How to recession proof your life as the hawk circles
Property, stocks, cash under mattress — buffer your way, says economy guru
The R-word has rudely entered the national lexicon with increased frequency. Recession fears are sending shudders through the economy after the Reserve Bank lifted the official cash rate (OCR) from 3.5 to 4.25 per cent.
And the central bank on Wednesday recognised such aggressive hikes would probably cause a recession next year.
Economics speaker and writer Tony Alexander took questions on a Herald Premium subscriber Q&A session yesterday.
And he said predictions of a huge mortgage rate hike won’t put people off aspiring to own their own home.
“The data show people retiring with an owned and paidoff home enjoy better retirements than those renting. So I expect the drive to own a home will remain as strong as ever.”
But he said we shouldn’t presume enough new houses will go up to stop prices rising.
Alexander said construction costs kept rising, so the answer must be in building more homes at entry-level prices.
But that would be a big change on the past 25 years, he said, when construction was geared toward fancier houses.
Land availability was complicating that too.
He said a big freeing-up of land after the 2011 Christchurch earthquake kept section prices there suppressed, but prices soared elsewhere.
Some people dreading a recession might wonder where to put their money — stocks, savings accounts, term deposits, cash stacked under the mattress, Krugerrands, or something else.
“Let people plan their future themselves through their preferred mixture of shares, property, cash on hand, et cetera,” Alexander said.
Rising interest rates made RBNZ governor Adrian Orr a lightning rod for invective.
But Alexander said rate hikes were not confined to New Zealand.
“Rates are rising everywhere, although the common 30-year rate in the US has fallen in the past two weeks following their lower-than-expected inflation number a couple of weeks ago.”
Investment firm Jarden last week said US inflation seemed to have peaked. A US index measuring inflation for suppliers rose just 0.2 per cent in October, much lower than market gurus expected.
That preceded a market rally, where huge retailers including Costco, Target and Walmart surged in value.
A fortnight ago, the US consumer price index rose 7.7 per cent year-onyear, its smallest gain since January. “At some stage this will happen in New Zealand as well.
“The surprises will shift the other way and people will wonder if the Reserve Bank is tightening too much,” Alexander said.
The OCR hike was intended to influence bankers’ and borrowers’ behaviour — and Orr was likely hoping banks would raise lending rates to everybody.
“That means fewer people will qualify for a loan and many will simply not apply either because they don’t qualify now or they fear future rate rises,” Alexander said.
“That is the secret of yesterday’s rate rise. It was not just about taking the OCR higher, it was about scaring the bejeebers out of people so they step back and rethink spending plans.”
Hospo sector
An adage about liquor stores being recessionproof might have some truth.
A hospitality sector leader said people tempted to regard dining out and barhopping as a luxury might instead switch to the bottle shop for succour.
‘We’re waiting for the fixed mortgages to end and the real impact of interest rates hitting a lot of homeowners,” Hospitality NZ president Jeremy Smith said.
According to Corelogic, 20 per cent of home loans were currently fixed but due to refinance in the next six months.
“The risk to us is often, eating out is seen as really enjoyable, really important, but a luxury,” Smith said.
Smith was also watching for signs of a big shift in corporate travel.
Many firms played catch-up in recent weeks or months, holding functions, meetings and conferences impossible under lockdown.
“Recession-proofing hospitality can be very difficult,” Smith added.
Playing with pricing was often pointless because raw materials and wage costs were up and seemed unlikely to drop anytime soon.
Smith said hospo operators would have to focus on being the best they could be, making themselves irresistible to punters.
If it comes down to choosing between a bottle of pinot at the restaurant or a bladder of cask wine at home, that special restaurant experience might be the decider.