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Economy even more unbalanced as banks lend heavily to property, but cut business lending
Bank and non-bank lending to business continued to contract in August while growth in lending to the agriculture sector slowed, figures released by the Reserve Bank show. Meanwhile, housing credit lending growth accelerated over the month. The Reserve Bank and Treasury are concerned about New Zealand's economy becoming unbalanced with too much investment in farm land, government and property rather than in private businesses and exporting. Agricredit lending rose NZ$319 million, or 0.7%, in August from July, the lowest nominal increase in agricultural credit since February. Year-on-year growth in farm lending slowed further to be up 13.1% in August from 14.4% in July and over 20% between May 2008 and April 2009. Business lending in August 2009 was down 0.3% from August 2008, the first year-on-year contraction in business credit for any month since August 2003. Business lending fell NZ$506 million, or 0.6% from July.
Meanwhile, housing credit rose by NZ$553 million, or 0.3%, in August to over NZ$165 billion. This compared with growth of NZ$337 million in July from June. Year-on-year growth, which had slowed to 2.8% in July, rose slightly to 2.9% in August. Other consumer credit, which includes hire purchase and credit card lending, has also been contracting since December, with lending falling NZ$86 million, or 0.7%, in August from July. Business lending has now fallen 4.3%, or NZ$3.5 billion, since its peak in December. In that same time, agricredit rose 8%, or NZ$3.5 billion, and housing credit rose 2.3%, or NZ$3.8 billion. Other consumer credit was down 6%, or NZ$773 million. You can find all of our sector credit charts here.
29 Comments
Go NZ go!!!! You've got
Go NZ go!!!! You've got the right idea. You dont need to sell goods and services anymore, you simply create wealth by creating debt instruments for greater and greater amounts of money and then use the debt to buy and sell the same houses - its a proven method overseas, look at the US and UK, Ireland and Spain, and Iceland too. You cant go wrong. In fact we are doing it better than most other countries now except Australia (and the fact that Aus are doing it more than us and are still ok means that its even more fail safe for us). Hooray!!!!! Money really does go on trees.
thats "grow on trees"
thats "grow on trees"
The Reserve Bank and Treasury
The Reserve Bank and Treasury are concerned. Bill English is concerned. But nothing seems to be done :)
Worried about it "becoming" unbalanced
Worried about it "becoming" unbalanced - don't they mean "being" unbalanced?
Why can't these regulators quit beating around the bush?
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Jimmy - funny you should
Jimmy - funny you should mention Iceland:
Iceland one year on: small island in big trouble
http://www.guardian.co.uk/business/2009/sep/28/iceland-crisis-one-year-o...
Ok, so they didn't have the 'Big AuzzyFour' cover that we have, supposedely But as that is gradually ebbing away (it is), how soon before we become another Iceland? How soon before our policy makers wake up?
Les, Agree. The sad thing
Les,
Agree. The sad thing is though, the crap has already hit the fan and the govt response was to steal money from savers via "emergency" low rates and govt guarantees (to go hand in hand with taxation and immigration policies supporting high house prices). We have now created a culture that not only refuses to acknowledge the likelihood of a bust, it now accepts that if the worst does come to play then govt will be prepared to fleece savers and the taxpayers to spread the cost of the bust around. So we have 2 choices:
- speculate with a chance of winning big and losing little
- dont speculate with a good chance of losing lots via inflation on your savings.
Its not a pretty choice, its perverse and an assault on middle NZ. Disgusting.
Kate
You are right - its amazing how in Aus and NZ they are "warning" us that things "could" get as bad as the US and the UK. hmmm - our house prices are twice as much as the US relative to incomes. In Aus the RBA talked again of the "risk" of a bubble forming. WHERE HAVE THEY BEEN FOR THE LAST 15 YEARS????????
Jimmy -we might as well
Jimmy -we might as well give up - I have
these National chaps are just another bunch of f'wits with their own hidden agendas
nothing will be done until its too late, its just the way things are in this cuntry
Woah - go Matt! Love
Woah - go Matt! Love your spelling (last word) - well said! I, too, am wondering what drugs our leaders are on. What do you envisage "too late" to be? What will that look like?
Thing here is Iceland has
Thing here is Iceland has a very, very small exposed economy. That very smallness makes the socialisation of private losses really, really hurt. The new set of politicians are pretty angry reflecting the feelings of most people there.
I think they are lucky, feeling the pain is the only way to deal with the boiled frog, (or Tuatara if anyone remembers what we did in 2007, who was listening then?) syndrome. How long will it take here?
When logical things don't happen follow the money and look for vested interest, if anyone thinks the admissions and give backs in Wellington are no more than scratching the surface, they need to get out more.
Anybody else angry yet?
I am always happier when
I am always happier when I share the lifeboat with people deal with, them being is a different lifeboat always makes me nervous.
Shared destiny is a major force to limit self interested behaviour.
Yes Jimmy, Can the NZ
Yes Jimmy,
Can the NZ govt not learn from other countries, things are fairly crap here in Ireland nearly 13% unemployment, property down 50%.
Everything looks the same in NZ as it did here 18 months ago. Things have got a lot worse here even in the last few months, as the final ebb of money sucks away and the budgets take the last few euro from our pockets to pay for the mistakes of the last 10 years.
Thanks for all the replies
Thanks for all the replies - agree with you all. I'm in Melbourne at the moment, and Aus is facing even WORSE govt policy than NZ. Aside from the tax concessions and low interest rates, Aus has the extended FHOG and even more rampant immigration than NZ. Immigration was not even MENTIONED in the last Aus election - last week the govt came out with the announcement that oh, sorry guys, guess what? our population forecast has been revised and you will now be sharing your country with another 15 million people in 30 years time as opposed to the projected 8 million. Just an accident. Of course it has nothing to do with Labour upping immigration from an already high net 120,000 per year to 190,000 (EXCLUDING NZers and students). So yes good people of Australia, we will import tonnes of immigrants to make our GDP figures look good, pay for boomers pensions, and of course to keep house prices rising while selling out the quality of life that we enjoyed growing up (even though we bleated about unaffordable housing during the election campaign and even said that the FHOG simply raised prices ) .......... sigh!!
So Matt, Aus has its fair share of f'wits as well ... and some really wealthy bankers. No wonder banks in Aus are healthy, their gain our pain.
Veedub - what does "too
Veedub - what does "too late" look like?
It looks like NZ in an unknown number of years - maybe 2, maybe 7. We will be down the tube. We will look back on this year as the lost opportunity to have made the brave calls. Property prices will have slumped becuase of another unsustainable bubble, and we will be even more stuffed than this time around. Our debt will have ballooned.
Pessimistic, I know
This article is more BH
This article is more BH spin.
Housing credit growing by just 2.9% over the last year is not only the lowest growth in credit in 10 years, but it is half of the previous nadir in 2001 which was just under 6%.
Housing credit grew by around 15%PA from 2003 to 2007, so to suggest that current growth of 2.9% is not low and in need of downward adjustment is just nonsense.
You must remember that home loans are generally over longer terms so that expecting housing credit to decline is unrealistic. Conversely business lending is over shorter terms so more principle is repaid each year hence a decline in business lending is not an unlikely event. Combine this with loans to developers not being renewed once the debt is repaid and the decline in business lending doesn't seem that unreasonable and is probably on par with the decline we've seen in home lending.
BH and co fail to realise the economy IS rebalancing right now and the recovery will occur while BH is still doomsaying and anyone who gets caught in his spin will miss the upturn in the next business cycle.
Kiwi's just don't care as
Kiwi's just don't care as shown by the big Sunday New Mortgagee news not making the "top 10 most hit news". A good article, but ver rare. Or the fact media don't pass on the worldly bad news, which BBC & Fox cover much better. Considering both Tv 1 & Tv 3 business news tonight was 30 second of blan sharmarket and NZ$ news. What about the full business news of past please, the success and failures stories out there both in NZ and internationally to inform the punters.
Then Kiwi's may heed warnings if they were in the public eye.
Jimmy Yes, and if one
Jimmy
Yes, and if one even dares to criticise liberal immigration policy you tend to get looked at as if you are a Pauline Hansen sympathiser!
I was reading about an interesting idea put forward by commentator Owen McShane. Basically it went like this. Remove, or heavily reduce Council development contribution charges, and allocate a proportion of GSTt revenue (assuming higher GST rate) to regions proprotionate to how much GST revenue that region generates. The revenue would go into funding infrastructure. The theory being that development would become cheaper and so would housing.
Chris J - the economy is hardly rebalancing. In fact I would suggest it is returning to its bad old ways after a flirtation away from the property obsession
@ Chris_J - are you
@ Chris_J - are you saying that things are alright and we're heading into a growth period or something??? Hopefully you've been smoking something or have had too much to drink - if niether I can only assume you are a banker or in real estate.
I don't consider the article BH spin its just a list of facts presented to the readers. If you honestly think there are green sprouts coming up you are going to be sorely disappointed in 18mths time as we start into an extended period of deflation in NZ - read Japans lost decade. There is no economic "rebalancing" happening in NZ mate because the polies are too bloody scared to make the hard calls - rebalancing will come when deflation sets in and it will basically wipe the bubble and the savings of a majority of Kiwis out.
As "Mat in Auck" says we are returning to our bad old ways of housing bubbles and buying and selling houses amongst ourselves adding absolutely no value to our economy and getting us as a country further into the red. As we have relinquished control by doing nothing because we're too f**%ing dumb or weak to deal with it ourselves its going to happen anyway without us in control and the country is going to be economically devastated and it ain't going to be pretty. There will be opportunity there but it is going to be for the elite and certainly won't be for NZ families.
"banks lend heavily to property,
"banks lend heavily to property, but cut business lending"
Why?
I have read a lot of assumptions and therories....
Could it be because business tends to be over leveraged? or private assets (homes) are over leveraged to borrow against for business?
Or with the down turn business cash flows are not high enough to support more borrowing?
Or a great proportion Business sees a slow down, dont see opportunities (if they exist at this point in time) and have no interest in risky expansion?
Surely these are some of the questions a good investigative reporter would be looking into?
The reason the lending into
The reason the lending into the housing bubble is continuing and increasing, is because the bubble will pop big time if the money flow dries up. It is a wheel of doom they cannot get off. Declining property values will slam into bank balance sheets and rates will shoot higher still, driving the decline down and down. A spiral of death. The useless 'do nothing' govt is in no position to bailout the stupid banks. The IMF would be called in overnight and impose rates near 20%. The policy is to run with bullshit and spin in the hope that enough stupid but rich migrants will rush in to save the day by buying up the grossly overpriced land and rubbish housing, thus injecting much needed cash to pay back the bank debt. No such bloody luck when the rest of the western world's property has and still is collapsing in value. The rich, if they survive, will stay put and pick up bargains at home. So the outcome has to be property prices going up and up until the fateful day arrives when....it all turnds to sh..
I agree Wally, we have
I agree Wally, we have been "exporting" high end houses and land to new residents and non-residents for many years, based on a low exchange rate. If the exchange rate does collapse as the manufacturers would like then watch out for another house price boom.
A low exchange rate will surely give us jobs, but jobs mowing the lawns and cleaning the houses of our new landowners, so be careful what you wish for.
I can only hope we find a way to continue to muddle through.
Fat chance Roger. It's become
Fat chance Roger. It's become a case of finding your own way through the nightmare.
The whole economy is so much like one of the thousands of rotting buildings. From a distance all looks great. Closer inspection not advised on grounds of safety! All set for two decades of nil growth but some serious increases in taxes. Who the hell would invest in this nuthouse?
Its actually possible housing lending
Its actually possible housing lending is decreasing, if small businesses are being funded by home loans.
Either way, I actually agree with Chris J that the economy is rebalancing. It's not, IMHO, doing it anywhere near fast enough so we'll suffer for it later, but later could be 1-10 years away. House prices must reflect the ability to pay through an interest rate cycle, and they pretty much don't at the moment.
CBS68, I think you've fallen
CBS68, I think you've fallen into BH's washing machine and are stuck in his spin cycle!
Why is this time always different?
Do some of your analysis and you'll see that the spin isn't all it's made out to be.
Take for instance the price of an average suburban home in 1990, then find what that exact house is worth today if it's in roughly the same condition (just maintained not renovated), you'll see that apart from suburbs where there has been a seismic shift in the demographic of home owners (such as Ponsonby, Grey Lynn etc) that most homes have only doubled over this time which is around the same or less than what wages have done.
The indices have risen so much further because new houses being built are so much larger and expensive then existing homes, a vast number of homes have had a large amount spent on renovations, and a large number of areas have seen demographic changes as cities have centralised driving prices upwards.
Like for like prices are not particularly out of line, and if they are, inflation will cure it over the short to medium term.
Those who bandy round figures decrying the current account or house prices as reasons for this time being different are just plain wrong.
Japan has a falling population and it's dependence on exporting has probably been more of a hindrance than a blessing given the volatility of global demand and competition from China, it's just not a reasonable comparison to NZ's current situation.
Everything comes out in the wash even if Bernard's still stuck in the spin!!
"Japan has a falling population
"Japan has a falling population and it's dependence on exporting has probably been more of a hindrance than a blessing given the volatility of global demand and competition from China, it's just not a reasonable comparison to NZ's current situation."
Yes, the Japan comparison is always easily dismissed, but there are some interesting points to consider:
-- In central Tokyo, the population has been rising and expat foreigners make up 10% of the population in the most exclusive districts. Incomes would be among the highest in the world and the economic output and productivity would humble that of small countries. Yet.... property prices are still falling. Could NZ claim to have the same quality of people, income expectations, and sheer economic productivity in an urban area where I think it can be seriously claimed to be a constricted supply or property? Where does NZ get off on its self-importance?
-- Japan has remained a net saver even 20 years after deflation. I couldn't tell you when NZ was last a net saver, but I can tell you that Japanese investors have indirectly fueled the property boom. Excuse me for looking at things so simply, but what would that tell you about the sustainability of the NZ property market when it is partly bank-rolled by a supposedly failed state?
-- Regarding China, why is that a hindrance to Japanese exports? Quite the opposite, China has been a source of cheap imports to support a country where incomes have been steadily falling.
NZ has a lot to learn from the Japanese. Learning to live within one's means is a start. How not to get sucked in by asset bubbles is probably second on the list.
Wally, I like the 'Wheel
Wally, I like the 'Wheel of doom'.. sums it up perfectly in fact, because our economy is based on the paradigm of perpetual growth, and as long as all aspects of the economy grow/expand/inflate at roughly the same rate the whole thing manages to keep going.
Our economy is today clearly out of balance, some areas are contracting, others staying still, and others inflating.
Bottom line is that unbalanced = bad. As for the paradigm of growth, that's a whole different discussion.
Chris_J, "Take for instance the
Chris_J,
"Take for instance the price of an average suburban home in 1990, then find what that exact house is worth today if it's in roughly the same condition (just maintained not renovated), you'll see that apart from suburbs where there has been a seismic shift in the demographic of home owners (such as Ponsonby, Grey Lynn etc) that most homes have only doubled over this time which is around the same or less than what wages have done."
We have been through this before and have shown your figures to be wrong on all counts. Allowing for long term interest rates (round 8 %), aside from the nov 07 peaks it has RARELY been a more expensive time to buy. The ONLY times it has been SLIGHTLY more expensive is when interest rates were near 20%, but as outlined before and using your stats we illustrated how houses VERY QUICKLY became affordable again via high inflation adjusted income rises AND interest rate falls. We are now in a HIGH DEBT LOW INFLATION environment with our backs to the wall. We can expect neither big wage rises OR massive long term rate falls to assist us. We have our backs to the wall.
In addition your stats relied on household income, which many would argue is a bad measure of affordability as households working more hours now does not make something more affordable, it just means we have had to work more to afford it. And what next?? Send the kids out to work? Mum and Dad BOTH get second jobs.
"The indices have risen so much further because new houses being built are so much larger and expensive then existing homes, a vast number of homes have had a large amount spent on renovations, and a large number of areas have seen demographic changes as cities have centralised driving prices upwards. "
You will find the indices for land prices are just as dramatic as for houses.
Not much of a story
Not much of a story here, house lending growth in line maybe slightly below population growth neither being frightening figures. The fact business lending is down in a recession should come as no surprise, business owners will need to see a rise in demand before making any investment. Prudent thing to do as evidenced by the results season on the sharemarket is companies paying down debt and get the rewarding shareprice lift that results. Go Pumpkin patch, de-stocked, de-leveraged and withdrawn from unprofitable markets.
I would guess the debt reduction from Sky City and a couple of others over the last 6 months would be in excess of the above published stats.
Jimmy As usual your arguments
Jimmy
As usual your arguments are rubbish, you don't know what your talking about! Looking at stats is only half the picture.
I'll illustrate my point with a couple of examples: a regular late 1960's house in an average/good suburb of Chch in 1991 say was worth $140-160,000. Today it's worth $260-320k - about double NOT triple as the average is.
An executive near new home in 1991 in an above average suburb of Chch worth $220-240,000 would be worth $380-420k now - well under double.
A standard smaller house in an average/lower end suburban location was worth around $80-$110k in 1991 now it'd be worth $190-240k - a little bit more than double.
But try a villa in a now fashionable location and it's probably quadrupled from $85 to $350k.
Or an inner city converted house on a 1/4 acre worth around $80k in 1991 but now worth $600k.
Most suburban houses haven't actually increased any more than wages (about double) over the past twenty years and when you consider that they fell in price relative to wages between 74 and 91, you will see that today's prices are not far off a realistic level.
All the moaning about the need for rebalancing is unwarranted - the problems will sort themselves out - Jimmy we're already through the worst it's recovery mode now! (Looks like you've missed the bottom if you were going to be entering the market!)
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