Nirp - Impact On House Prices

[Fairyland]

With Japan taking the lead it is only a matter of time for other countries to follow. How will this affect HPC or rather HPI I should say. Do you actually get paid to take out a mortgage? Wouldn't this cause a massive demand for mortgage and thus unprecedented HPI? Can someone help me understand?

[Fatmanfilms]

With Japan taking the lead it is only a matter of time for other countries to follow. How will this affect HPC or rather HPI I should say. Do you actually get paid to take out a mortgage? Wouldn't this cause a massive demand for mortgage and thus unprecedented HPI? Can someone help me understand?

No reason that Banks have to give mortgages with a negative rate.

[TheCountOfNowhere]

With Japan taking the lead it is only a matter of time for other countries to follow.

Yeah, Japan had 0% IRS for about 20 years before it caught on.

Where Japan leads the rest of the world follows, 2 decades later.

[TheCountOfNowhere]

The only thing keeping mortgage rates low is FLS....STILL.

What was it Osborne or Cameron said pre-2009 about helping savers.

[Up the spout]

Between 1955 and 1989, land prices in the six largest Japanese cities increased 15,000%. resulting in lengthy commutes for many workers; daily commutes of two hours each way are not uncommon in the Tokyo area. Prices were highest in Tokyo's Ginza district in 1989, with choice properties valued at $1.5 million per square metre ($139,000 per square foot).

Then people borrowed money based upon their holdings of land, a house occupied by former prime minister Kiichi Miyazawa, then owned by political supporters of Miyazawa, was valued in 1991 at 2.7 billion Yen, or roughly $22 million. This was a very high value for a residential house but it was used to borrow 13.2 billion Yen from seven banks in 1989. This was roughly $96 million.

[crouch]

In Switzerland they have NIRP at the retail level in some smaller banks. Most banks have been very reluctant to increase rates at the retail level and have maintained margins by increasing rates to borrowers, not decreasing them; so, perversely, IRs have gone up not down.

NIRP so far is only small scale so this sort of adjustment is possible but what would be the effect of IRs of -2-3%? At the end of the day i really can't see folk putting up with this; pensions have already been trashed by ZIRP and NIRP at the retail level is, to my mind, outright wealth confiscation and amounts to a negative wealth effect for savers. To my mind the thought that my funds are being confiscated to help some over leveraged idiot live way beyond their means is not only unappealing to me but to many. The pensions aspect is a slow burn issue but not to be underrated; when many of the despised boomer class realize what's happened to their pensions they will not be best pleased; NIRP would put this effect into overdrive.

[Fairyland]

Yeah, Japan had 0% IRS for about 20 years before it caught on.

Where Japan leads the rest of the world follows, 2 decades later.

I think things are more global now that 20yrs ago. Contagion can happen much quicker. As it is rates are near zero so not too far from negative territory.

[Fairyland]

No reason that Banks have to give mortgages with a negative rate.

May be not for fixed rate mortgages but happens to tracker rates? What is the lowest tracker rate out there recently?

Edited January 29, 2016 by Fairyland

[Fairyland]

Between 1955 and 1989, land prices in the six largest Japanese cities increased 15,000%. resulting in lengthy commutes for many workers; daily commutes of two hours each way are not uncommon in the Tokyo area. Prices were highest in Tokyo's Ginza district in 1989, with choice properties valued at $1.5 million per square metre ($139,000 per square foot).

Then people borrowed money based upon their holdings of land, a house occupied by former prime minister Kiichi Miyazawa, then owned by political supporters of Miyazawa, was valued in 1991 at 2.7 billion Yen, or roughly $22 million. This was a very high value for a residential house but it was used to borrow 13.2 billion Yen from seven banks in 1989. This was roughly $96 million.

15,000% in 34 years so 441.17% per year. Don't know how this compares to London HPI but lengthy commutes feel similar.

[Fairyland]

In Switzerland they have NIRP at the retail level in some smaller banks. Most banks have been very reluctant to increase rates at the retail level and have maintained margins by increasing rates to borrowers, not decreasing them; so, perversely, IRs have gone up not down.

NIRP so far is only small scale so this sort of adjustment is possible but what would be the effect of IRs of -2-3%? At the end of the day i really can't see folk putting up with this; pensions have already been trashed by ZIRP and NIRP at the retail level is, to my mind, outright wealth confiscation and amounts to a negative wealth effect for savers. To my mind the thought that my funds are being confiscated to help some over leveraged idiot live way beyond their means is not only unappealing to me but to many. The pensions aspect is a slow burn issue but not to be underrated; when many of the despised boomer class realize what's happened to their pensions they will not be best pleased; NIRP would put this effect into overdrive.

Yes, what happens if NIRP goes -2/3% . Will banks quietly withdraw tracker rate products and force borrowers to SVR? Wonder if BTL was designed for these rainy days(In case banks can't withdraw)

[crouch]

Yes, what happens if NIRP goes -2/3% . Will banks quietly withdraw tracker rate products and force borrowers to SVR? Wonder if BTL was designed for these rainy days(In case banks can't withdraw)

I actually think NIRP is the last throw of the dice and would not last long if it was implemented to this degree. Also the effective corollary is that a ban on cash would have to take place and I'm not sure this is realistic.

[zugzwang]

Unlike low positive rates or ZIRP, which reduce bank costs, negative rates impose higher costs on commercial banks, which why they haven't worked in Europe. The ECB's balance sheet continued to decline after the introduction of NIRP in 2014 as banks sought to pay down existing loans and extinguish reserves rather instigate new business. Draghi was then obliged to introduce outright QE to counteract the shrinkage but that hasn't really worked either, with consumer inflation still broadly flat or negative.

On its own, NIRP = quantitative tightening.

[TheCountOfNowhere]

[Fairyland]

Unlike low positive rates or ZIRP, which reduce bank costs, negative rates impose higher costs on commercial banks, which why they haven't worked in Europe. The ECB's balance sheet continued to decline after the introduction of NIRP in 2014 as banks sought to pay down existing loans and extinguish reserves rather instigate new business. Draghi was then obliged to introduce outright QE to counteract the shrinkage but that hasn't really worked either, with consumer inflation still broadly flat or negative.

On its own, NIRP = quantitative tightening.

Thanks zugzwang! I am confused though, by entering in NIRP is Japan actually tightening ? Un desired effect? Edited January 29, 2016 by Fairyland

[onlyme2]

I actually think NIRP is the last throw of the dice and would not last long if it was implemented to this degree. Also the effective corollary is that a ban on cash would have to take place and I'm not sure this is realistic.

Huge risks with ban on cash although you don;t have to wonder too much why the cash ban has been muted again - NIRP without would prove increasingly pointless, customers would demand cash the more "nirpy" environments became.

It will also have different effects in different places - if significant sums of cash were present in a system it could trigger wild inflation or hyperinflation in the period prior to cash being banned.

[Up the spout]

15,000% in 34 years so 441.17% per year. Don't know how this compares to London HPI but lengthy commutes feel similar.

It isn't 441.14% per year, ((15000/100)^(1/34))-1 = 0.15878451782 or 15.8% per year. 34 years is a long time.