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
ANZ moved to raise all their floating rates by +50 bps. For existing clients, this increase will happen on October 25. More here.
SAVINGS & TERM DEPOSIT RATE CHANGES
ANZ raised its Serious Saver rate by +40 bps to 2.70%. This increase won't occur until November 1, 2022. Rabobank raised its 90 day NoticeSaver rate to 3.25% and its one year term deposit rate to 4.50%. Xceda raised their TD offers too.
BUILT RESIDENTIAL STOCK RISING
There was a big jump in new home completions in Auckland in August. The city's residential building industry appears to be stabilising with more than 1300 new homes completed in the month. Only five months in the past 44 (since the start of 2019) have had more. Given that housing sales via the REINZ stats are running at about a 1600 level, it is a substantial proportion. But recall, a) new houses with a CCC may have been sold and recorded as sales many months earlier that when they get their CCC, and b) it is not possible to know whether new houses are sold by REINZ members or not. All the same the relationship is sort of interesting in a background way.
PROGRESS - BUT SLOW
Stats NZ said today that there are now 2,018,100 private dwellings in the country and 1,943,000 households. These are estimates built off the last census and adjusted on a formula basis. Given that, the growth in dwellings over the past year was +44,600. The growth in households were +43,500 over the same period. That suggests 1,100 more dwellings were added than required for the expanding population.
MIGHT BE A BIT CONFRONTING FOR MANY
ANZ has launched Card Tracker, a new way for customers to keep track of where their card details are being stored. Its a new feature in ANZ’s goMoney app allowing customers to see where their personal ANZ Visa Debit or credit card details are stored and the last payment date. Users can see payments such as subscription services, casual online purchases, and instalments (such as Buy Now, Pay Later schemes).
SELLING MORE MORTGAGES ON
Avanti Finance has securitised and sold on to investors $250 mln of mortgages they originated in a RMBS transaction dated that will close on October 13, 2022. About 70% of them will yield investors about 5.20%, another 24% of them about 6.00%.
FINALLY, A MEANINGFUL RESPONSE?
Today we posted an in-depth podcast featuring Auckland University's Ryan Greenaway-McGrevy talking about the world-leading progress Auckland is making with upzoning and densification. It is a long term effort that is starting to bring results, results that promises to keep expanding supply of housing options as a major feature of the Queen City's tackling of its affordability problems in a fundamental way.
THE FULL WHACK
In its B6 series, Yields on Business Loans, the RBNZ has been tracking the average price of bank lending for business loans since 2017. In August 2022 it rose to 5.33% across all lending (dominated of course by very large wholesale lending to very large corporates). This is the highest ever in this series. It jumped +33 bps from July to August, the fastest jump ever recorded. Rises like this are a consequence of OCR rises. This average cost has risen +205 bps over the past year. Remember, lending to businesses doesn't come with the hefty capital adequacy discounts that incentivise residential lending.
HOW THE RBA ASSESSES THEIR STABILITY RISKS
The RBA's Financial Stability Review was released today. It noted that global financial stability risks have increased, amid tighter financial conditions and rising uncertainty, that higher inflation and rising interest rates will make it difficult for some Aussie borrowers to meet their debt payments, and they are going to continue to focus on the risks from cyber-attacks and climate change.
LESS THAN EXPECTED
China's foreign exchange reserves were expected to fall to US$3 tln in September, a -US$55 bln retreat. But they didn't actually fall that hard, only declining -US$26 bln to US$3.029 tln.
SWAP RATES RISE AGAIN
Wholesale swap rates are firmer on global trends. The key real action comes near the close. Our chart will record the final positions. The 90 day bank bill rate is up +2 bps at 3.88%. The Australian 10 year bond yield is now at 3.86% and up another +6 bps from yesterday. The China 10 year bond rate is unchanged at 2.76%. The NZ Government 10 year bond rate is now at 4.24%, and up another +11 bps and now above the earlier RBNZ fix for this bond at 4.21% which was up +5 bps from this time yesterday. The UST 10 year is now at 3.83% and up another +7 bps from this time yesterday.
EQUITIES LOWER AFTER A GOOD WEEK
Wall Street fell away at the close, ending down more than -1% on the S&P500. Tokyo is down -0.7% in early Friday trade, and heading for a weekly gain of almost +5.3%. Hong Kong is down -0.8% in their early trade and heading for a +4.1% weekly rise. Shanghai is on the last day of their week-long holiday. They have some catching up to do. The ASX200 is down -0.6% today and looking to book a weekly gain of +5.1%. The NZX50 is down only -0.3% near our close, but our weekly gain will only be +0.3% if that holds.
GOLD SOFT
In early Asian trade, gold is at US$1711/oz and down -US$10 from this time yesterday. It closed in New York earlier at US$1713/oz.
NZD SOFT
The Kiwi dollar is down -1c from this time yesterday to be just over 56.7 USc as the impact of the OCR review has completely faded. Against the AUD we are also lower at 88.3 AUc, almost a -½c fall. Against the euro we are now at 57.9 euro cents and also softer. That all means our TWI-5 is at 67.1 and down -70 bps from this time yesterday.
BITCOIN DIPS
Bitcoin is lower today and is now at US$20,004 and down -1.7% from this time yesterday. Volatility over the past 24 hours was modest at just over +/- 1.4%.
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35 Comments
Card Tracker seems inherently limited. I doubt it actually knows where your card details have been stored, merely where (and when) it has been used.
These details might be handy when trying to investigate suspected fraudulent use, or even for budgetting for future payments (eg annual subscriptions / fees) which might otherwise present as a surprise expense.
Have to wonder however if those with partners may find that they'd rather not have their other half scruitinising where their money has been spent.
Rises like this are a consequence of OCR rises. This average cost has risen +205 bps over the past year.
Businesses are now paying $530 million in interest payments per month (up from $296m a year ago). Thankfully, businesses respond to higher input costs by reducing prices for their customers. Sounds crazy, but you just need to trust the voodoo magic of monetary policy folks.
Nice one Jfoe. Of course pressure will be on businesses to meet sales targets and incremental sales for growth. Discounting and promotions is the easiest solution but that has become much tougher in an inflationary environment.
Man on the ground in Vietnam sent me a note on Envy apples selling at 40% discount. Obviously need to shift product quickly.
Can confirm just bought 8 kilos of NZ Jazz Apple in Ho Chi Minh city for $2/kg. Pak and save had them for $5.99!
Shelf price quoted for Tao Envy after 40% discount is north of $10 per kilo. RRP is USD10 per kilo. Shopper profile will have to be high income.
You'd get the pip if it was your core business
Isn’t the point of raising interest rate more of killing demand thus causing a deflation on prices?
How do you raise prices if there’s no demand ?
Killing demand might encourage businesses to reduce profit margins as they compete for customers. But, they are more likely to simply reduce supply and downsize their operations. At the end of the day they are in business for the margin not the turnover.
Downsized businesses means less job vacancies to fill means it will help solve our worker shortage.
EDIT: Also businesses in it for the margin can't complain when they're squeezed. You can't claim you're responsible for the growth in the economy if all your effort is on margin rather than turnover?
Yes, that's the theory RBNZ are using:
Push up interest rates → more household income goes into debt repayments → consumer demand is reduced → businesses lower production and need less workers → workers lose their jobs (yay) → consumer demand reduces further → workers are prepared to work for less & businesses reduce their prices to compete for customers → prices come down → inflation is cancelled (yay)
The problem is the economy is not that simple - the theory is full of flaws. For example:
- increasing rates increases business input costs, and this creates pressure to increase prices that can offset savings from cheaper labour
- the underlying economic model also assumes that the cost of production per unit reduces at lower volumes(!!!) but most businesses are more efficient when they are near full production - so downsizing pushes up unit prices
- workers are highly unlikely to accept lower wages when the cost of living remains high (particularly mortgagors) and a significant chunk of the workforce have minimum and living wages as a 'floor rate'
- the amount of inflation that is imported is grossly under-estimated by the CPI model because prices of commodities and oil-related products have been so volatile (the weightings applied to CPI indicies have not been updated since 2020)
- the ability of capitalism to innovate to avoid higher labour costs should not be under-estimated - go into a hospo venue at the moment and see how many 16-19 year olds are working (for minimum wage) - employment of teenagers has increased by 25%(!!!) in the last couple of years - take home earnings at the lower end of the job market have not increased since January 2022
Killing demand might encourage businesses to reduce profit margins as they compete for customers. But, they are more likely to simply reduce supply and downsize their operations. At the end of the day they are in business for the margin not the turnover.
NZ is a high-margin consumer market across goods and services. Put it down to market scale, high-cost structures, and relatively inefficient supply chains.
The RBA's Financial Stability Review was released today.
A Bedrock Commitment to Price Stability
October 03, 2022
John C. Williams, President and Chief Executive Officer Federal Reserve Bank of New York.
Remarks at the 2022 U.S. Hispanic Chamber of Commerce National Conference, Phoenix, Arizona
Financial systems seems to have a spanner dropped into engine looks like somethings is going pear shaped could blow up any day soon.
David that Rabo rate of 3.25 is for 60 days notice saver, not 90 days. Just a typo I know.
'tackling of its affordability problems in a fundamental way.'
So how does this affordability come about?
By taking what people would really like, cutting the size and quality of it in half but only charging 3/4 the price?
Or are we going to help overbuild and/or destroy the neighborhood amenity value with pack'em and stack'em housing until it crashes so the developer wears the loss and people get to buy (if they can get finance and afford the interest) to buy a cheap house?
Tell me, how does this REALLY help make housing more affordability on a like-for-like basis?
The second but it will not destroy the neighbourhood amenity (nonsense term), it will change the neighbourhood but not necessarily for the worse.
I'm not sure why you are bringing in a like for like basis or how you are defining it. 6 smaller houses on one section can house 6 families compared to one big house on one big section which can only house 1 family. That will make housing more affordable. Would the families prefer one big house on one big section - probably but they will prefer to have a smaller cheaper house than not have a house at all.
What's your solution? Sprawl into productive fertile land?
So you are advocating a boom and bust cycle, to be repeated by what, another boom, and then bust? What is wrong with stable affordable housing like some jurisdictions that have good land use policies?
Unless you define your comparison, then it is meaningless. It's dishonest to say we will cut the size of the house and land in half, reducing the price by a 1/4, and then say it is more affordable. But by international standards, they are getting ripped off.
By that type of logic, we all end up in tiny houses with people extolling the virtues of them, which they do, or your type of reductionist logic where the logical next option is 'no house at all, ' which is solely due to the fact they can't afford housing.
And your default is to think that the only option to not living in high density is to sprawl into fertile soils. The chances are the high density is already built on what was once highly productive soils, and the reality for the people forced into such living is that they couldn't give a stuff about the soils if it meant they have to pay 3x more for 'privilege, especially when they could still have high density (if that is what they want) for 3x less if better land use policies were put into place.
Why do you insist that people pay up to 3x more for high density than they need to?
Any areas gaining in popularity hit price instability and affordability issues, particularly when they have physical barriers to sprawl - like harbour crossings, mountain ranges, etc.
Seems to work better when you have an almost endless supply of flat worthless land, like Queensland where you can pick up a section for 5 grand. So long as you don't need to commute, it's probably bliss.
For other places, it's increasing costs to occupy smaller parcels of land.
Value is worked out on plus and minus weightings. So building on a steep slope adds cost so that cost gets deducted (minus) from the model average of a flat section where it does not have that cost, BUT the steep slope might offer a better view, so an increase(plus) in price but be added for that, so the total price might be less, even, or greater than the average model price, depending on the degree of extra cost, and the degree of extra benefit. This is how all pricing is worked out. These weightings can then be influenced by multipliers, ie how each of these can be influenced by supply and demand, eg if everyone could get the same type of view from every section, that it would be a neutral cost input as there is no plus or minus weighting that can be applied to it.
Research has shown that the greatest intangible increase in price is from what they call 'the long view.' which you typically get and can only be protected on waterfront property or by having elevation.
Aussie land costs are not that far behind NZ, and are many more times the cost of Texas land, in spite of, as you say, having plenty of worthless lands. It's the unnecessary influence of man-made multipliers like bad land use policy, that add the unnecessary cost multiple.
It's very rare to find any property market anywhere that has totally rational pricing structures. Case in point, Texas has some areas with prices double the state average. That's not all bad use policy, it's because there's finite amounts of land in the areas more people want to live in.
Land use policy certainly impacts pricing, but your emphasis on it seems to ignore a whole bunch of other often unavoidable contributors to house costs.
Who'd have thunk Greenfields development in a state large enough to house the entire population of earth is cheaper than 100+ year old cities.
It's not about prices that might be double the national average. Of course, there is a range of prices, that happens in any country. The point is they are still only approx. 3 to 4x the median income of the person that is buying them.
And you conflate geographical constraints with man-made constraints, they are two different reasons for input costs.
And you don't understand that land use policy is a reflection of an ideology that is then also reflected in every other decision going forward. If you have the wrong land use policies, then the consenting, building, and house investment policies etc. will also be wrong, as they are used to try and correct the initial wrong land use policy. it's a perpetual negative feedback loop then results in housing becoming less affordable until the market crashes. Sound familiar?
It makes about as much sense as not worrying about the strength of a house's foundations because you think you can overcome that weakness by making the roof a lot stronger.
Most of the 'unavoidable contributors' you speak of will either not exist, or the cost can be greatly mitigated with the right land use policies. The effect is housing at far lower median income multiples than what we have.
And that last sentence is either not worthy of your comments to date, or just shows how poor you are at comparing international markets. Australia in size and flatness makes Texas look like NZ in comparison, and yet the pricing in Australia is many more times higher as a median multiple than Texas. In geographical similarity, the only difference between Australia and Texas is land use policy.
Until you understand where land use policies sit as a first principle, then you will continue to be a supporter and enabler of unaffordable housing.
Gold priced in NZD keeping up its performance compared to cash.
Past 1 / 3 months - +7%
P12M - +19.5%
Past 3 years - +37%
P5Y - +68%
5 years ago, we were happily mumbling along at NZ$1800, and today we are $50 away from an all-time high of NZ$3083. Odds must be that we take it out. A terminal OCR of 5%? Unlikely.
I've always thought a more interesting comparison would be: taking excess funds and converting them into some other store of value in the hopes of it beating inflation, vs taking excess funds and re-investing into the active economy.
Probably the most corrupt and broken part of the New Zealand political system is the role of corporate lobbyists influencing policy decisions of governments on behalf of vested interests. This is a group of political insiders – usually former politicians, party staffers or senior Beehive officials – who work at the centre of power and then depart with inside knowledge and networks that they can leverage to help corporate clients influence government policy.
https://democracyproject.nz/2022/10/07/bryce-edwards-faafois-lobbying-p…
Hasnt it always been that way? In every country? Not ideal but it is just an inherent part of capitalism - there are pros and cons to it... trick as with all things is to try your best to work with it
China's foreign exchange reserves were expected to fall to US$3 tln in September, a -US$55 bln retreat. But they didn't actually fall that hard, only declining -US$26 bln to US$3.029 tln.
“The Chinese whom I’ve talked to for years and years did not expect the dollar to weaken. They’re not crying about its rise, but they are concerned about flight capital from China as I think after the Party Congress [starting on October 16] there will be a crackdown on the Shanghai free-market advocacy. Pressure for the coming changes has been long building up. The spirit of reform to rein in ‘free markets’ was spreading among students over a decade ago, and they have been rising in the Party hierarchy.” Link
"That suggests 1,100 more dwellings were added than required for the expanding population."
Thats a strange extrapolation, given average occupancy rate is in excess of 2.5 per dwelling
And 3 houses per 1000 population are needed per annum to replace worn out stock etc. ie neutral sum gain.
Why is it a strange extrapolation? David subtracted new households formed from additional houses built.
It is strange because we have increased housing stock by 43,000 (if we indeed have) but population has only increased by 12,700 in the same period...with a stocking rate in excess of 2.5 it would suggest an increased supply of around 38,000 dwellings....rather than 1100
How can households grow by 43500? That implies a population growth of over 100k which isn’t the case.
Oil prices +11% this week as OPEC begins to moderate supply. How is that reducing inflation hypothesis looking RBNZ?
Things getting a bit predictable squishy. Just when you thought things were sorted some other unanticipated problem rears it head. The whole world is on a slow one way trajectory, its getting worse and worse for the majority of the people. Its all talk about growth and things getting better but sooner or later you have to ask yourself how and why were got to where we are now in the first place. If the world was run better its logical to think that its easier to prevent a mess than to try and get out of one.
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