Interest rates - why bother?

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Forums › Finance and wealth management › Interest rates - why bother?

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Fred99

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#2559668 7-Sep-2020 14:58

mattwnz:

"House prices are a key driver of household spending. Recently, house price inflation has been weak, influencing our forecasts for household consumption and residential investment," the RBNZ says.

From: https://www.interest.co.nz/property/106540/some-surprising-price-trends-latest-reinz-house-price-index-figures

The HPI adjusts for changes in the composition of sales each month so is considered a better indicator of overall price movements than either median or average prices.

It shows that nationally, housing prices increased by 2.0% overall in July compared to June, are 1.4% higher than they were in April, and 9.4% higher than they were in July last year.

I agree - something will probably break, and when it does it'll be very very ugly.

Fred99

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#2562448 11-Sep-2020 16:47

Welcome to negative interest rates in NZ - kind of:

https://www.newsroom.co.nz/hey-govt-borrowing-costs-just-went-negative

The Treasury's Debt Management Office (DMO) announced on Thursday it sold $50 million worth of inflation indexed bonds maturing in 2040 at an average yield of minus 0.1032 percent. The DMO reported there were 22 successful bids for the bonds from fund managers where they paid the Government money to lend their money to the Government.

If you're brave, as a retail investor you can still get 2.3% on term deposit at Bank of India. Otherwise, borrow as much as you possibly can to buy as many rental properties and shares as possible. If you're worried about your childrens' futures when doing this, make sure your partner's next boy/girlfriend is rich, generous, and not prone to making rash financial decisions.

OldGeek

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#2562574 11-Sep-2020 20:15

So housing markets driven by returning cash-rich covid19 escapees and funds/share investors driven by escapee term-deposit investors. Welcome to our disrupted financial landscape.

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dafman

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#2562623 11-Sep-2020 20:29

OldGeek:

So housing markets driven by returning cash-rich covid19 escapees and funds/share investors driven by escapee term-deposit investors. Welcome to our disrupted financial landscape.

It's going to finish ugly. It cant go this mad and end well.

mattwnz

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#2562728 12-Sep-2020 02:39

Fred99:

Welcome to negative interest rates in NZ - kind of:

https://www.newsroom.co.nz/hey-govt-borrowing-costs-just-went-negative

The Treasury's Debt Management Office (DMO) announced on Thursday it sold $50 million worth of inflation indexed bonds maturing in 2040 at an average yield of minus 0.1032 percent. The DMO reported there were 22 successful bids for the bonds from fund managers where they paid the Government money to lend their money to the Government.

If you're brave, as a retail investor you can still get 2.3% on term deposit at Bank of India. Otherwise, borrow as much as you possibly can to buy as many rental properties and shares as possible. If you're worried about your childrens' futures when doing this, make sure your partner's next boy/girlfriend is rich, generous, and not prone to making rash financial decisions.

And we thought it couldn't get any more madder.

Although I can't see banks ever lending to people to buy houses at negative rates, as they still want to keep their margins. When interest rates drop, their margins seem to stay about the same, so they generally aren't affected by interest rate drops. However one could say they are better off, due to the prices of housing rises, so they are lending more money per house, so they make more money per house.

I think banks should now stop advertising that some of their deposit interest rates are a 'special offers'. There is nothing good about any savings interest rates in the 1% range, as real world inflation including houses, is more than that. People saving for a deposit on a house for example, are now going backwards on their savings. It will also take them longer to save, as their deposit will be earning less interest while in the bank, and the house prices will also be increasing.So the deposit they need will also be increasing.

IMO there isn't much good that will come out of buying a 600-million dollar first home in Auckland and being saddled with such a huge debt for the next 30 years, in such uncertain times. Wages aren't keepin gup, and job losses could cause wages to flatline, and maybe even go backwards

Fred99

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#2562747 12-Sep-2020 09:04

The bonds are "inflation indexed", so they're not really negative rates as they're indexed to CPI, just that purchasing power of the $100 you put in today will be less when the bond matures, you'd not get less than $100 back unless inflation averaged less than 0.1% over the term.

Maybe someone who's studied economics knows what this means beyond the obvious, that it's "safer" to invest in something you've locked in for 20 years knowing that you'll end up with less than you started with in real terms.

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mattwnz

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#2571523 21-Sep-2020 19:29

Rikkitic:

driller2000:

Good for them i.e those who have, for whatever reason managed to accumulate some assets / wealth.

But I don't see why the govt ie. my fellow citizens/taxpayers - should guarantee MY money, given its MY decision where I put it - so it is MY risk to take on.

I don't get this argument. Banks aren't really a choice. People have to have bank accounts to exist in our society. A bank account isn't an investment for most people. It is the only practical way of keeping your money and having it on hand as needed. I think a good argument can be made for placing a limit on the amount that is guaranteed, but there should still be something. I think the FDIC in America was set up after the run on banks in the Great Depression. I think it has or had a limit of $10,000 per deposit. (I'm not sure of this.)

I don't see why there could not be some kind of government-backed insurance scheme that people had to pay a reasonable fee for and could opt out of. Then they would at least have an option. Otherwise there is always the risk of collapse if people lose confidence. It happened once. There is no reason it couldn't happen again.

Yes,. It appear to have effectively happened to finance companies, where people simply took their money out as it matured, rather than reinvest, so it left a lot people at the end who hadn't been lucky enough for their moneyy to mature in time, losing much of their money.

The fact is that NZ is one of the only countries in the OECD without a bank guarantee, and at the moment, it is largely savers that would take a haircut if a bank failed, which IMO is very unfair. Especailly as there is no way to insure ones money in a bank. Where as if one buys a house with that money, they can insure that house. But it seems both main political parties are resigned to house prices continuing to increase steadily in the future, due to selling cheap money, which is not good, as house prices get more and more out of sync with wages

mudguard

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#2571571 21-Sep-2020 21:49

mattwnz: fact is that NZ is one of the only countries in the OECD without a bank guarantee, and at the moment, it is largely savers that would take a haircut if a bank failed, which IMO is very unfair.

If there are to be mandatory bank guarantees, then let the banks pay for it?
As I said earlier, if you have a million dollars in the bank, or any sum, why should the taxpayer guarantee it?
If you think there is a risk of a run on the bank, take it out and put it under your mattress. Literally anywhere. Then you can weigh up the risk of losing it in a house fire or burglary versus a run on the bank.

mattwnz

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#2573826 25-Sep-2020 01:51

mudguard:

As I said earlier, if you have a million dollars in the bank, or any sum, why should the taxpayer guarantee it?
If you think there is a risk of a run on the bank, take it out and put it under your mattress. Literally anywhere. Then you can weigh up the risk of losing it in a house fire or burglary versus a run on the bank.

For the same reason that almost all OECD governments guarantee their banks. The last thing they want peopel doing is withdrawing there money and sticking it under mattresses. Banks are supposed to be for, a safe place tor storing ones savings. Taxpayers aren't covering it, as it will be covered by insurance, probably paid for by banks customers as a levy.

The fact is though, that the government is planning on introducing a guarantee. It just isn't a priority at the moment for them, especially as it is now election season, they have kicked it down the road to deal with later. The thing is, will any NZ government allow anyone to actually lose their savings in a bank? It would destroy the banking sectors credibility in NZ. At the moment they have pretty much bailed out the housing market, and savers are paying for this with lower deposit rates, and the RB is printing a cr@p load of money.

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