Which way will the property market go now?

[Aaron]

Monetary policy isn't the key issue of the housing crisis as the NZ Reserve Bank follows similar criteria that overseas central banks follow (and where their housing prices have not seen no where near the rise NZ has experienced in the past 40 years). Kind of like which came 1st, the chicken or the egg example. Why are we blaming banks because they lend to wealthy landlords and property investment consortiums? - when the banks also need to service the 1st home buyers? Are you implying that if the banks didn't have the $ ; that these landlords wouldn't have the ability to leverage their investments?

Are you arguing that lower interest rates and the availability of credit do not have a major effect on the price of assets? I would suggest they do and I don't think I am alone in that view.

Doesn't a NZRB gaurantee of a 2% minimum price rise every year not provide the basis for negative gearing. Would losing money on an investment property make sense without the central bank gauranteed tax free capital gain and inflation effectively reducing the debt by 2% or more a year.

What about if interest rates on term deposits were at a level that was above inflation and provided a real return to the investor. Would people be so keen to invest in houses if they could get a real return on capital invested at the bank.

Do banks even need depositors anymore?

[SBQ]

Are you arguing that lower interest rates and the availability of credit do not have a major effect on the price of assets? I would suggest they do and I don't think I am alone in that view.

Doesn't a NZRB gaurantee of a 2% minimum price rise every year not provide the basis for negative gearing. Would losing money on an investment property make sense without the central bank gauranteed tax free capital gain and inflation effectively reducing the debt by 2% or more a year.

What about if interest rates on term deposits were at a level that was above inflation and provided a real return to the investor. Would people be so keen to invest in houses if they could get a real return on capital invested at the bank.

Do banks even need depositors anymore?

No. Without a doubt varying interest rates affect all assets, but that's not my argument.

The key problem is the RBNZ does not factor house prices in their CPI figures for inflation (and this a common issue abroad). So the 2% target is of moot interest because it does not capture the rise in house prices (as it's treated as a capital asset and not a consumption). Will say i'm not a fan of the CPI metric and it's the same kind of BS that academics have cooked up such as EBITDA when comparing profitability of businesses. For decades, both Warren Buffet & Charlie Munger have said universities have forgot how to teach business studies and Mr Munger has recently said, they've cooked up all sorts of ideas (and the damn gov'ts are following it because they're "academic experts") that investors are clueless to what investing is all about. A good example recently he ranted is the issue of 'diversification', paraphrasing that why do managed funds have to own 50 or 100+ different companies in different sectors just so they can say they're diversified when, "I have a tough enough time trying to evaluate a dozen GOOD companies"?

The CPI inflation figure follows along the same lines - they're only a basket of 'consumption' goods and services. It does not factor the LOSS income by the individual through higher taxation - through massive increases in residential properties. Of course their argument is when $ is slim because of high unemployment, they assume the demand will drop and prices will go down (thus inflation goes down). When Jacinda last year go the news by so called 'expert economists' in NZ, their forecast was housing prices would drop. But when you get a +20% rise, then how are these economists are still credible today? One thing I will appraise Jacinda is she asks why the NZRB doesn't factor house prices into the CPI figure? and so they've been lame about it ; Jacinda is directly making action to do something about it. Pull the levers to discourage more rapid high price speculation.

Nevertheless, if you pull up CPI figures in NZ for the past 40 years and compared them to Canada or the US, I would be quite certain NZ's inflation is considerably more despite the same 2% target has been met. Just look at the pricing of food, new cars, education, you name it. If inflation was not that significant here then we wouldn't be seeing x 3 times the price of building material in NZ when compared to the retail shelf price at Home Depot in America.

In Canada, all the chartered banks lending ability are governed by the ratio of cash deposits. They just can't willy nilly borrow infinite amounts from the central bank. In NZ, I don't believe that's how it would work or how it could be enforced as the majority of banks here are foreign owned and operate on overseas funding too. A foreign bank in Canada are still bound by the gov't regulations and without it, Canada's housing market would of collapsed during the GFC. So to answer your question, "no' banks in NZ don't give a rats ass about cash term deposits.

As for term deposits, the ONLY advantage fixed interest bearing deposits have is to take advantage of "opportunity". Hence the term cash is king when you can seize the moment ie last year's share market crash. But to bank on it or assume it's a wise way of investing (ie Kiwi Saver funds that use fixed interest bearing investments as a % proxy of the risk level of the funds) is nothing but BS hot air. A 'Conservative' fund = higher level of fixed deposits earning measly 1% ? while the more 'Aggressive' funds have a far lower % of fixed deposits. This is how the NZ FMA educates people about finance? The same stupid thing as "you got to diversify your risk away".... which also diversifies the gains away.

[Aaron]

Someones view on what is causing high house prices and where they might be headed.

https://www.theguardian.com/money/20...may-never-bust

Lower for longer(forever?) I might be kicking myself for not borrowing more in a few years. Money nearly free and all the talk is about inflation in things other than asset prices. Monetary policy rewarding what used to be considered reckless behaviour is the name of the game. I haven't been playing.

House hunting is going slow.

[Bjauck]

Someones view on what is causing high house prices and where they might be headed.

https://www.theguardian.com/money/20...may-never-bust

Lower for longer(forever?) I might be kicking myself for not borrowing more in a few years. Money nearly free and all the talk is about inflation in things other than asset prices. Monetary policy rewarding what used to be considered reckless behaviour is the name of the game. I haven't been playing.

House hunting is going slow.

There is more room for house prices in other countries to keep on inflating. On the other hand, NZ has only just introduced tax reforms and tenancy reforms which other countries already had. In NZ now Tenants are getting more rights and landlords will not be able to - to the same extent - reduce taxable incoming to boost non-taxed leverage capital gains.

In NZ there still remains plenty of scope to increase the tax burden on both investor and owner-occupier house owners.