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
Heartland Bank raised its reverse equity interest rate by +50 bps to 8.50%. First Credit Union raised fixed and floating rates.
TERM DEPOSIT RATE CHANGES
There were no term deposit rate changes today, but ANZ did raise its on-line savings account rate to 1.95%, along with their Business call account.
DAIRY PRICES LITTLE-CHANGED
Stunted Asian demand, along with a rising volume of WMP in coming months seems to have kept dairy prices restrained today, changing very little overall from the prior auction two weeks ago. But in NZD, prices fell because the NZD is rising. This auction probably won't change any payout forecasts for the current season, where we are now on the downside of the milk curve.
CARBON PRICE -7.5% LOWER
Now that it seems clear farm emissions won't be linked to the carbon market price, that seems to have taken the wind out of the carbon market trading for NZUs. The price has been hovering just over $80 recently, having essentially flat-lined for most of 2022. The Q4 NZU auction occurred today, and fewer bidders showed up, but all units sold but for an average of $79/NZU. This is -7.5% lower than the Q3 auction price. These instruments are now just a financial play, and soon the FMA will regulate them like any other derivative.
JOURNALISM HONEYPOT
The NZ On Air administered Public Interest Journalism Fund allocated a large tranche of funding today, mostly to the usual suspects who promise to do good deeds with the money. You can check the allocations here. A quick count shows that about $11.8 mln was funded in today's decisions.
LATE TO THE PARTY
Sharesies said today it has been given the OK by the FMA to launch a KiwiSaver scheme. It will probably launch in early 2023. They have more than 500,000 members in New Zealand and Australia, who have invested about $2 bln mainly through trading in the NZ, US and Australian equity and managed funds markets. Average balances are a low $4000 among these members. They are laggards, however. Rivals InvestNow and Kernel are already offering KiwiSaver options.
CHEERFULLY BUYING LESS
Payments processor Worldline (ex-Paymark) is reporting that consumers spent less on goods but more on hospitality in November and the most recent week in December.
TAXES RISE VERY FAST, BUT NOT AS FAST AS SPENDING
Stats NZ reported today that central government delivered a -$8.6 bln operating deficit in the year to June (as previously reported by Treasury), but that local government produced a +$2.0 bln surplus is the same period. Total taxation of all types rose +11.6% in 2022 from 2021 (+$12.9 bln increase). That is a slightly slower pace than the prior year's +15.3% increase or +$14.9 bln rise.
FLP ENDS QUIETLY
The Funding for Lending program ended with a whimper, no-one dipping in yesterday on the last day for more. A total of $19 bln has been drawn. Each tranche is due to be repaid in three years, and the first due date is about a year from now. The cost is the OCR rate. The $19 bln drawn represents about 2.9% of all bank liabilities, so its distortionary impact has actually been small. (All bank liabilities total $652 bln.)
MUTUAL BANKS GETTING NEW CAPITAL SOURCE
The Reserve Bank says mutually owned banks such as The Co-operative Bank and SBS Bank will be allowed to issue what are known as Mutual Equity Tier 1 (MET1) capital instruments, to both give them more flexibility for raising capital and support the Reserve Bank's financial stability objectives by aligning shareholders’ financial interests with the performance of the bank. The MET1 instrument is another avenue to raise Common Equity Tier 1 capital.
AUCTIONS LOSE FAVOUR
Real estate auction rooms are getting even getting quieter as the housing market heads towards its end of year break. The auction sales rate dropped to 26% nationally, held back by the very low 17% rate last week in the Auckland market.
GROWTH WEAKENS
The Australian economy expanded +5.9% (real) in Q3-2022 from Q3-2021, but only +0.6% of that was in the September quarter, and that was less than was expected. Nominally, their dollar rise was +13.1% from a year ago, but the Q3 weakness was very pronounced in this nominal data. New Zealand doesn't report its Q3 GDP result until December 15, 2022. The Massey GDP Live tool suggests we can expect +2.5% real year-on-year.
SWAP RATES FIRM
Wholesale swap rates were likely firmer again today, this time on local trends. The real action comes near the close however. Our chart will record the final positions. The 90 day bank bill rate is up +2 bps at 4.47%. The Australian 10 year bond yield is now at 3.36% and unchanged from this time yesterday. The China 10 year bond rate is at 2.97% and up +3 bps. The NZ Government 10 year bond rate is now at 4.11%, and up another +8 bps and now well above to the earlier RBNZ fix for the NZGB 10 year which is up +4 bps to 4.01%. The UST 10 year is now at 3.54% and down -3 bps from this time yesterday.
EQUITIES MIXED
The S&P500 ended its Tuesday session down -1.4% on Wall Street. Tokyo has opened its Wednesday session down -0.4%. Hong Kong has opened up +0.2%, while Shanghai is down -0.3% in its opening session. The ASX200 is down -0.8% in afternoon trade. The NZX50 was down, but is recovering near the close to be back in positive territory, just.
GOLD LOWER
In early Asian trade, gold is at US$1774/oz and down just -US$1 from this time yesterday.
NZD HOLDS
The Kiwi dollar is little-changed, now at 63.3 USc. Against the AUD we are still at 94.3 AUc. Against the euro we are still at 60.4 euro cents. That all means our TWI-5 is still at 71.9 and unchanged from this time yesterday.
BITCOIN BECALMED
Bitcoin is now at US$17,046 and virtually unchanged from where we were this time yesterday. Volatility over the past 24 hours has been low at just over +/- 0.6%.
AN EXCUSE
Please note that there is unlikely to be a 4pm briefing tomorrow. The interest.co.nz crew will be decamping for its end-of-year function.
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89 Comments
Chris Joye's Coolabah Capital Investments tweaks the RBA's models to suggest "this cycle in interest rates still has a significant effect in the short term, pointing to a large correction of about 30% in national home prices over the next four years (or circa 40% from late 2022 onwards)."
And how's this for a new 'universal truth': In the model, a permanent 100bp increase in in the real cash rate reduces real house prices over the long term by one-third.
https://www.livewiremarkets.com/wires/rba-model-points-to-a-house-price…
Please give us a drunken 4pm update tomorrow! Or maybe 10pm!
9th Dec 22, 10:45am
Bruiklfest Bbriefing: Baicon, eggsss and a siode oif hash broiwns
Sadly, it looks like the excellent "90 seconds at 9am" is a bit too short, to be receiving funding from The NZ On Air administered Public Interest Journalism Fund :-(
Enjoy your end of year bash.
And, simply, thank you all!
Decamp & decant, enjoy. Anything vital breaking at 4.00pm, won’t pass unseen though, can be added to the breakfast bulletin easily enough by the usual suspects
The interest.co.nz crew will be decamping for its end-of-year function.
Have a great one, you all work very hard and deserve a break!
Not so long ago a 12 month ANZ term deposit would earn you 1.1%pa. Now at 3.65% their super saver returns over three times that. Mr Orr, his team and this government have all certainly led a merry chase haven’t they. It’s been hard to keep up. Still seeing how the great theme was for everybody to borrow and spend, rather than conserve and/or save, it might be, ironically for some who took the bait, that the present rates are immaterial, irrelevant , as there ain’t nothing to put into it.
We sold our rental in June this year with. It had zero mortgage. I’ll now get more income in TD than we did in rent. Zero hassle, zero fuss and will be able to buy the house back for 100k less in 12 months.
No sough grapes here, but it is undeniable that the extreme and hurried collapse of the OCR, the extended period at a unheralded bottom level, and then a belated and hurried escalation provided both surprise and uncertainty and out of that there is the fall out as always, and that is folks, winners and losers. Regrettably that has proven to be, in general terms, rather divisive nationally. Quite some longstanding and abrasive debate about the matter is well recorded on this website. I am fully supportive of this government’s conservative initial reaction to covid, the border closure and the first lockdown nationwide. But economically, it is becoming obvious that they overstepped their financial response and went on a spending gleeful glut, unnecessary, badly unnecessary. They just did not possess the acumen and discipline for any restraint, and here it is now coming to light. The winners and losers that confusion and unpredictability and mismanagement will inevitably generate.
Just 100k less you reckon?
wd.
Most people buying in today's market are well aware of what the market is doing. They will ride the downturn out, and will then take part in the upturn as everything stabilises, and the pent up demand people return to buying again. NZ houses will then be back on their 7-7.5% annual average increase in value again. Once inflation is taken care of, interest rates will drop, and it will be once again beneficial to be an investment property owner again.
That is what I, and other investors I know, are doing.
Out of interest, if you know exactly what the market is doing, why didn’t you sell at the peak and buy again at the trough? Don’t give me the long term investment rubbish, if you knew this was happening you would be crazy not to sell and buy later.
What you describe are the actions of traders and speculators. Many investors take the NEVER sell approach
Why do people keep saying rates will drop? The last few years were the aberration.
Across most developed economies interest rates have spent 30 years heading to zero.
Hard to say if calling us 'developed' will come home to roost eventually.
"Once inflation is taken care of"
RIP FLP for deteriorating the state of the housing market
Funding Le Ponzi
And the savings market. What would the distortionary impact be on New Zealanders savings?
AN EXCUSE
Please note that there is unlikely to be a 4pm briefing tomorrow. The interest.co.nz crew will be decamping for its end-of-year function.
Big Rough - Why not a Friday night? haha
There is an incredibly long line of chickens coming home to roost.
Today that line stretched the length of Riddell Rd Glendowie, normally a premium address and only recently always going for well over CV.
Saw a dev site approx 1100sqm in said rd Glendowie sell 22% off cv today, with RC for 4 dwellings, imagine without? went 2360k cv 3050
Another in said rd Glendowie sold 17% off cv (old but liveble). only 1.05 mil
Houses are selling if the vendor is willing. We will be well into 20s below cv by feb next year and 20% is a crash.
If an old Glendowie house is over a mill then we still have a long way to go - maybe another 50% off before sanity returns
On a yield basis 50% off makes some sense considering where risk free returns may well be in 5 years i.e. low... can see OCR very low once the carnage calms..... and is also close to a fibonacci level.....
my posts on this keep being deleted but I think we are almost half way there... (Ireland saw 50% drops. and 30% in the first year of the 5 years it took to get to the bottom);
Auckland Dev sites are currently around 25-32% off cv
Auckland Normal Houses are around 15-18% off cv
There are always exceptions , a couple have sold just over cv but they seem outliers to me.
It really all depends on where interest rates end up. I’d give almost 33/33/33% chance of them going up/staying same/going down by this time next year.
Sounds like IT GUY is spotting some bargains...
Riddle road me this batman. If you were a bank and were offered some cheap money to profit from, why wouldn't you take your max allowable amount. The banks know exactly what is going on. FLP should have been all gobbled up but there are still plenty of leftovers.
Ireland lost 60% from the 2007 peak to 2012 low.
NZ is dropping at a faster rate in 2022 that the first year if the IRE crash........we got a long way to go to unwind our last 10 years of insanity!
Lot of correlations with IRE and NZ!
The differences being migrants and locals are lesser skilled in NZ and much fewer multinationals headquartered here.
Sure the tax inversion and proximity to the huge EU economy are major factors. Nevertheless, those foreign companies don’t just own a postbox for tax purposes in Ireland, most have significant operations such as manufacturing and R&D facilities in the country.
IIRC NZ spends as much on R&D as Ireland, relative to GDP.
"Its hard to know where you are on the curve in real time"
5 years of Irish housing headlines - https://www.youtube.com/watch?v=FtbMAPcZ0Q0
IT Guy - Ireland did not lose 30% in the first year of their crash - it was slow and steady declines much like we are experiencing
I think Miguel has a good graph of it somewhere but a quick google found this from 2013
- In 2008, property prices fell 12.4% (-13.4% in real terms)
- In 2009, property prices fell 18.6% (-14.3% in real terms)
- In 2010, house prices fell 10.5% (-11.6% in real terms)
- In 2011, house prices fell 16.7% (-18.7% in real terms)
https://www.economicshelp.org/blog/7334/economics/irish-property-market…
The more interesting insight is that mortgage interest rates were reduced over 50% between 2008 and 2009, yet still that was not enough to save the collapse
https://www.theglobaleconomy.com/Ireland/mortgage_interest_rate/
Homes estimate is 2.67 million for the Riddell’s road development site. So it went for 300k under that. Interesting….
CV was 3050k , it was really old so would have been mostly land value. With an attached RC to split into 4 dwellings, that surely would increase the value of the land? and sold 22% below CV!!
Quietly think about what that says about the market right now......
It sounds like someone needs to spend 3-4 million bucks to take that project to it's end conclusion.
So nearly 6 million in funding required, in a bear market with high interest rates.
Yeah, you'd need to have money and not much to do with it for a while to buy that.
It says there's no money in developing and costs are excessive. It may be saying something about that one site only
The carbon auction price of $79 aligned closely to yesterdays spot price of $82.
I am surprised by the suggestion that the FMA will regulate this trade. My own expectation is that the FMA will keep well away.
The Climate Change Commission (CCC) has been explicit that the carbon price needs to rise and the CCC will continue to advise on auction availability of units to make this happen.
KeithW
Well the FMA does like to dabble and show that it is in charge
anyway CCC will be gone post election so problem solved
Meanwhile across the dutch https://www.afr.com/companies/energy/soaring-prices-deliver-an-extra-5-…
To fund nurses, doctors, roads, hospitals, schools.....
Grattaway,
The role of the CCC is supported by both sides of Parliament.
It won't be going away
KeithW
Fast action required to stop conversion of pasture to trees
Does anyone actually believe that the Climate Crisis proponents will put up with Carbon credits buying and selling being a solution to the Global Warming issue? The finding and identifying of a problem, and then sorting out a solution is the opposite of what they want.
The distortionary effect of the $19 billion FLP is greater than might be apparent from it only comprising 2.9% of total bank liabilities. A more appropriate comparison for effect on inflation would be as a proportion of GDP. Even that may underestimate the effect because of multiplier effects on credit lending.
KeithW
But how much of the lending has gone straight back to the RBNZ on deposit, so its acting as an emergency funding buffer banks can use if funding suddenly dries up? this money has not entered the credit system yet.
Yes, that is correct.
And that is why it looms over inflation policy going forward.
Currently there is an excess of funds sitting in settlement accounts at the RBNZ.
And as long a those excess funds sit in the settlement accounts, then managing inflation, and then getting out of the consequent recession without setting off another bout of inflation, is more challenging.
KeithW
Ok i see now, by pushing OCR higher the RBNZ is effectively moving all that excess liquidity out of the reach of potential borrowers, indeed it must feel somewhat pressured to do this. Stupid question, but are you saying without this excess liquidity sitting in ESAS we could potentially have a lower OCR rate both right now and a lower terminal rate ?
Covid Royal commission could have a field day with this.......
Working hard on some QT to reduce this liquidity would not necessarily give space to reduce the OCR immediately and may increase the interest rate on longer term loans, but it would defuse a time-bomb that will otherwise go off down the track following the current cycle of inflation and recession. Unfortunately, the excess pump priming of the last 2.5 years ( and which I first wrote about here at interest.co.nz in June 2020) means there is no smooth run-out ahead.
KeithW
“ And that is why it looms over inflation policy going forward.” KW, a late starter, but now a clear front runner for understatement of the year!
When I first started writing about this in June 2020 it was a lonely experience - although being alone did not in itself upset me. But it was frustrating. I organised my own affairs on the assumption that we would move into an inflation fire-storm, but I had no influence over those who were setting the fire.
KeithW
Yes, I remember. I posted a similar dread, I was at again yesterday on another column. I could not see how the fundamentals I had learnt way back, BNSW economist Rufus Dawes et al, about unbridled, untargeted money printing could have changed given the history. The fact that the whole damn shooting box globally was at it all at once, rather than a few countries spread over the years, was just creating a gigantic stew, not a few platefuls.
ps. Didn’t mean to imply you were late to the debate, only mean’t you were a late entry to the understatement contenders.
Direct quotes from ASB CEO Vittoria Shortt:
"At the time FLP was introduced the purpose of it was to try and stimulate investment and that was the whole reason for creating it. So we took that purpose and we decided that we would use it for the long-term benefit for all New Zealanders"
"We're going to use the lot."
What multiplier effects? - banks retain an economic interest in the collateral under the repurchase agreement contract hence bank balance sheets remain unchanged until the interest is deducted at the collateral sale date three years down the track. A review of this accounting diagram Exhibit 2 (secured borrowing) sets out the reality.
To understand multiplier effects you have to move away from balance sheets and explore the dynamics of cash flows as money bounces around. The quantity of money and the velocity of money still remain as fundamental concepts.
KeithW
David mentions that the distortionary impact of the FLP has been small but I wonder how small (or large) the subsidy has really been for the banking sector. If the cost of funds from the FLP were on average say, 100 basis points lower than the banks could have gotten from the market, bank profits would have been boosted to the tune of nearly $200 million. Nice if you can get it!
From the stuff clickbait today “Independent economist Tony Alexander said there was 90% probability that fixed rates had already peaked”
https://i.stuff.co.nz/business/money/300759177/how-high-are-mortgage-in…
Wrong wrong wrong wrong wrong!! He says this every time they’ve increased the OCR. “The banks have already factored it in….” I’m letting the guy get to me now. Feeling triggered. I’m just trying to think what would happen to my job if I was wrong 100% of the time… I’d get sacked!!
Man you're really good, how do you do it, knowing the future with certainty
Can you also tell me this weeks lotto And Powerball. And if it is not too much trouble, what else does Prince H reveal in the upcoming doco
Thnks
HW2… I’ve never claimed to be someone who can tell the future.. nor an economist. If I ever buy a puppy and it pisses on the carpet, I’ll give you a call so you can rub its nose in it. That’s how you treat people on here. In school we’d have called you a know all big head bully… but we’re not in school so I won’t :-)
Well TJ you were the one who claimed that TA was wrong wrong wrong etc
And are you saying that you are a saint who wouldn't bully others. Why did you write earlier today "Yay HW2!! Imagine when Luxon gets in and gets rid of the envy tax!! Goody gumdrops. All the landlords can form a gated community so you can ignore all the peasants and their ram raiding and hotel living. Perhaps you can become leader of said community and call it “Success-land”"
Anyway now you are getting me side tracked and I would rather leave you to your pity party. Goodnight kiaora
You must have gone to a posh school, in my school it would not have been as polite as that :)
If Tony knows the future movement of interest rates with 90% certainty, he doesn't need to win Powerball really, does he...
Interesting to see ANZ raise the term deposit rates for call accounts effective immediately - normally they come into effect on the 1st business day of the following month. Perhaps attempting to meet the competition who raise them immediately, eg RaboBank
FYI. From Michael B
Last year I presented to the market a whole floor of Queenstown car parks with storage lockers for sale.
They were selling so quickly that the developer increased the prices from $105,000 plus GST to $160,000 within a short time frame. The remaining sold readily at $200,000 plus GST. There is still a waiting list of buyers for this project which is underway.
How many did you manage to flip HW2?
A big fat none
Whwt about you, Were you "lucky" this time
No I do not live in Queenstown, though I am there a few weeks each year to ski. Its damn hard to find a park and at 100k he was underselling them, I thought he was smart? Not sure this example demonstrates how he added value for his vendor? looks to me like he completely mis priced them. I always choose a real estate agent who is on the game, knows the market etc, has a huge database of ready buyers, thats why I got 20% OVER CV on a dev site on Riddell Rd in Nov 2021. Did you read my post above noting they are now selling 20% below CV WITH a multi dwelling RC included. Thats a ................... 40% of cv difference..
Re the carpark at 100k int only loan for 5 years at 4-5% (Doable last year...) its only $5,000pa or $416pm for a downtown park. (see how easy it is to value a property , what does a carpark cost to rent pm in QTown....)
I wonder how anyone values an asset like a carpark. Huge demand so build build bewildered
Re: Valuation. compare holding costs, opportunity cost or the cost to lease. If they're like hens teeth, an owner has something of true value. If they could be converted to a one bedroom apartment that's even better. However Ive seen decent f/h one bedroom city apartments for less than 50k. I dont invest in either product. Well done on the sale last year. No one likes a correcter but 120% vs 80% is a 33 percent fall not 40. Sorry.
You know a lot about the subject, so here's a tip, the same agent has been tasked with selling Gold Coast carparks. 89k AUD each. UNDERPRICED !! Load up
I don't rate the Gold Coast, its full of sad tattooed ex kiwis and the occasional property commentator.
I prefer the Sunshine Coast with its surf clubs and bowling clubs.
Brisbane is the epicentre of the Aussie house price crash (Falling 2% a month, in fact the worst data that CoreLogic has seen in 40 years) so I will give it and the surrounding areas a miss for a few years until we get to the bottom. Lucky we didn't buy in the Gold Coast HW2.
But thanks for letting me know about them, at 89k they are probably overvalued.
From Queenstown in winter to the Sunshine Coast for summer, you know how to live mate.
I unfortunately have to stay back and work to pay the mortgage
🤔
Sorry, Riddell Road in Auckland? Yea that's not exactly a huge achievement in 2021, that's basically some of the most desirable land in the city. Lovely part of the world.
Who is Michael B?
The real estate agent, not the singer
Someone who underprices carparks?
MB sells for whatever the client tells him to. Nobody knows how much stuff like that is worth. When I sell, it is for what I tell the agent to sell it for. I consult a few people, but nobody relies on them totally for information. We get it from an array of sources, then work out a sale value from that.
Bugs & virus expert. Epidemiologist, don’t you know. Soon to be Sir to you.
Proclaimed expert. Uses Modelling. On full pay all through Covid. 3 reasons for cynicism.
Anyone notice the jet fuel shortage. Christmas cancelled :( If only we had our own refinery....
Edit..if only we had brought our local refinery..
I am going to be friggin spitting tacks next week if my flights are cancelled because of this debacle.
Seriously, this country is super amateurish
Political jesters. Not clowns though
Nice they will give you a credit if this happens, you just have to call the call centre to retrieve it.... meanwhile you will have to book another flight, at short notice... This part of the call center will promptly answer your call.
Press 1 for sales, 2 for everything else
Just book a bus HM... you'll probably get there faster at this rate.
Is diesel still available? Just checking.
Plenty of electricity
Edit..if only we had brought our local refinery..
You folk at Interest.co are a breath of fresh air. Please carry on the good work forever..
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