Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE RATE CHANGES
ASB reduced some fixed rates, but basically only back to levels that match their main rivals. Heartland Bank cut its 1 year fixed rate. Details and commentary here.
TERM DEPOSIT RATE CHANGES
TSB is now offering 3.15% for a six month term deposit.
'WINTER CHILLS'
The REINZ reported that the national median dwelling price dropped -$40,000 in July, now down -$110,000 from the November peak. That is a -12% fall so far. The housing market slump deepened with sales at a 12-year low for a July.
AUCTIONS OUT OF FAVOUR
REINZ's monitoring shows that just 10% of residential properties were offered for sale by auction in July compared to 26% in July 2021. And the auction sales rate dropped from a third to a quarter last week.
$993 MLN OFFERED FOR $400 MLN TENDERED
Today's Government bond tender brought success to about half of the 92 bids. The April 2027 $200 mln went for a yield of 3.36%, little changed from the 3.34% for the same maturity two weeks ago. But only 9 of 34 bidders won anything at the May 2032 $150 mln on offer. That went for an average yield of 3.43%, well below the 4.00% at the last equivalent tender on June 23, 2022. The $50 mln April 2037 bond had $88 mln bid and the winners got a yield of 3.74% pa, down from the 3.70% at the equivalent tender two weeks ago.
PARENT SUPPORT QUESTIONED
Ratings agency Fitch has placed China Construction Bank (New Zealand) Limited's (CCB NZ) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) of 'A', Short-Term IDRs of 'F1+ and the ratings of its NZ-dollar debt program on Rating Watch Negative. This is because, although they are currently covered by an unlimited guarantee from the parent, new rules on related-party transactions issued by China Banking and Insurance Regulatory Commission state that Chinese banks can now not provide guarantees to related parties, including entities under their control.
ANZ NZ IN DEAL FOR CLOUD-BASED CORE BANKING SYSTEM
ANZ NZ has signed a contract with financial services technology company FIS to utilise FIS’ modern banking platform deployed on Microsoft Azure. An ANZ spokeswoman says this falls within the bank's five year investment plan and will allow ANZ NZ to be more innovative in how it provides banking services. ANZ’s current Systematics core banking technology is also supplied by FIS, but is based on technology developed decades ago. The spokeswoman says nothing will change for customers for a number of years and they will be kept informed. Before moving to a cloud-based core banking system, ANZ NZ needs a non-objection from the Australian Prudential Regulation Authority, and "regular engagement will also take place" with the Reserve Bank of New Zealand and the Financial Markets Authority.
NO MORE GROWTH
The Singapore economy grew by +4.4% on a year-on-year basis in the second quarter, faster than the +3.8% growth recorded in the first quarter. On a quarter-on-quarter seasonally-adjusted basis however, their economy contracted slightly by -0.2%, a reversal from the +0.8% expansion in the March quarter.
TOPPED OUT
Inflation expectations in Australia are slipping. The respected Melbourne Institute's August survey pegs the one year expectation at 5.9% now, down fro, 6.3% in July and 6.7% in June (which was a 14 year high).
REGULATION NEEDED
And staying in Australia, regulator ASIC says "there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted. There is a strong case for regulation of crypto-assets to better protect investors." ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator.
SWAP RATES RISE
Wholesale swap rates are probably higher today, building on global trends, especially from the US CPI. The 90 day bank bill rate slipped a minor -1 bp to 3.23%. The Australian 10 year bond yield is now at 3.33% and up +10 bps from this time yesterday. The China 10 year bond rate is now at 2.75% and little-changed. The NZ Government 10 year bond rate is now at 3.44%, up +11 bps from this time yesterday, and now above the earlier RBNZ fix for this bond which was up +6 bps at 3.39%. The UST 10 year is now at 2.79% and unchanged from this time yesterday.
EQUITIES RISE
Wall Street closed up with the S&P500 gaining +2.0% in enthusiastic trading today following the US CPI data. Tokyo is closed today (Mountain Day). Hong Kong is up +1.1% in early Thursday trade, and Shanghai is up +0.2%. The ASX200 is up +0.8% in afternoon trade. The NZX50 is up +0.5% in late trade.
GOLD SLIPS
In early Asian trade, gold is down -US$9 from this time yesterday, now at US$1,785/oz.
NZD FIRM
The Kiwi dollar hasn't held all its overnight gain, but it has held a full +1c of it to now be at 63.9 USc. Against the AUD we are unchanged at 90.4 AUc. Against the euro we are up +½c at 62.1 euro cents. That means our TWI-5 is now up at just under 72.
BITCOIN UP & VOLATILE
Bitcoin is now at US$24,316 and up +6.6% from this time yesterday. Volatility over the past 24 hours has been high at just over +/-3.6%.
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85 Comments
"The REINZ reported that the national median dwelling price dropped -$40,000 in July, now down -$110,000 from the November peak. That is a -12% fall so far. The housing market slump deepened with sales at a 12-year low for a July"
Do you still need to be quick if the average FHB saves $40,000 by sitting on the sidelines for a month?
There could be a fantastic buying opportunity for FHB's coming up if they are patient...
At a point where prices have fallen a decent amount, and interest rate rising stop and start falling again (assuming you can keep your job...).
They might be debt free, on the same quality/size home, 10 years earlier than those who purchased their homes 12-18 months before them.
If rates continue to increase banks continue to increase their test rates & affordabilty assessments. If house prices continue to drop, banks continue to pull back on offering home lending with less than 20% deposit. If inflation continues to increase, savings abiltiy decreases. If the economy continues to slow down, unemployment will increase, impacting FHBs. The worse it gets the harder it will be to get bank credit.
But I've just said I think the OCR will start being cut by May 2023 (I've said this many times in the past few months). I think retail rates in August 2023 will be similar to now.
And prices circa 10% lower.
So that's more affordable.
Where you do have a point is potential bank lending conservatism in a tanking housing market. However, I think the worst of house price falls will be over by mid 2023. Also, they need business right?
I may be very wrong in the outcomes I predict, but I struggle to see any incoherence in my argument.
I get the feeling that Nifty assumes that anyone who could afford to buy a house would have already done so.
So there are no FHB's sitting on the sideline with large deposits and high income - but I know this isn't the case.
And Nifty's view also seems to be the view of most property spruikers that I talk to in person as well. They assume that now prices are falling because interest rates are rising, its game over for FHB! Oddly I see the world completely in reverse...
If a FHB had a 20% saved up last year but deferred buying...and prices across the country fall by say 30%....they're in a great position to buy come next year at some point.
And if unemployment gets as bad as what Nifty is suggesting it could - then house prices might fall even further because home owners will be defaulting on mortgages and renters of rents. Meaning we would need to find an even lower price point for housing in NZ.
I know people that had 20% LVR saved up last year when the market peaked but didn't buy.
Now say they were in Auckland or Wellington (hypothetically) and prices have dropped 20%....now they have way more than a 20% LVR on the house they were thinking about buying!
If they buy at a point when the RBNZ is starting to cut rates again....then bingo...best of both worlds....far cheaper house at point of entry...and the benefit of stable or falling mortage costs..
I'm with HouseMouse.
I know a few FHB's sitting on the sidelines with large deposits ready to go....and the incomes required to cover mortgage payments at the stress test levels (or even well above). Not sure if they are pre-approved but I doubt it will be a problem for them given their income and job security.
So not sure what your point is?
And each month that prices fall by $40,000, the quality of the house they are thinking about buying is improving as they will have higher equity when they purchase.
And if house prices really do start dropping, the RBNZ may eventually have to drop interest rates again...so these FHB's get to buy a way better house, for less money..and then may find that rates fall and it gets easier to pay off the mortgage.
but I doubt it will be a problem for them given their income and job security.
An assumption that you might be quite wrong on...
Banks affordabilty assessments have changed alot and let's not forget that thing called CCCFA....
Your typical FHB doesn't have a large deposit nor fantastic jobs. Many will find that the bank now is either not willing to do lending or will approve at a lower amount resulting in a lower ability purchase what they want...
Lower house prices are good but you have to look at what it really means for FHBs given full context of the environment we're in.
But you are missing the point.
We are talking about FHB's who might realistically be able to buy in the next couple of years, because of income, size of deposit, price of housing, cost of finance etc.
My point is - for those people, I think this time next year could be a good time to buy. Not now, not late 2022, and not early 2023.
But that's just my opinion (I've set out my rationale for it) which you and anyone else are perfectly free to disagree with.
I'm not talking about the typical FHB - I'm talking about the intelligent FHB.
The typical FHB listened to P8 and the property spruiker last year, got caught up in FOMO, and is now in (or approaching) negative equity.
The intelligent FHB listened to the views of those who disagreed with P8 and his fan club.
I know a number of intelligent FHB's who have sat patiently on the sidelines, with large deposits and good jobs/income. They should be in a great position to buy the new lending criteria won't impact them.
Lol ok, so you and housemouse are looking at very small portion of FHBs that could benefit from this...
The issue is, this isn't the majority of FHBs. There will be BS stories coming out soon saying this is wonderful news for FHBs (thinking TA and co) - but in reality it still bloody hard and could just get harder for them if things carry on the way it is for another year.
Exactly. Yvil was siding with P8 big time last year like a tag team, although he seemed to change his tune later in 2021 / early 2022, interestingly once P8 started disappearing....
A damn shame if people listened to them and not us. Some people will sadly be in strife.
And yes we are talking about the intelligent, or 'savvy' FHB. Isn't that what this website should be about? Making good financial decisions?
Not awful ones by listening to spruikers with vested interests.
So, Nifty, do you think FHBs with good deposits, income etc should buy now? Or late 2022 as JFoe was suggesting (which is the origin of this discussion)
There were many FHBs that wanted to buy last year but couldn't because they continously got outbid... they spent $1000s on due diligence (builders reports etc) only to miss out and have to start over again...
There are many FHBs that are trying to buy now but either can't get bank lending or at a level that they require to buy what they want due to higher test rates/banks not doing under 20% lending/CCCFA...
It wasn't easy last year for FHBs and it's not easy for them now. Different time and different challenges...
Agree, but....
If a FHB was potentially in a position to buy now - and many are, although it's a diminishing % of the potential FHB population, for sure - should they do it now?
That's the central matter of the discussion IO and I have been having.
And my view is that August 2023 could be a good time to buy, potentially significantly better than now (or even later in 2022).
Although as I've said before, I'd be keeping an eye out now for a potential bargain (which is possible in this market).
Anyway, again it's only my opinion.
Looking at the number of FHB's who were active in our property market the last 12-18 months, its pretty clear many have been caught out by the FOMO.
You, similar to me, have at least tried to give these people some warning - if they are reading on this website.
But what I've come to realise over the years is that a fool will take another fools advice as gospel. So to make a good financial decision, you have to be smart enough to realise whether the person you are taking advice from is full of ^$@^ or not.
To make good financial decisions requires a great deal of self control and patience. But the property spruiker has been telling everyone that the best time to buy property is today (or yesterday...). You like me, know its slightly more complicated than that (if you are seeking alpha that is).
Ok, if not advice, what about the intention to influence for personal benefit.
What do you think the intent is of the likes of TTP on this website?
Is it...
a) a genuine intention to provide sound advice to people
b) stimulate sales for his property brokers company
c) push house prices higher for his personal property portfolio
d) points b and c above
e) none of the above
Is he (and the many other spruikers) providing advice free from bias (ie actual competent advice for the intelligent FHB)- or are they trying to influence those who don't know any better into making financial decisions that benefit themselves personally, with little to no care to how this will impact the person they are attempting to influence.
There could be a fantastic buying opportunity for FHB's coming up if they are patient...
You could say the same about ol' ratty. Biggest difference is that you don't have to go "all in" on Bitcoin and it needn't make your life a misery. What's more, it won't take down the NZ economy.
Mortgage rates have topped out. Annual changes in mortgage rates and house prices have had mirrored inflexion points since 2014 - when one turns down, the other turns up (and vice versa). I don't see that changing now although house price falls might have a few months of momentum. We will be back into growth by 2023.
Try a plot of the following :
- % change in median house price compared to 12 months prior (RBNZ data)
- % change in 2-year mortgage rates compared to 12 months prior (same data source)
You will see that mortgage rates and house prices descended together post GFC, but in the modern era, they move in beautiful opposition. When mortgage rates move down, house prices move up, and when mortgage rates are heading down, house prices go up. The turning points are almost perfectly mirrored. If we are at a turning point for mortgage rates (and I think we are), then I would expect house price declines (year on year) to turn round to.
i think this can be explained by the fact that demand for house purchases is always huge and underplayed - people are paying high rents that they would rather put into mortages, and humans want to live in the best possible suburb with the best possible schools for their kids etc. People are also confident in long-term gains. This means that house prices simply reflect the highest price that people can afford to pay - and this is a function of the cost of borrowing.
Time will tell....like I said to HouseMouse in another thread...'you might be right, but you might also be making some rather large assumptions'.
Out of interest - have you lived in a country when the property market has gone bust and understand the human psychology perspective?
You appear to look at this like a robot with numbers and figures - assuming people are completely rational players in the economy/housing market.
You appear to look at this like a robot with numbers and figures - assuming people are completely rational players in the economy/housing market.
Yes. The mighty Jfoe seems to be thinking like a technocrat at a central bank.
But what if the patterns people are looking at are fundamentally wrong or have fundamentally changed? In the case of Japan, house prices didn't go up simply because the cost of servicing the debt went down.
A good point, and once momentum gained on the downside dropping interest rates didn’t seem to prevent further falls in Japan.
Also pays to note that OCR dropped to record lows in march 2020, the price peak came around 18 months later. Even if interest rates have peaked, we haven’t yet observed the impact of the higher rates. Where does the market level out with current rates if it is more expensive now for buyers to pay current prices with current interest rates than it was in the peak with low rates. Still a lot of downward pressure.
Interesting as I was reading the latest Zoltan Pozsar piece earlier in the week and he believed that the Fed will keep the Fed Funds rate at 4-5% for years to come....
Hard to know who is going to be right....a believable person like Jfoe (who I think is great) or Pozsar who I also think is great but appear to have opposing view....or could it be possible the Fed keep their rates high while we are forced to drop ours?
The market has already priced in at least 75pts of that OCR rise, and I think they realise they have over-egged their forecasts. RBNZ can posture and act tough all they want, but the tightening cycle is obviously ending.
My other data source on this is bank income statements. Banks are currently generating interest revenue on loans at three times the amount that they are paying out on deposits. The ratio is historically about 1.5. This is awesome profiteering - but even banks have to avoid being seen to take the piss for too long. So, they either pay more on deposits, or they charge less on loans. I suspect we will see more movement on the latter than the former.
Is this the right way to analyse this? I would have thought the truth is that the interest rates on loans is roughly the interest rate on deposits plus some margin, rather than the loans rates being at some multiple of the deposits.
When interest rates are low as they have been recently, applying a, say, 2% margin starts too look like a much higher multiple than the same margin on a more normal deposit rate.
At the extremes, if deposit rates tended to zero, using a multiple means you're loan rates also tend to zero. No profit there.
TLDR: I wouldn't expect this ratio to be consistent over time, especially with the low interest rates we've seen recently.
Sorry, I should have been more clear. I am talking total income / expenditure. Look at the banks income from charging interest and their expenditure from paying interest - here: https://www.rbnz.govt.nz/statistics/series/registered-banks/banks-incom…
Banks are currently earning more than 3 times as much interest as they are paying out. This is crazy high - they have been milking Covid like crazy.
Remember that money created when banks loan and deposits that people leave with banks are completely separate - banks do not loan out other peoples savings, new money is created everytime banks make a loan.
I think the net income (interest income minus expense) is more relevant than the ratio (interest income over expense). The net income is the actual money they are making from the margin and I'd expect this to be much more consistent than the ratio, which it is in the link you provide.
Imagine two simple scenarios. In the first, the bank is able to raise funds at 1% and in the second it costs them 5%. I am suggesting they apply, say, a 2% margin on money lent out leading to 3% in the former and 7% in the latter. Steady income if the book stays the same size, earning 2% of the book value. Obviously many simplifications in this model including the incorrect assumption that the books balance.
Looking at the ratios shows a different picture. In the former, the ratio is 3/1. In the second, it is 7/5. Looking at the ratio suggests the banks are doing poorly, but they are actually earning just as much as before.
You will need an increasing population for the ponzi to keep going. I can foresee competition amongst the West to attract the young and smart.
If your strategy to preserve house prices is to try to attract the youngest and the smartest from around the world, you should probably rethink your strategy. Those people will (and should) migrate to where the opportunities work best for them. If they're really smart, they will not be interested in propping up someone else's stupid property bubble.
There's a known psychological condition, specifically for predominantly Japanese people, who upon striving to get to Paris fall into depression that it's all dogshits on the pavement and garbage trucks and noise, instead of the highly romanticised version they had in their minds.
Probably something like that.
The next OCR change will be the determining factor if we are at the inflexion point in terms of the inflation, economy, spending, job/jobless data, GDP.... Housing is just one aspect of the economy. Some will be okay, most may be fine. With geopolitical changes happening, the new normal for inflation will be over the RBNZ maximum for the next few years. FHB wait celebrate Christmas and look for a home afterwards 2023 onwards.
Ethereum is up 10.5% today following a "test-net" success for its upcoming merge upgrade in September.
Provided they pull that off, I can see Ethereum outperforming Bitcoin at least until Bitcoin is one year away from its halvening (that would be May next year).
I actually see a real chance of Ethereum leap frogging Bitcoin's market cap in a year or two. I look forward to hearing the daily ETH price movements on here from that point :)
For the first time ever, I hold more Ethereum than Bitcoin (although much smaller holdings than before)
Will the spring/summer of 22/23 be a turning point for interest rates to remain neutral and an increase of people coming into NZ to fill job vacancies? So far, the high employment rate has saved the housing market from crashing, and the economy remains resilient. In early to mid-2023 will be tracking NZ voter sentiment to see whether there is likely to be a change a government. If so, with the National coalition coming in - it likely increased business and household sentiment that is likely to support an increase in house prices (hopefully at a more reserved sustainable pace). Between now and then is the bottom of the market. If significant global events worsen, one would assume that global inflation will pick up again and the housing market/house prices continue to decrease.
Just totally unbelievable. Dear old Jenee at the Herald on the govt looking for another 3500 bureaucrats…
couldn’t make this shit up
https://www.nzherald.co.nz/business/revealed-the-number-of-extra-public…
Labour claim to be for the little guy (or girl) but...
https://th.bing.com/th/id/OIP.gN78KBX9U4Kz1exv0p9OFgHaEK?pid=ImgDet&rs=1
And staying in Australia, regulator ASIC says "there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted. There is a strong case for regulation of crypto-assets to better protect investors." ASIC is Australia's integrated corporate, markets, financial services and consumer credit regulator.
Haha, the man gets his money sooner or later.
The NZD is following the US share market. And the NZD is going up in parallel with the bear market rally.
Just wait for the next downward leg on the bear market in US equities and the NZD will drop again. There is buying NZD when risk appetite is strong and selling when weak.
*Interesting* move, especially in this market, and also having to pay tax on any potential gain.
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