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
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.
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.
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.
Interesting Analysis :
https://thekaka.substack.com/p/the-dirty-little-secrets-inside-our?toke…
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."
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.
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.
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
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.
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.
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.
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
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.
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.
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.
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.
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/
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.
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.
Meanwhile, while we were looking over there...
https://www.rnz.co.nz/news/political/465708/government-begins-drafting-…
I think it’s a reference to this https://www.nma.gov.au/defining-moments/resources/the-black-line
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
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.
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.
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.
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.
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.
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