[lockstock]

Just when the rate started to rise again the US has cut interest rates and the £/NZ$ rate has fallen dramatically in the past couple of hours. It may be short lived but for the moment it looks like it's all gone pear shaped if you're trying to change from UK to NZ

[Nick88]

I also wouldn't discount the likelihood of further interest rate rises here, too.

[Red Devil]

... do you not mean interest rate cut? Personally, it would suit us nicely if the base rate was up near New Zealand's... somewhere near the 10% mark :yes

[Nick88]

I'm in NZ, and no, I mean rises.

If inflation rises here during the year, which is not unlikely, then the Reserve Bank governor has no option but to increase interest rates again.

[Red Devil]

... good news for savers, bad news for house buyers :roll

[migratory birds]

We're in the midst of a recession, home sales flat for nearly two years, one more year of this president who is struggling in this upcoming election year to jumpstart the economy and get American voters to look more favorably on the Republican party/presidential candidates once again.

As someone who needs to sell a home if we move, I'm grateful for the interest rate cuts as it brings potential homebuyers back into the ring.

[Super_BQ]

If inflation rises here during the year, which is not unlikely, then the Reserve Bank governor has no option but to increase interest rates again.

http://www.stuff.co.nz/4396881a6160.html

Michael Cullen is in a real difficult situation to say the least. Voters want a tax cut and i'm sure who ever gets in will try to push it through.

My call is interest rates will keep going up as the tax cuts will fuel more $ into the economy. Those who are familiar with macroeconomics and the $ supply know exactly what i'm talking about. It would be foolish to think that any major tax cut will reduce inflation. People will either put the tax savings to their home mortgage or either spend it on a new luxery item. The latter seems more like for the majority of Kiwis.

The US fed rate cut is a VERY good thing. At least housing prices go down as part of a healthy cycle. In NZ real estate prices go only in 2 directions - UP and SIDEWAYS.

Key reason why the public asks for a tax cut is due to high inflation caused by unreasonable rises in the cost of living. When houses go up by 20% a year, that's not a good thing. I often look at NZ's high level of inflation and compare that to how many times wages have increased by that same amount? You know what - housing prices and cost of living is rising faster than what people earn. So it's only natural people want a tax cut.

I know hindsight is 20/20 but Mr. Cullen should of been raising interest rates by .5 or 1% at a time 3 years ago. Not this .25% rises at every meeting. The US is able to justify a 1.25% drop (From 4.5%) within 2 weeks.

Take your pick - a $750k house in Auckland would be comparable to a $750k house in any US city with over $1 million population. For a given a profession, i'm sure an accountant in Auckland can earn $70k/year which is also comparable with the same annual pay in the US of the same city.

The real difference is when it comes to mortgage time, the worker in NZ is paying 10% while in the US they can be paying under 4%. After a while, it's no wonder so many kiwis have left NZ overseas (http://www.stuff.co.nz/4387021a6009.html).

BQ

[krdk]

Under 4%??? I wish! That's the rate banks charge each other. Consumers pay 5.6% - 6.1% for a 30 year fixed rate. This is an honest-to-God fixed rate for the whole 30 years! Something NZ should really look into.

Katie

[Brian]

Yup, my mortgage is at 6% and I don't see them going much lower than that. My parents somehow got their hands on a 4.75% fixed loan, but that was at the absolute bottom several years ago and I think they paid points to get it.

Here's an interesting (to me) quote from a recent news story about New Zealand:
"Reserve Bank of New Zealand Governor Alan Bollard raised interest rates four times last year to a record to curb consumer spending. Higher borrowing costs may reduce demand for imported computers and mobile telephones."

That makes total sense to me in terms of long term viability of the economy, and is the polar opposite of how we do things in the US. Here we cut rates to encourage spending which temporarily boosts the economy, but also drives the trade deficit up and encourages people to get into more debt.

(mental note: add "all gone pear shaped" to idiom list!)

[Super_BQ]

http://moneycentral.msn.com/loan/loan.aspx

30 years yes that's a long time. But click on 1 year APR and select the state (I chose California - LA) and get National Averages(APR): Low - 3.13% Average - 5.88% High - 7.75% The comparative bank rates shown below are from major chartered banks.

I have no idea where it gets the 3.13% APR rate from. I do know that it's possible other banks (that approve loans remotely/online or over telephone) don't have the high overhead cost of setting branches and can offer loans at a much lower rates.

It does seem like under 5% is more reasonable.

Also we haven't seen the end of the sub prime mortgage turmoil in the US. One analyst said it could take up to 4 years to clear out and if the US does fall into recession this year, the fed rate will continue to plumet.

[Brian]

Those numbers are what the banks are advertising, not what customers are actually receiving. That 1 year ARM likely jumps up to a much higher rate after the first year. I'm guessing that loan is aimed at house flippers who don't plan to live in the home.

The best 30 year fixed rate with no points listed is 5.625%. At the top it lists one for 5.0% as the lowest rate, but doesn't show any banks actually offering that. It likely comes with some sort of catch and points if it's actually possible to get. You have to get a 3 year ARM and/or pay points to get under 5%.

In any case I'm in good shape as they should stay low long enough for me to sell my house and move to the other side of the planet :)

[Nick88]

Alan Bollard's job is to control inflation, and the only tool he has to do that is interest rates, it is in his contract with the govt. Unfortunately he has no control/effect on the 43% of the economy that is the govt, they are pretty insensitive to price rises and carry on consuming regardless.

Since Labour got in they have ratcheted up spending by $20bn pa, and still show budget surpluses of $10-11bn. They are sucking huge amounts of productive capital out of the economy and spending it on expanding the bureaucracy (we now have 25% more govt employees, too). This has a very large effect on inflation (contributing about 2%) to the overall rate of 3.2% (I think). It ends up being businesses (particularly exporters) and homebuyers that get it in the neck.

Combine this with a speculative house-bubble caused by over-zealous planners restricting supply and adding large costs to the price of a section, and you have the situation this country now finds itself in.