't loans are a big factor so it's more important that the key drivers of maintaining employment, and thus the economy roll through in tough times. Though I do agree, too low rates will encourage the rich to buy more houses in NZ, it also means they stand to risk more in a real estate bubble crash. Sadly, when the economy collapses, so does employment which basically wipes out those trying to buy their 1st home.
Many NZ politicians would disagree but the real problem why next generations have to pile on more debt to buy a house is simply due to NZ's weak currency and thus, the long erosion of standard of living. NZ is a small country that can not make EVERYTHING efficiently to produce the end product 'the house'. Also NZ's is very poor at implementing tax policies on residential homes as all too many just 'game the system' without paying any taxes. This is very different to the Cdn model where the CRA is effective at collection any capital gain tax on the property. But overall, MMT will cease to work if 'taxation' is not applied across all asset classes and this is a key problem in NZ, and not because of interest rates are too high or too low.
I guess these might all be factors. Tax policy around capital gains including housing has been consistent for many years without house prices getting too high. I would suggest that after each central bank intervention when the economy(borrowers) gets over extended with lower rates and easier debt means people are now comfortable becoming over-extended financially knowing that central banks will drop interest rates and assist refinancing. Another couple of financial crises and you will get paid to have a mortgage with negative interest rates like in Denmark. No limit on house prices then and then overextended borrowers are no longer overextended. People saving money though are screwed. I guess that's the game and I am upset as my parents taught me to be prudent with debt and to save for the future.(Worst advice ever since about 1987)
NZ house prices got too high because of the NZRB placing more emphasis on economic output (ie productivity) than to control inflation. Their measuring stick of determining inflation, the CPI, is a very crude method for assessing inflation as it never considers the long term outlook of ie. mortgages. It's only a snap shot of costs at from point A to point B ; and considers no other variable. I much prefer the US's model of factoring inflation 'Producer's Price Index' PPI. So what has been consistent in NZ is IRD rarely collects taxes on the sale of houses (with exception to those that are in the business/trade/construction). Such an asset class so large, it should not be ignored if you're using interest rates as a means to control house prices. What makes the Canadian model of treating real estate so remarkable is not only they recognise house prices rise (because of inflation) but also the FTHBI program tells the buyer that the gov't is too into the game of making $$. Anotherwords, the gov't and the buyer goes hand in hand into buying a house and when the house changes hands or after 25 years, both investors will get paid back. This is very different to the process we have in NZ where IRD assesses taxing capital gains on a house by using a bright-line 5 year test or if the buyer intended to purchase the house as an investment / speculation where the gains are taxable.
I would say it's unfair to use the EU examples of interest rate controls as during the formation of the EU, they've completely ignored key factors such as the formalisation of past debts between different sovereign nations. The United States of America through civil wars in the past HAD collectively formalised their debts and therefore, the controls of interest rates can apply as a whole nation. This is not happening in the EU and a good example is to look at the relationship between Italy and Germany on their bonds, that is, Italy on it's own has massive debt and seeks more loans. The ECB says ok we'll lend you at 2% but the global open market asks that Italian issued bonds should pay at least 8%. This is not gonna work so the ECB loans to Italy and the German citizens get screwed out by propping Italy up (because Germany as a whole is the largest economy in the EU); how they say 'austerity measures'? NZ will not fall into that model but instead, a gradual erosion of standard of living (via a long term weakening of the NZ currency to the USD) will occur before interest rates will get to zero. Hopefully I would be long gone back overseas before this occurs.
Don't assume your parents were wrong about being prudent with debt and having cash. When 2008 hit, it was only those that HAD the savings and cash set aside that benefited the most. Those that borrowed and over leveraged had the most to lose. Jim Cramer (CNBC sensationalist) time and time again says you need cash reserves to buy at times of crisis. Hindsight 2008/2009 were good years to buy either in real estate or in the stock market. What is more compelling is this - where are people investing their pension $? Are they being blind buying NZ shares or US listed shares? Because the model we have in NZ is strongly tainted towards investing into NZ shares which by far, are way way more riskier than buying US listed shares. I mean in the past 5 years if you held NZD currency instead of USD you would of lost over 20% on the exchange rate. It's a fat move by ex-NZRB minister Michael Cullen to push NZ into Kiwi Saver. Oh and if you look at the Scandinavian countries, they don't force their residents to buy their own shares, their gov't pension funds have huge positions in US listed equities. What NZ should be doing is aligning their tax structures to be similar to abroad so investments abroad and within NZ are transparent and equal. But instead, you have corporate taxes that are higher in NZ than abroad. You have restrictions on NZ residents having foreign brokerage accounts (ie FMA). You have tax policies that coerce funding to stay within NZ (FIF). When I add all these factors up, it doesn't look very good in NZ.
You know 20 years ago NZ use to be a magnet of attracting wealthy migrants having none of those restrictions or tax laws. But recently when I see these people selling up land around NZ, that tells me the wealthy migrant is moving abroad. Now it may seem to the locals that they don't care for such migrants, it's important to know that if too much $ leaves NZ, then the NZ currency will get weaker which affects everyone.
Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)
Rent to buy instead of Shared equity,
5% deposit with govt insured loan, check, with price and income caps, check
Second chancers included, check.
NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.
But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.