01 Nov How confident are you?
Back in April during the depths of a level 4 lockdown – while we were still coming to terms with what level 4 lockdown meant – many of us were expecting to see an economic catastrophe. The economists, politicians, bankers and business leaders were all telling us it was bad, it was just a question of how bad.
Fast forward less than 6 months, and the majority of the dire predictions seem to have been overstated. No doubt, there has been some serious economic hardship dolled out; particularly to those with tourism, retail or hospitality business, along with some service-based businesses. However, the effects have been unequally distributed, and many other industries have positively forged ahead. This had led to many decreeing the present recovery as a K shaped recovery – one which has some segments of the economy/society surging ahead while others fall behind.
Despite the unevenness of the ‘recovery’, the decimation of certain industries, the job losses, the shortage of seasonal agricultural workers and the ever-present threat of another outbreak of Covid-19, apparently business confidence is increasing. And this is important, because one of the biggest drivers of the economy is confidence. Business confidence is a self-fulfilling prophecy; if people are confident in the business landscape, they are more likely to invest more into their business, hire more, pursue expansion opportunities and so on. This in turn drives confidence in others, and so it becomes an upward spiral.
Is this what is going to happen in NZ, and will our economy boom back into life? It’s too early to say with any sort of certainty and we don’t have a functioning crystal ball. But compared to the bulk of the world, we are looking pretty good. And if nothing else, that should give us all a little bit of confidence.
Safe as houses
Despite the global pandemic, lockdowns etc, an area that is showing particularly high confidence levels is housing. NZ has long had a love affair with housing as an ‘investment’, and with the present low interest rates there is a real sense of FOMO as record numbers of people; primarily first home buyers and investors clamber over each other at choca-block open homes and auctions.
While interest rates are at historic lows at present and the reserve bank seems reticent to intervene in the immediate future lest they overcorrect, it is worth remembering that only a few short years ago interest rates were almost double what some of the special rates are now. Indeed in 2008, a floating interest rate would have been into double digit territory!
While rates might not climb back to those heights in the near future, if you are thinking of dabbling in the property market, we suggest doing a few stress tests. What if your interest rate went up by 2 or 3 percent, what effect would that have on your repayments? Run through a few scenarios and work out what you would need to do to respond if a bad scenario played out. And if you want to make the math easy, use the sorted calculator.
And of course, if you are considering dabbling in the property market, get in contact with us to talk through the appropriate structures and tax implications.
