Here are the key things you need to know before you leave work. It's a public holiday in the north of the North Island today, but normal business everywhere else.
MORTGAGE RATE CHANGES
No changes to report today.
TERM DEPOSIT RATE CHANGES
No changes here either.
JOBS MARKET TIGHTENS FURTHER
Data released today by StatsNZ shows that the economy is still adding more jobs, and labour market pressures are becoming more stressed. It is now up to 13 months of continuous jobs growth, the longest run in more than 20 years. Earnings rose more than 7% over the past year with the pace quickening near the end of 2021. The upper North Island posted strong job growth results, with job numbers in Northland up 5.3%, Waikato up 4.7%, and Auckland up 4.2%. Wednesday's unemployment data for December is now more likely to be very low, possibly close to 3.0% (consensus 3.3%, vs 3.4% in September. December data in Australia is 4.2%, in the US 3.9%).
THE HOUSING DEBT TREADMILL IS SPEEDING UP
Total housing debt hit almost $331 bln at the end of December, +10.5% higher in 2021 than 2020, or +$31.5 bln. In 2020 it rose +8.3% (+$22.8 bln), while in 2019 it rose 7.0% (+$18.0 bln). More here.
MORE DEBT ON THE CHEAP
The amount of interest homeowners paid to banks in 2021 was $ 9.5 bln, the lowest cash cost since this metric was made available. It peaked at $11.9 bln in 2018, so that is an annual reduction of $2.6 bln for homeowners in this period. These reductions were easy, and probably fueled the debt demand. Going back up with the higher amounts owing will be relatively more painful.
FHBs TAKE LARGER MARKET SHARE
First home buyers won 20% of all residential mortgage commitments in December and almost (but not quite) the highest share on record. Investors won a bit less than 17% and the lowest on record. The rest, 63%, were for existing owner-occupiers bulking up their housing debt (which is slightly more than average over the past seven years)..
BUSINESSES LIKE BANK DEBT, FARMERS NOT SO MUCH
Meanwhile, the expansion of bank lending to businesses is back to pre-pandemic levels in December. However, rural debt continues to retreat and is back to mid-2018 levels - although it is not possible to tell whether that is because farmers are paying down their positions, or banks are tightening their criteria. Given the high prices farmer are getting for their output, it is probably skewed to the former. Banks like to lend.
AUSSIE DEBT RISES
Private sector debt in Australia rose by +0.8% month-over-month in December 2021, after an upwardly revised +1.0% increase in November. The growth of business debt growth slowed and housing debt growth was unchanged. Meanwhile, personal debt fell -0.8% on that same month-on-month basis. Over all of 2021, private debt rose +7.2%. With consumer inflation running +3.5% and PPI up +3.7%, their 'real' debt growth is a bit over +3% pa.
MOMENTUM FAILURE
Both Japanese retail sales and Japanese industrial production data for December disappointed. Retail sales rose - just - from December but industrial production fell on that basis. Perhaps the recent 'green shoots' were premature.
LOCAL PANDEMIC UPDATE
In NSW, there were 13,026 new community cases reported yesterday, similar the prior day, now with 143,219 active locally-acquired cases, and 27 daily deaths. There are now 2,779 in hospital there, off their high. In Victoria they reported 10,053 more new infections yesterday. There are now 76,335 active cases in that state - and there were 8 more deaths there. Queensland is reporting 7,462 new cases and 3 more deaths. In South Australia, new cases have slipped to 1953 yesterday with 15 more deaths. The ACT has 537 new cases, and Tasmania 504 new cases. Overall in Australia, about 33,500 new cases have been reported so far although not all counts are in yet. In New Zealand, there were 39 cases stopped at the border, plus 91 new cases reported in the community. The average age of current hospitalisations is now 54.
GOLD LOWER AGAIN
In early Asian trading, gold is at US$1789 and down -US$3 from this morning.
EQUITIES MIXED
In very light trading today, the NZX50 is up +0.7% near its close. The ASX200 is down -0.4% in early afternoon trade. The S&P500 futures suggests Wall Street will open lower by -0.3%. Tokyo has opened today up +0.5%, Hong Kong has opened down -0.2% for truncated trading before their holiday close, while Shanghai is closed this week for Chinese New Year.
SWAPS ON HOLD
We don't have today's closing swap rates yet. They are likely to be a little-changed. The 90 day bank bill rate is unchanged at 1.10%. The Australian Govt ten year benchmark bond rate is still at 1.92%. The China Govt 10yr is still at 2.72%. The New Zealand Govt 10 year bond rate is now at 2.58% (down -3 bps from this morning) and back slightly below the earlier RBNZ fix for that 10yr rate at 2.63% (down -3 bps). The US Govt ten year is now at 1.80% and up +2 bps from this morning.
NZ DOLLAR HOLDS LOW
The Kiwi dollar is holding from this morning at 65.5 USc. Against the Aussie we are holding at 93.6 AUc. Against the euro we are also holding at 58.7 euro cents. That means the TWI-5 is now just on 70.6 and marginally changed but still at a 14 month low.
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BITCOIN SOFT, ZUCKERBERG DUMPS LIBRA
Bitcoin has slipped slightly today and is now at US$36,866 which is down -2.6% from this morning. Volatility over the past 24 hours has been moderate at just over +/- 2.1%. Meanwhile, Facebook sold off their failed digital coin project Diem/Libra after three years of headaches.
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55 Comments
RBNZ C31 was released today at 3pm, to cover lending for December.
2624 First Home Buyer borrowers in Dec 21 down from 2959 in November 21.
Dec 20 = 3338, Dec 19 = 2732, Dec 18 = 2295.
Thanks for that.
I imagine the FHB number will be down to about 1800 by March.
Interesting to see the big bump in investor activity in December 2020, I guess a product of reduced OCR in 2020 and prices significantly lower than they are now.
Wasn't there some sort of tightening of LVRs for investors in early '21 with anecdata around investors rushing to buy before the restrictions?
That's a bit selective. Every category is falling:
For December 2021 / 2020 / 2019 / 2018
FHBs = 2624 / 3338 / 2732 / 2295
Investors = 2493 / 4995 / 3362 / 2738
OwnerOcc = 14,708 / 20,024 / 17,963 / 16,933
On that basis FHBs are down -21% in Dec 21 from Dec-20, Investors are down -50% and Owner Occupiers are down -27%.
So FHBs are down the least of these categories.
Wow!
First Home Bagholders.
You ever got anything constructive to say Brock rather than slag people off?
Yes. I am very pleased that you have been triggered... again.
Haha, I rest my case. Aren’t you meant to be heading off to the armpit of Australia?
Not much of a case. No, only to the elbow.
Seems concerning the massive drop off from investors. These are (usually) professional types that at least have their accountants run the numbers for them. As opposed to FHBs who buy to try and get on with their lives. So the numbers clearly aren't working for investors... which should scare everyone away...
Purely anecdotal I know, but it's been interesting seeing a couple of the bigger "investor box" developer companies down here in Christchurch start advertising for marketing staff.
These properties used to sell themselves, so maybe now they actually need to put some work in to get sales if investor demand is drying up?
Why would anyone even think about investment property now? *
Yields are rubbish, interest rates are rising, tax benefits have decreased and it's likely house prices will fall (*potentially* a lot).
A huge amount of supply is coming online too. About 25% of townhouses that have been finished in the next stage of our development are rentals, and in the two weeks they have been advertised for rent hardly any of them have been let.
*The answer is some people have a religious and unquestioning belief in the power of property investment.
A well established builder, at it for over 30 years, we know has shied away completely on building spec. Used to always have a couple or so every year or two, on the go, in between contract work. He says the escalating cost of building materials, the delay in getting them makes such projects too open ended, too uncertain. And if the housing market does undergo a significant “correction” he might easily end up building a house for more cost than it would be worth on the market completed. The times they are a changing.
Not to mention the likely CGT, wealth or land tax when the Greens are required by Labour for coalition next election.
Can you not hear it now. “Coalition necessity. That’s how MMP works don’t you know.” Same ploy & play that the Clark & Cullen lot slid through behind the skirts of Jim Anderton, the great tax grab on top of the GST they had been signatures to, in the Lange/Douglas lot.
Excellent point. Labour are likely to desperately need ths Greens at the election.
But then,it might be moot if they don't win.
House Mouse
You've omitted one serious consideration: Have you considered the possibility that in these uncertain times those with surplus money would prefer to hold that surplus in real estate rather than the bank. They think that Real Estate might be more secure than a bank account.
I know of one person who is thinking this way right now...he is sitting on a nice home unit that has been empty for over 2 years because he doesn't trust the banks and won't rent it out because it was renovated two years ago and having been burnt by trashing tenants once before he realizes that even a tenant who is not up to regular housekeeping can cost the landlord tens of thousands of dollars in getting the place redecorated after they leave.
Sure, but I don't think it's necessarily a great strategy nor one without risk.
Also, the number of people with sufficient wealth to execute it is limited.
Agreed. The changes at 2-3% are almost exponential. The. Hange between 8-9% less so. All that before you add principal repayment in.
I will tell you why - and it is not some kind of "religious and unquestioning belief in the power of property investment".
It is to avoid ( or mitigate ) confiscation of their saving by the state , through money printing and resulting inflation.
For some - sure - but a minority. Most investors need rental income to stay afloat.
You don't think an almost religious zeal about property investment exists?
If so, we clearly have very different views of the world.
Go back a bit. For example Securitibank, JBL, Broadbank, amongst heaven knows how many others. Then think about the good Dr Cullen bewailing NZrs investing in property instead of equities. And only days later his protege, Mr Cunliffe gleefully announces the gutting of Telecom, thus wiping $000’s off the 000’s of mum & dad investors who had been persuaded to rely on that as a blue chip investment. Is it then any wonder that NZrs have found property to be a safe haven investment. And in that aspect they have been dead right haven’t they!
Yep. But I'm looking forward from here, not back.
Good on you too! But you asked a rhetorical question intimating an over zealous element in NZ society, an obsession with property investment. My point is that there are good reasons historically for this direction that have basically encouraged this outcome. Even if it should happen that some are in for a fall back, I would expect that there will eventually be recovery and resumption.
Interesting.
Investors should very carefully think about buying crappy 'dime a dozen' shoeboxes. Quite likely that their value won't hold up very well in the next 5 years.
A better bet will be the higher end townhouses (larger, with better storage etc) in good locations near train stations and employment. But of course these are pricier and yield is likely to be lower.
But I would think very carefully about the crappier end of the market, 2 bed 60 square metre terrace houses in the middle of outer suburbia. 4% yield (gross) is pretty typical and also pretty average, especially when the value of the property might be no higher than now in 5 years.
I've been saying for ages, as interest rates rise, investors will be hit the hardest. Far higher proportion of investors use Interest Only loans, and these are far more sensitive to interest rates.
“These are (usually) professional types that at least have their accountants run the numbers for them”.
Maybe true a few years back but I have seen plenty of people jump on board the gravy train in recent times with no idea other than the mantra “It’s property, you can’t lose”.
Great little snapshot thanks.
Big dropaway isn't it? Especially the investors
Apologies yes I focused solely on FHB as the noisiest narrative out there at the moment is the impact on FHB.
Compared to Dec 20 yes they're down, but not far off Dec 19.
Also the highest percentage of FHB against total borrowers since as far as C31 goes back.
Did anyone go to auctions over last week would be interesting to see if prices are holding. If investors are starting to drop out of market it would be telling sign not all good for market once rates go up sales will totally tank 25400 on trademe today Auckland near 10000.
Investors have been dropping out since Oct, possibly even before then. Most people don't understand how big their tax bill will be once the tax changes kick in over the next few years (and immediately for new investors).
Good. One of the few good things the government has done.
Mind you, watch for unintended consequences if immigration takes off again, and in 3-4 years there is a lack of rental.housing...
Or how hard it will be to pass on costs when moving from Interest Only to P & I.
E.g. a Landlord with $500k mortgage at 3% interest only pays $15k per year in interest ($288 per week). Being dumped on to P & I for the remaining 20 years increases the payments to $639 per week.
Exactly. And 40% of investor loans are interest only. Add to the mix rising interest rates and tax deductibility being phased out, and it will really start to squeeze the cashflow position for those who are over leveraged.
Welly market has slowed. Fellow worker listed house, standalone 3 bedroom on small flat section, and first open home last weekend had three people through it , agent advised not much interest.
And can't really say it's the holiday lull once you get to about 25 January.
Yes, Welly has slowed. FHB can't afford houses that are now 25% more expensive than a year ago and investors have realised leveraging up with debt is no longer the golden egg. Labour's levers are starting work. It's sadly taken far too long.
What would happen to the Wellungton market if National were elected and cut bureaucracy staffing levels by say 25%?
Carnage, I suspect.
Not necessarily as national will also reverse all of labours tax changes and then investors will pile in again.
Nope. They will keep them. Willis will see the changes are working.
Can you elaborate on why you are so confident of that? The Nats are supposed to be the great friends of investors.
Because I rate Willis. I believe she genuinely cares about fixing the housing crisis. Labour have handed National a tool National wouldn't have had the courage to implement.
You are naive.
That's how I felt about Key when he was first elected. His emails to me about 'sorting out the housing mess' seemed genuine back in 2007-2008!!!
Ouch. That felt unnecessarily harsh.
Nothing, cause just like last time those people would end up earning more when they got hired back as contractors. National doesn't ever significantly cut staffing levels, just changes the language to describe the staff.
Good point, and that's quite accurate. They are 'phoney rightists' just as Labour are 'Phoney Leftists'!!!
National are potentially incompetent phoney rightists.
With respect to Labour we are sure.
Dp
"First home buyers won 20% of all residential mortgage commitments... won a bit less than 17% and the lowest on record."
Measuring market share in terms of mortgage amounts is problematic. You will have to assume that everyone needs the same amount of leverage to procure their shares in the property market.
For the purpose of identifying changes in groups, a better way is to measure is the number of borrowers to negate the effects of leverage requirements to maintain the principle of all things equal.
Based on the last 7 years, there are no outliers in the number of buyers in all groups except the owner occupiers which saw a dip in April 2020 when the country went shutting down due to the pandemic.
The concerns about first home buyers over-leveraging themselves for the current situation is uncalled for. For the past 7 years, first home buyers have maintained a consistent loan to ratio (LVR) trend (ie. there's no dramatic increases in more FHBs going over 80%).
And talking about trends, there is a negative relationship between first home buyers and investors.
The market is running as it should for the last 7 years, concerns about FHB over-leveraging is unfounded and if we want more first home buyers, we should be celebrating the fact that there is a moderate decline in investor activities.
Summer is here!
I read it all and thought it made no sense whatsoever, then i read who wrote that and understood.
Have a good summer
Interesting that, according to The Guardian, the majority of 'leading economists' in Aus don't think their reserve bank will increase interest rates much in 2022. Totally different narrative to NZ.
In my subjective opinion, the ruling elite across the Anglosphere would prefer to lean towards financial repression than large-scale asset price falls. Therefore, they will do everything in the power to delay interest rate increases.
Yep.
Yep , pretty convenient to let inflation run off when govts and privates are in so much debt .
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