What happened Friday

Business / news

A review of things you need to know before you go home on Friday; more retail rate hikes, bankers see mortgage demand wane, lifestyle property demand weak, swaps up, NZD down, & more

[updated]

22nd Apr 22, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
Kiwibank raised most of its fixed rates today. More details here. TSB also raised rates. The Police Credit Union raise both its fixed and floating rates. Update: SBS Bank did too.

TERM DEPOSIT RATE CHANGES
BNZ and Kiwibank both increased most of their term deposit rates by between +10 bps and +25 bps.

BANKERS SEEING MORTGAGE DEMAND WANE QUICKLY
Credit conditions got tough in the latest RBNZ Credit Conditions Survey of 12 registered banks including the five largest. It is a survey they run every six months summarising the availability of credit and the willingness of households and businesses to use it.. This latest one finds a significant reduction in demand for and availability of household debt due primarily to tighter LVR and CCCFA restrictions. Banks also expect demand for housing debt to continue to decline over the coming months. And demand for consumer lending is expected to fall given low consumer confidence, the pandemic, and rising interest rates. Although it has changed technically over the period, the observed change for mortgage demand over the past 6 months has never shifted down as much as recorded in March 2022 than any time since 2009.

LOAN DEMAND SHIFTS TO BUSINESSES
Demand for business lending, including for agri-business, rose in this same RBNZ Credit Conditions Survey. But it isn't even. Loans for commercial property projects are going south too.

ONLY DAIRY FARMS ATTRACTING GOOD DEMAND
Farm sales activity was weak in March although the dairy sales activity bucked the trend.

AVERAGES TWIST THE LIFESTYLE BLOCK STORY
Lifestyle property sales continued to ease in March and down to the March 2019 lows. But as sales drop, the ones left selling are the better ones and so that is raising the average selling prices.

THE GOOD EXPANSION ROLLS ON
Australia's businesses are still expanding at healthy levels. Their private sector recorded a third straight month of growth, according to flash PMI data. Both output and demand expanded at strong rates in April, leading to the continued expansion of workforce capacity. Supply constraints persisted, however, contributing to record input cost inflation while backlogged work also rose solidly.

JAPAN GETS SOME INFLATION
Japan finally seems to be getting some [minor] inflation. Consumer prices rose by +1.2% in March, the most since October 2018, after a +0.9% gain a month earlier. The latest figure marked the 7th straight month of annual inflation, with food prices rising at the fastest pace in over 5 years at +3.4%.

JAPAN'S FACTORIES HOLDING THEIR OWN
And the flash April PMI for Japan brought signs their economy is expanding this month. The latest data showed that Japanese private sector activity improved at a sharper rate. Services companies recorded an expansion in activity for the first time since last December, while manufacturers saw output levels rise for the second successive month. April data signaled the sharpest expansion in four months, though the pace of growth was only marginal, to be fair, mainly because new order levels weren't growing. But it is better than a contraction.

GOLD HOLDS
In early Asian trading, gold is down -US$2 from this time yesterday at just on US$1951/oz. Proportionately silver is weaker.

EQUITIES LOWER
Wall Street ended their Thursday trading for the S&P500 down -1.5% which wiped out all the gains for their three-day week so far. Tokyo has opened down a sharp -2.5% in late morning trade, also giving up most their their prior gains. If trading ended here they would only have a +0.5% weekly gain left. Hong Kong is down another -1.1% in early Friday trade and heading for a -4.7% weekly loss. Shanghai is up a minor +0.3% in their early trade today, but that essentially cements in a -3.0% weekly retreat. The ASX200 is down -1.6% in afternoon trade and tipping them into a weekly loss of -0.6%. The NZX50 is down -0.3% in late trade but could end up a minor +0.1% for the week.

SWAPS HIGHER
We don't have today's closing swap rates yet. They are likely to be up sharply again today in a steeper bias responding to offshore strength. The 90 day bank bill rate is up a further +2 bps at 1.96%. The Australian Govt ten year benchmark bond rate is up +8 bps from this time yesterday, now at 3.14%. The China Govt 10yr is unchanged at 2.87%. And the New Zealand Govt 10 year bond rate is up +9 bps at 3.59% and still above the earlier RBNZ fix for that 10yr rate at 3.53% (up +7 bps). The US Govt ten year is now at 2.97% and up +10 bps from where we were at this time yesterday.

NZ DOLLAR DOWN
The Kiwi dollar is now at 67.2 USc and more than -½c lower than this time yesterday. Against the Aussie we are marginally firmer at 91.3 AUc. Against the euro we are also -½c lower d at 62 euro cents. That means the TWI-5 is now at 73.4, and down -50 bps from this time yesterday.

BITCOIN SOFT
Bitcoin is softer, now at US$40,531 and down -2.6% since this time yesterday. Volatility in the past 24 hours has been quite high at just under +/-3.9% but generally in a downward direction.

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63 Comments

by RickStrauss | 22nd Apr 22, 4:10pm 1650600649

This latest one finds a significant reduction in demand for and availability of household debt due primarily to tighter LVR and CCCFA restrictions.

Weren't CCCFA restrictions most complained about then relaxed?

Wonder if the requirement for taking a measure of personal responsibility is curtailing lending. Shouldn't be, given all lending was completely responsible and prudent previously anyway.

by HouseMouse | 22nd Apr 22, 4:59pm 1650603580

It's funny that they don't mention rising interest rates as killing demand - because they are.

by JimboJones | 22nd Apr 22, 6:57pm 1650610624

Plenty of prudent and responsible lending is probably disallowed by the CCCFA. For example we often were at the top end of debt to income ratio solely because we had a stay at home mum who was eventually going to go back to work. But we had plenty of equity and were of no risk to the bank. But of course the do gooders that wrote the CCCFA rules know more about our situation than we do.

by Nzdan | 23rd Apr 22, 12:10am 1650629441

To be fair, your partner's intentions to go back to work really don't cut it. Been there, done that. My wife is a registered and qualified teacher and even then that wasn't enough 5 years ago when she was on maternity leave (prior CCCFA).

But at least you have your equity (paper gains) to back you up.

by Zen20 | 23rd Apr 22, 8:19am 1650658769

Try looking at it the other way : you have dodged a large bullet

by andrew6 | 22nd Apr 22, 4:38pm 1650602306

Interesting Analysis :

https://thekaka.substack.com/p/the-dirty-little-secrets-inside-our?toke…

by RickStrauss | 22nd Apr 22, 4:46pm 1650602818

Quite the indictment of the greed that has caused the mess NZ is in.

by Erant | 22nd Apr 22, 4:47pm 1650602850

Yes, I particularly like this bit:

"The guts of the problem is that home buyers have been frenzied and full of FOMO because they know the way to get ahead in Aotearoa-NZ these days is to fight like the devil to get ‘on the ladder’ to start earning those juicy (unearned really) leveraged tax-free capital gains, safe in the knowledge the Government and Reserve Bank have their backs and the renters don’t vote enough to remove the key incentive: the lack of a capital gains or wealth tax."

by chebbo | 22nd Apr 22, 5:13pm 1650604398

Hickey sits squarely in the "don't hate the player, hate the game" camp. He thinks that the government and RBNZ somehow have the capacity to underwrite the entire NZ housing market, and while he acknowledges that this is the root cause of many problems, he truly believes that this is what they have done.

So no need to feel guilty about "those juicy... tax-free capital gains". You're simply doing what any rational person would do; taking advantage of an unfortunate, but unavoidable, situation.

by RickStrauss | 25th Apr 22, 8:57am 1650833836

Unless you're one of the people who shrieked against capital gains tax to prevent it being introduced. Then you're a problem.

by Brock Landers | 22nd Apr 22, 5:28pm 1650605305

A bunch of people that FOMO'd are about to provide a practical demonstration of how leverage works both ways.

It may be that the only purpose of their life is to serve as a warning to others.

by Hamish | 22nd Apr 22, 7:19pm 1650611948

And for some it's just really bad luck and bad timing.

I made the comment a while back, wondering how many young FHB were burnt by getting sucked into the Kiwibuild hype, registering their interest, and ultimately sitting on the property market sidelines for how ever many months waiting for something that never eventuated.

by Gummy Bear Hero | 23rd Apr 22, 8:00am 1650657634

... they will be praying that inflation stays above bank interest rates , and erodes their debt away ...

So long as Robbo remains as Finance Minister , their prayers will be realised ... he's truly out of control , spending like a drunken sailor ..

by Baywatch | 22nd Apr 22, 7:19pm 1650611995

Sprukers like Printer very quiet these days?

by Baywatch | 22nd Apr 22, 7:20pm 1650612012

by HouseMouse | 22nd Apr 22, 5:13pm 1650604393

It's a pretty good article, but I'm not sure if he's got everything right - someone can correct me if I am wrong!

He suggests things like developer profit margins are part of the housing cost inflation, but my understanding is that Stats NZ calculate the housing element of the CPI on the basis of the construction costs of a typical new house. So it's effectively only material and labour costs that they are accounting for. Not developer profit margin, not council rates or fees etc.

And this brings me back to something I've been saying for a while, but very few agree with me on. I think OCR inflation will subside quite a lot by later this year. Because, if we look at the biggest contributors to CPI inflation right now as per Bernard's article, then we can say:

- Construction cost inflation (a key component of housing inflation in the CPI) will probably subside a lot, as the sector slumps and along with it demand for labour and materials

- Rental price growth will subside or even turn negative

- Transport cost inflation might subside a fair bit, especially if the government extends the tax break

- Food inflation might also subside, I think, but perhaps less than the others

by Foxglove. | 22nd Apr 22, 5:33pm 1650605629

That very nasty and somewhat old fashioned word foreclosure is I suggest, going to be a bell wether feature of the state of play as it progresses. In saying that though the banks/mortgagors are going to bend heaven and earth to avoid the outcry and adverse publicity that a high enforcement will generate. There is certainly going to be some licking of wounds in both the penthouses & basements of the relative arrangements.

by Sam B | 22nd Apr 22, 5:52pm 1650606776

You could be right on some of those, but --

-construction: the backlog of unmet supply is so drastic that it will take ages to unwind, even if some projects are cancelled. Kainga Ora will (should) step in to keep demand a decnet level; and there'll always be the untouched rich doing renos.

-rental price drops: that would be good, but what's the mechanism here?

-transport costs: surely mostly down to petrol costs, not really in our control

-food inflation: not a chance it goes down, zero.

by custard | 22nd Apr 22, 6:24pm 1650608672

“-rental price drops: that would be good, but what's the mechanism here?”

Try record Auckland rental offerings currently – landlords under pressure - amend price to meet market conditions?

This would not be a new phenomena.

by HouseMouse | 22nd Apr 22, 7:24pm 1650612292

Food - not saying prices will go down, I am saying the rate of inflation will drop.

Rentals? At least in Auckland, massive supply coming on line. Plus population loss has been happening which will accelerate over next 6 months. Simple supply and demand.

construction ? Many projects still underway, but new projects likely to slow considerably by October.

by Jonny.Foe | 22nd Apr 22, 6:38pm 1650609538

I'm pretty sure that the developer costs and overheads (and profits!) are included in the 'purchase of new housing' category. They are in Australia, and I think we use the same definitions here. Basically, they look at the costs of buying a shiny newly built house.

If you really unpick the CPI increases announced yesterday you can split the 6.9% increase into component parts. The most significant components - accounting for 5.23 percentage points of the 6.9 - are shown below. The first number in each bullet point is the contribution to the 6.9% announced yesterday. I have also included a quick assessment of what's going on. My view is that whether CPI flattens off or reduces depends on the sale price of newly built homes, and what happens to petrol and rents in the short-term. It's a hard call. Will the increased cost of borrowing put upwards pressure on rents, which are running at 4% annual increases on average but have upwards momentum (new rents are around 7% higher)? Will the increase in rents cancel out the reduction in the price paid for new houses? Tune in later this year to find out.

1.59 - Non-tradable: Purchase of new housing... coming down!
1.15 - Tradable: Petrol... depends on international factors and continuation of excise duty relief
0.41 - Non-tradable: Actual rentals for housing... under serious pressure - 1% rise in rents = 0.1 points on CPI
0.35 - Tradable: Vegetables.. fertiliser and transport cost dependent - static?
0.25 - Tradable: Games, toys, and hobbies... bloody video games - won't change!
0.24 - Tradable: Purchase of second-hand motor cars... coming down
0.22 - Tradable: International air transport... coming down
0.20 - Non-tradable: Local authority rates and payments... likely to be same again
0.18 - Non-tradable: Ready-to-eat food... takeaways... drop in demand / reducing prices?
0.17 - Non-tradable: Real estate services... lower house prices = lower commissions, so coming down
0.13 - Non-tradable: Cigarettes and tobacco.. staying still
0.12 - Tradable: Other vehicle fuels and lubricants... will depend on oil
0.11 - Tradable: Milk, cheese, and eggs.. will depend on price that the Chinese are prepared to pay
0.11 - Non-tradable: Property maintenance services... no change expected

by HouseMouse | 22nd Apr 22, 7:33pm 1650612838

I have enquired with Stats NZ before. It doesn’t include a developer’s profit margin. It’s simply the cost to build a standard detached house. Of course that includes builders profit, but not a developers profit margin. I got a whole lot of info, their method is somewhat unsophisticated.

by HouseMouse | 22nd Apr 22, 9:30pm 1650619859

This is what I got from Stats NZ a year or so back:

The CPI measures inflation for the purchase of new housing. Stats NZ surveys the price of buying a newly built house, excluding the land the house is built on, from builders that build standard-plan houses. Land is excluded as it is considered to be the investment component of new housing, and investments are considered out of scope of the CPI. The other component, the house itself, is considered a source of shelter.

by Ahuhyeah | 22nd Apr 22, 9:55pm 1650621342

Land is considered to be an investment but the home built to live in isn't... I'm trying to wrap my head around that. I've never thought of the land under my home as an investment. Hmmm.

by HouseMouse | 22nd Apr 22, 10:24pm 1650623089

It’s a scam

by Jonny.Foe | 23rd Apr 22, 7:32am 1650655946

Surely the 'price of buying' includes the price of building (including builders margins etc)?

by HouseMouse | 23rd Apr 22, 10:50am 1650667818

Yes my understanding is that it is the sales price of a new house, less land. And the sales price of that house obviously includes the builder’s margin.

But as I said above, it doesn’t include a developer’s profit margin.

Stats NZ told me that they have a couple of house building companies that they go to to measure construction inflation. It’s just done on some standard house plans.

by Wellington developer | 22nd Apr 22, 8:15pm 1650615348

The NZ quarterly survey is pretty basic, they just ask for your costs to date and a few questions about if your project has had delays due to covid, as well as the expected completion date.

by Justa comment | 22nd Apr 22, 4:48pm 1650602884

Sounds like the fed is going to move the cash rate quite quickly to at least 3.5, a 0.75 single move is not off the cards.

by Zack Brando | 22nd Apr 22, 7:16pm 1650611815

Well, raising the Fed rate would be smart. If nothing else it'll increase the demand for the Greenback through higher loan repayments, therefore increasing the demand for dollars.. thus increasing the purchasing power of the Greenback, which would definitely put downward pressure on American inflation.

Obviously.

by Audaxes | 22nd Apr 22, 4:54pm 1650603271

Given Xi and no PBOC, "suddenly" CNY is tanking. It turned around when? Feb 28/Mar 1, US$ tightness and, no, not Fed pretending. Collateral. Given US$ shortage now hitting CNY outright, no wonder UST curves doing the invert/un-invert/re-invert thing. https://alhambrapartners.com/2022/04/21/re-inversion-cny/

by HouseMouse | 22nd Apr 22, 4:58pm 1650603509

Although it has changed technically over the period, the observed change for mortgage demand over the past 6 months has never shifted down as much as recorded in March 2022 than any time since 2009.

There you have it, folks.

And unlike 2009, repeated and deep cuts to the OCR are not available to save the housing market.

by custard | 22nd Apr 22, 5:21pm 1650604900

https://www.cnbc.com/2022/04/21/powell-says-taming-inflation-absolutely…

“Powell says taming inflation ‘absolutely essential,’ and a 50 basis point hike possible for May”

US Treasury yields surged overnight after comments made by a somewhat increasingly determined Jerome Powell.

Everything points to home loan rate rises having quite some way to go – check out today’s swap rate moves – it’s pretty brutal.

by nktokyo | 22nd Apr 22, 5:10pm 1650604219

Heard today that banks are scaling RE agent income down by two-thirds for loan applications.

So they have decided how they are going to play this it seems.

by HouseMouse | 22nd Apr 22, 8:10pm 1650615041

So many signs of an impending crash.

by mikekirk29 | 22nd Apr 22, 8:50pm 1650617421

Fed the credit devil more sugar 2011-2022. Now being withdrawn.

As Steve Keen said repeatedly, once exponential credit growth ceases, debt monster goes into reverse and recession follows

The bond market bull of 1981-2021 has ended.

by HouseMouse | 22nd Apr 22, 10:37pm 1650623868

I have heard it said that quite a few RE agents have multiple investment properties, unsurprisingly.

I wonder how many will be forced to sell those properties over the next year or so as their incomes shrink massively.

by kiwikidsnz | 22nd Apr 22, 6:22pm 1650608549

Meanwhile, while we were looking over there...

https://www.rnz.co.nz/news/political/465708/government-begins-drafting-…

by Brock Landers | 22nd Apr 22, 6:55pm 1650610504

New Zealand is slowly circling the drain.

by Baywatch | 22nd Apr 22, 7:23pm 1650612187

Thanks Brooky, glad to have an true blue Ozi in town, will you be voting schomo again?

by JimboJones | 22nd Apr 22, 7:26pm 1650612368

Hard to imagine that we are draining brains to Aussie if he’s the best person for the job.

by Brock Landers | 22nd Apr 22, 7:50pm 1650613823

Lack of imagination is fairly standard in insular thinkers.

by Brock Landers | 22nd Apr 22, 7:33pm 1650612782

Hi Pamela,

Have never voted in Aussie. From experience you can vote for the red clowns or the blue clowns in any country you like though. You still get a circus.

You won't get the opportunity to vote out the Iwi supremacists though. Good luck.

by Baywatch | 22nd Apr 22, 7:33pm 1650612831

Wow you must monitor this site by the minute. Your racism really showing now... think the tasi island solution should be brought in?

by Brock Landers | 22nd Apr 22, 8:00pm 1650614436

I'm racist against myself now? That's pretty retarded even for you. Nah I just believe in the principle of equality under the law, not discriminatory race based law.

What is tasi island?

by Baywatch | 22nd Apr 22, 7:45pm 1650613552

Geez no one on this site can figure you Brooky, an egnima? Yes the tasi solution..form a line and walk across the island..despatch the problem. But go on give us your next up tempo insight full commentary.

by Brock Landers | 22nd Apr 22, 7:58pm 1650614289

What exactly are you have difficulty understanding?

I googled "tasi solution" and it comes up with nothing. I would encourage you to try speaking English.

by Jarlaith | 23rd Apr 22, 8:46am 1650660398

I think it’s a reference to this https://www.nma.gov.au/defining-moments/resources/the-black-line

by EpsomArtsandCrafts | 22nd Apr 22, 6:27pm 1650608829

Does anyone remember in the 80s we use to be able to deduct expenses from our wages and salaries? Now we have the reverse situation with many working from home forking out large amounts for extra electricity and room set ups but no ability to deduct.

Perhaps its time to allow deductions from wages and salaries again like they do in Australia

by redcows1 | 22nd Apr 22, 6:43pm 1650609836

Or level the field by not allowing deductions for business. That is, tax the gross income, obviously at a lower rate. Effectively change the tax base and lower the amount of tax paid as paye. Accountants probably have valid objections, mostly centering on it being to simple so making them redundant.

by DDS | 22nd Apr 22, 6:59pm 1650610772

I don't think that would work, especially for high cost low margin industries. Imagine a tech importer who imports $90,000 dollars worth of equipment and sells it for $100,000. The tax liability would be 28% of $100,000. Would make those kinds of businesses impossible to run.

by redcows1 | 22nd Apr 22, 7:24pm 1650612299

Only as impossible as it is to live as a low income household paying full tax on every single dollar, and then of course having to get it back in the form of WFF and Accom supp.

And quite obviously as it would be on gross it would be substantially less than 28%.

Yes there would be anomalies due to small margins, but there's huge anomalies with things like transfer pricing that reduce tax paid by some to SFA.

by JimboJones | 22nd Apr 22, 7:29pm 1650612560

Also the current price is obviously contingent on the current tax rules.

But wouldn’t a GST rise be a better way of achieving the same thing? That way the profit is only taxed once and it is very hard to avoid.

by redcows1 | 22nd Apr 22, 7:55pm 1650614108

But that still leaves the wage earner/ consumer carrying the tax can only more so. Businesses are GST neutral so don't pay a penny of it.

by Pa1nter | 22nd Apr 22, 8:16pm 1650615397

They're only GST nuetral if they're spending the same amount they're earning.

I believe PAYE exists because especially in the middle to low brackets it's more efficient than individuals spending thousands a year on personal accounting.

by redcows1 | 22nd Apr 22, 8:24pm 1650615847

No business is definitely GST neutral. They simply can't pay more than they take in.

by Pa1nter | 22nd Apr 22, 8:34pm 1650616470

A business can definitely pay more GST than it takes in.

by redcows1 | 22nd Apr 22, 8:36pm 1650616599

Enlighten me.

by Pa1nter | 22nd Apr 22, 8:50pm 1650617425

Ok, in March, ABC Business makes no sales, and collects no GST. It buys a box of pencils for $10 plus GST.

GST collected = 0.00

GST Paid = $1.50

by redcows1 | 22nd Apr 22, 8:54pm 1650617655

GST refund from ird for march $1.50

by JimboJones | 22nd Apr 22, 8:25pm 1650615930

Someone always pays for it. Let’s say you tax the supermarkets on revenue instead of profits, either they seriously jack up prices or they make a loss, pretty sure I know which they will choose. And all their suppliers have to do the same. The problem being the more suppliers in the chain, the more tax, the higher the price. GST is better in that regard.

by JimboJones | 22nd Apr 22, 7:01pm 1650610862

You can deduct $10 a week I think it is. But I’m sure the costs of working from home are actually less than the costs of commuting.

by mikekirk29 | 22nd Apr 22, 8:47pm 1650617255

Liquidity and FED action + Evergrande, plus inflation exceeding wage growth by 3-4%

FED began QT in November. Evergrande fell over in October.

The market decline began in December in NZ

Total sales in Jan-March 2008 cf 2007 was 56 % in Albany Ward, Auckland

In equivalent months of 2021 and 2022 the drop was 58%

The causes above will continue for at least a year.

Demographic of 40-47 year olds is shrinking til 2024 according to Stats NZ, which will aggravate matters as they are key buying group.