COMMENT: I’ve never really understood the dynamics of what makes a stage show work. And yes, surprisingly, this is a topic to which I’ve devoted considerable attention over the years, having written three musicals of my own since 2005.
So it’s with genuine interest that I reflect on why some absolutely awful stage shows (think Cats) continue to attract audiences while others fail to fire with the fickle theatre-going public.
A good example of this would be the Broadway stage musical version of the 1993 movie Groundhog Day, which I went to see in 2018, when I had a free afternoon in New York. The show was excellent, but it closed two weeks later having never caught the public imagination, which was a pity because its lessons go well beyond the entertainment value of the show.
Fortunately, the movie, which starred Bill Murray and Andie MacDowell, continues to be a classic. If you haven’t seen it, it tells the story of weatherman Phil Connors who becomes trapped in a time loop which forces him to relive the same day – Groundhog Day – thousands and thousands of times.
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After initially fighting this unusual reality, Connors eventually comes to terms with it and decides to heed the lessons learned from repeating an event, ultimately mastering ice sculpting, the piano, the trumpet, dancing, and a range of other skills which allow him to win the heart of his love interest.
Sadly, and despite much of what we experience being templated on events which repeat themselves, many of us don’t learn the lessons of our own versions of Groundhog Day. Instead, we repeat the same mistakes in relationships, in our careers and businesses, in matters of health and in matters regarding money and property.
We’re seeing this play out, right now, in our response to the Reserve Bank’s decision to raise the Official Cash Rate to combat inflation - an action which is leading to higher mortgage interest rates and has caused anxiety in the property market as we all come to terms with what this could mean to house prices, the economy, and our own personal circumstances.
Ashley Church: “Perhaps we need to take a chill pill in respect of the headlines we’re reading.” Photo / Ted Baghurst
But like Phil Connors in Groundhog Day, we’ve been here before and, if we’re prepared to learn the lessons from last time, perhaps we can anticipate much of what will happen over the next two or three years?
So, when was the last time that the Reserve Bank took actions similar to those that we’re experiencing right now?
Between 2004 and 2005 and in 2014.
Starting in 2004, following a spike in inflation to 2.5%, the Reserve Bank increased the OCR by 1.5 percentage points in 2004, and a further 0.75 points in 2005 – finally getting inflation under control toward the end of that year. Again in 2014, following a spike in inflation, the Reserve Bank increased the OCR by one percentage point over the course of that year, this time, getting inflation under control within 12 months.
As a result, two-year fixed mortgage interest rates increased from around 6% to over 9% in 2008 – and the floating mortgage interest rate went from around 6.5% to 7.5% between 2014 and 2015.
So what happened to house prices over those same periods? Surely they plummeted in the wake of higher interest rates? Well, actually they didn’t. There were a few market niggles, of course – just as there are now - but between 2004 and 2008 median house prices basically just kept going up, increasing from $245,000 in 2004 to $349,000 in 2008. The same thing happened between 2014 and 2015 with median house prices going from $402,000 to $465,000.
To be fair, house prices did start dropping in 2008, but that had nothing to do with mortgage interest rates. It was caused by the Global Financial Crisis which hit the world in that month and, even then, unlike other nations where housing markets were devastated, the Auckland market bottomed out 8.6% below its 2008 peak and sat there until around 2011 when the market took off again.
So am I saying that the same thing will happen this time? Not necessarily. But while there are some contradictory numbers currently being quoted, the script we’re following is still well within the 2004 and 2014 parameters, so perhaps we need to take a chill pill in respect of the headlines we’re reading and see how this thing plays out. After almost six months of predictions of doom and gloom the best numbers seem to indicate that we’re seeing small decreases in house values in some parts of the country and small increases in others.
Whether things will play out in the same way that they did the last time we were in this position, only time will tell, but for now, there’s enough similarity in those events to make it wise to take a wait and see approach.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
