Archive for interest rates
I like Olly, (in fact he and Steve Goodey are the only 2 mentors I recommend in NZ), but given the last 4 years and him losing millions in Landmark through too much debt I was very surprised that an AFA would make such a “reckless” statement.
I am picking that what he really means is now is a good time to get into your own home, especially in Auckland, as rents and prices are likely to keep heading north but we cannot be sure of that yet.
I would say there is a very high likelihood of a further meltdown globally and we could see high inflation and the various other related nasties that come with it including high interest rates.
So if you can borrow and lock in a silly low rate for 5 years then yes do it but make sure you focus on debt reduction during that time.
I used to celebrate every time I got another million dollars of lending, now I celebrate every dollar of debt I remove.
Don;t get me wrong, debt and other peoples money are great investment tools but we must learn from the 80′s and the recession that debt can and will bite you.
If you want lots of debt come to the USA where we borrow without any recourse, that at least removes any risk to you personally or your other assets. (Next webinar next week at http://bit.ly/LQL3MC)
So in this instance I would say ignoring Olly is a very good idea unless you are in very stable employment or can buy for less than your current rent. And if you can’t fix it long term think twice.
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
I will go into some more detail in my newsletter tomorrow but just a quick heads up to keep your eyes on currency’s and interest rates this week. There is a lot of volatility in the world right now and especially with interest rates it would be prudent to be checking anything you have floating or fixed coming off soon and get talking to Kris.
Get Going and Stay Safe ~ Dean Letfus
Low interest rates and some easing of lending is a great thing for investors, no two ways about that. But it is interesting that it immediately brings out……, well “greed” isn’t quite the right word, snob value isn’t quite right either….., let me try to explain.
Todays news about houses in certain parts of Auckland selling for nearly double valuation is quite sobering or exciting depending on whether you are buying or selling. People who think like investors would taking advantage of the low interest rates to create cashflow or buy slightly better property that is still cash neutral and that is smart investing.
But of course what also happens is that the larger buyer pool look at what their weekly payments will be and as is obviously happening in the CBD, adjust their buy price UPWARDS focusing solely on the fact that they can afford the payments.
I don’t have and deep conclusion to reach from this observation other than the fact that no democratic government will ever find a way to keep property prices down to control inflation. Human nature will always raise a home buyers emotional quotient. I loved this quote in the Herald:
“Another couple told of similar problems in Herne Bay, where they struggled for 18 months to buy and eventually doubled their price range and paid about $1.9 million for a nice but basic family home.”
Can’t find anything for a mil, well shucks let’s pay 2 then .
Get Going and Stay Safe ~ Dean
I loved this quote:
“Prime Minister John Key said oil prices internationally were concerning but beyond the control of the Government.”
I have talked about the inevitability of high inflation in NZ coming out of the recession. I don’t know if it is arriving now, too early me thinks, however global price pressures may push us earlier than expected.
Our headline inflation is pushing close to 5%, although this is largely driven by the increase in GST.
So we have a bit of a complication in that the GST raise muddles the figures somewhat. We may have high inflation on our doorstep but not see it right now, or we may see the rate drop as the GST increases washes out.
Based on global data HERE, oil is driving inflation globally and we are obviously not immune to that.
So if you own property, hang in there, price increases may be round the corner. And if you’ve been holding off, it may be time to get in before it is too late.
So the big thing to watch now will be interest rates. I’ll keep you advised as we watch what is happening. Banks are already factoring in a 1 in 3 chance of an OCR rise before Christmas. OS we may need to fix loans shortly, not yet!!, but shortly MAYBE
Get Going and Stay Safe ~ Dean Letfus
The recent cut to the OCR will initially be met with much glee by investors because in theory investment property yields just went up. And this is true, lower interest rates obviously equal lower cost of ownership but this is only half the story.
I’m not wanting to sound negative, low interest rates are awesome for investors, however because we have had so much bad news in property over the last 24 months I believe this current OCR cut will also bring about a digging in of vendors toes. Everybody is looking for answers and signs of a recovery so Bollards actions will be interpreted by property vendors as a reason to hold out for higher sales prices because buyers can afford to “pay a bit more”.
The impact of this may be minimal and unmeasurable but as a student of people I think we could see quite a shift in expectation from vendors and a real slowing of sales as a result.
Given that even with abnormally low sales volumes and many of those being forced sales it is a highly likely scenario that people will try to hang on longer as their own holding costs are lower and their expectations are that buyers should be reasonable having just been given a “break” from treasury.
So my prediction for the next quarter is an inexplicable slowing in sales and increase in days to sell, combined with the beginnings of winter cyclical slowdown all equalling significant gloominess in the industry for 2011.
And I think if you are trolling distressed sales in New Zealand get buying before the resistance sets in. The media will be myopically producing any positive spin they can on lower interest rates and the REI’s advertorials will be glowingly optimistic about the whole thing so this will further reinforce vendors resolve to increase their sales prices.
Get Going and Stay safe ~ Dean Letfus
I freely admit there is no easy solution and this recession is a complex issue BUT……..
Given that it was banks and governments doing what they’ve always done that got us into this situation I can’t help but be worried when we keep applying the same old strategies to try and fix it.
Yesterday NZ’s inflation figures were higher than expected, although still very low, so taoday my mortgage broking busines is advised of a major NZ bank upping it’s interest rates from Monday??
So we have a soaring anti inflationary dollar, annualised inflation of 1.7% and we start raising interest rates to stave off inflation??
This is what we have always done before, but our current situation is unlike anything before. Do we want to go out of our way to kill off any recovery when it is likely to commit suicide in due course anyway??
As I say I don’t have any easy, pat answers but we surely should be looking through our economy with a new set of “Wow we just about sucked a kumara big time in 09, let’s think about better ways to control our fiscal policy going forward” glasses.
If we follow this pattern again we will have rising interest rates driving up rents and deflating house prices, our dollar will stay through the roof and exprters will continue to bleed and we will set ourselves up for a bigger and harder fall when the US and UK economies come a tumblin down.
There must be a better way forward tahn to do what we’ve always done.
It is true in our personal lives and it is true for our nation.
PS: My pick is still that floating interest rates will stay below fixed so if you are reasonably risk tolerant stay floating with your loans. If you can’t sleep at night then fix for the longest period you can at a rate of no more than 7.5%.
And if you don’t know what you are then take a dollar cost averaging approach
25% of your loan floating
25% fixed 12 months
25% fixed 30 to 36 month
25% fixed for 48 or 60 months
This reduces both the upside adn downside of interest rate movements and makes you feel really clever
Stay Inspired and Stay Safe ~ Dean Letfus
The Ethical Investing Strategist
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