Mom Florence Curr is looking for a house, but it’s difficult.
“House prices are going up, interest is going up, everything is very expensive,” she says.
That’s record inflation of 5.9% for you. To get it under control, and to no one’s surprise, Reserve Bank Governor Adrian Orr announced on Wednesday that the OCR would be moved to 1%.
He now expects to raise it to 3.4% in 2024 to combat runaway inflation.
But economist Brad Olsen says he is moving too slowly.
“They should have gone further, they should have taken a much stronger approach and position,” he says.
Orr is confident his hikes will rein in inflation after it peaked at 6.6%. Olsen thinks the “Reserve Bank is losing control of inflation”, but Orr is “confident that it will return to the midpoint of 2% over the next few years”.
The Reserve Bank’s increase could be good news for term deposit holders, but bad news for some borrowers.
Rising interest rates are already cooling the overheated housing market.
“I think real estate investors are where we’ll probably start to see a little more pain,” says John Bolton of Squirrel Mortgage Broker.
The Reserve Bank now forecasts a 9% fall in property prices between the end of 2021 and mid-2024.
“Time will tell if that will happen,” said Yuong Ha, the Reserve Bank’s chief economist.
“We’re more confident in the direction than the magnitude,” Orr said.
This potential downturn will be felt after years of skyrocketing house price inflation despite the government desperately pulling policy levers and promising housing affordability.
Since April 2019, when Prime Minister Jacinda Ardern ruled out a capital gains tax, the median home price has risen more than 50% to $880,000.
In the latest Newshub Reid Research poll, we asked, “Should the government reconsider introducing a capital gains tax on property?”
The majority, 54.7%, said yes, 32.6% said no and 12.7% don’t know.
“We’re focused on all the other things we can do…I won’t change my stance on CGT,” Ardern said on Wednesday.
Even if a majority wants it.
