Breakfast briefing: How deep will the 2023 reversal be?

Business / news

Powell declines to engage on climate risks; US markets eye CPI release; China loan growth up +11%; Japanese household spending declines; UST 10yr 3.63%; gold down and oil little-changed; NZ$1 = 63.6 USc; TWI-5 = 71.2

11th Jan 23, 7:43am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news it's all about the size of the coming 2023 global economic reversal.

But first, overnight the US Fed boss was out speaking about how they will stick to their mandate. He said specifically "without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a climate policymaker."

The American retail impulse weakened sharply last week on a same-store basis, up only +5.3% from the same week a year ago and a gain far less than inflation. This comes after a strong 2022, and is their lowest weekly result since early 2021.

However, Americans are still accessing additional consumer debt at a sustained pace, increasing these obligations by +US$28 bln in November from October. That was more than the +US$25 bln expected but less than the +US$28 bln in October.

Market eyes are now firmly on Friday's US CPI data release. They expect no inflation rise in December from November which will take the annual rate down from 7.1% last month to end the year at 6.5%. Significant variation from these expectations will have outsized repercussions in financial market pricing.

China's new loan growth came in slightly more than expected, but in an expansion that looks very much like prior month. Their central bank is ensuring ample liquidity available as loans while their economy struggles through its unusual low patch. These loans grew +11.1% again in a continuing trend. You have to go back to 2003 to find a loan growth rate less than +10% pa. Their debt overhang is now huge.

The sector under the most stress, property development, is facing debt repayment in 2023 of NZ$220 bln, up about +10% from 2022. About a third of this will be offshore debt. Rising debt prepayment comes as sales and revenues decrease.

After five consecutive months of expansion on a year-on-year basis, Japanese household spending reversed and shrank in November, down -0.9% from October in an unexpectedly large pullback. A small dip was anticipated.

In Australia, their Government has instructed their competition authority, the ACCC, to investigate whether banks are behaving fairly when it comes to passing on interest rate increases to savers. This pressure comes as wholesale funding markets tighten, raising the possibility that banks may have to raise mortgage rates more than the RBA benchmark rate increases. APRA November data shows banks are competing hard in the mortgage sector to win a slimmer pool of market share.

The World Bank sharply lowered its growth forecast for the global economy this year as persistently high inflation has elevated the risk for a worldwide recession. They now expect global growth to be only +1.7% in 2023, a sharp downgrade from the 3% forecast they made six months ago. They say we are headed for a sharp downturn, only overshadowed by the GFC and pandemic reversals.

The UST 10yr yield starts today at 3.63%, and up +10 bps from yesterday. The UST 2-10 rate curve is still inverted at -65 bps. But their 1-5 curve is a little less inverted at -103 bps. Their 30 day-10yr curve is also much less inverted, now at -65 bps. The Australian ten year bond is up +9 bps at 3.78%. The China Govt ten year bond is up +2 bps at 2.93%. And the New Zealand Govt ten year is starting at 4.27% and down -10 bps.

On Wall Street, the S&P500 has started their Tuesday session up +0.4%. Overnight, European markets fell about -0.3% on average. Yesterday, Tokyo ended with a +0.8% gain, Hong Kong was down -0.3%, and Shanghai fell -0.2%. The ASX200 ended its Tuesday session down -0.3% as well, but the NZX50 bucked the down-trend with another +0.2% gain.

The price of gold will open today at US$1874/oz and down -US$2.

And oil prices start today +50 USc higher than yesterday's levels at just under US$75.50/bbl in the US while the international Brent price is just under US$80.50/bbl.

The Kiwi dollar has slipped, now at 63.6 USc and a -½c dip. Against the Australian dollar however we are firmer at 92.4 AUc and about +¼c up. Against the euro we are soft at 59.3 euro cents with -¼c slip. That all means our TWI-5 starts today at 71.2, little-changed from this time yesterday.

The bitcoin price is now at US$17,310 and virtually unchanged from this time yesterday. Volatility over the past 24 hours has been remained low at just +/- 0.8%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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117 Comments

by Foxglove. | 11th Jan 23, 7:57am 1673377070

Not much NZ can do about the reality of the second paragraph except, relatively speaking, cripple itself by trying to do something about nothing.

by nktokyo | 11th Jan 23, 7:58am 1673377131

I'm firmly in the climate change is an existential threat camp, yet I agree with him. Mandates need to be given to the central bank, not created by banker decree.

by chebbo | 11th Jan 23, 8:33am 1673379218

Solutions to problems like these will never come from the top down. They need to come from the bottom up.

by Foxglove. | 11th Jan 23, 12:37pm 1673393822

Perhaps but, as is being intimated in this announcement, perceived necessity will largely always have a greater influence on policy than attitude and in the USA, at least, it would seem difficult to find the bottom of anything.

by nktokyo | 11th Jan 23, 9:18am 1673381900

I think you need both. Something to incentivise good behaviour and remove cheaper yet harmful activities. Eg, CFCs from fridges.

It is probably more beneficial in the long run if X% of our communities don't get washed into the ocean.

by murray86 | 11th Jan 23, 9:23am 1673382182

Tend to disagree. Governments are in place to lead. While many of them are poor, or lead in the wrong direction, in a democracy they need to set out a plan for the nation including the economy. Global warming/ Climate change is an existential challenge that many are in denial over or trying to ignore, and without firm leadership nothing will change. Which means without firm leadership in the right direction - we're screwed!

But as many indicate,any changes must be pragmatic. Change is required, but people have to be able to survive too, so the change must be affordable.

by Baywatch | 11th Jan 23, 9:48am 1673383709

The conversation should start with - how do we use less energy?

by murray86 | 11th Jan 23, 9:56am 1673384170

It's much bigger than that but yes that is a very good starting point.

I think the biggest problem is that there is simply too many people on the planet, but that conversation is not even happening. Every living thing consumes energy, humans the most. We can work to become more efficient, or even start rationing it but that would lead to war. We can use technology, but that will initially demand more energy. But these are all delaying tactics. Until something major changes there are still too many people on the planet for the living, breathing eco-system to support us. The denial is going to kill us as a species, one way or another.

by Lanthanide | 11th Jan 23, 11:07am 1673388441

Until something major changes there are still too many people on the planet for the living, breathing eco-system to support us.

At our current standard of living.

Fewer people, or the same number of people with a lower standard of living. Pick one. If we don't pick one, nature will pick one for us. Or probably both.

by Carlos67 | 11th Jan 23, 11:22am 1673389363

Nature will decide, nobody likes to take a drop in their standard of living. We have a society where the next generation wants more than the last, its doomed to failure the only question is when.

by Palmtree08 | 11th Jan 23, 1:16pm 1673396200

Disagree. Humans quickly adapt to a change of circumstances. The first step is to stop telling them it's impossible!

by Carlos67 | 11th Jan 23, 8:54pm 1673423679

Rubbish there are to many to adapt. Those that keep thinking technology will save us just because their new smartphone is so cool are misguided. When it all finally turns to shit there is no ship off this planet.

by Pa1nter | 11th Jan 23, 9:09pm 1673424572

Pays not to trash talk Elon too much then.

by Palmtree08 | 11th Jan 23, 10:55pm 1673430941

Adapt too a less consumptive lifestyle was my point. I don't do techno utopian fantasies, fuelled with hopium.

Such lifestyles have been done before, they can be done again, albeit on a substantially depleted planet. It will happen. There are no other choices!

by Baywatch | 11th Jan 23, 3:52pm 1673405541

When you use a pick up truck to drive 1/2 a Km to get milk .....???

by denature | 11th Jan 23, 11:22am 1673389368

By what measure do you believe there are too many people on the planet? By what metric do you define that?

On independence India had around 361 million people. It now has around 1.4 billion. Yet Indians are better fed than ever and famines are virtually non existent (they were far more frequent at and before independence). In fact India is a food exporter.

Increasing wealth decreases population growth. There is a clear correlation between increasing wealth and decreasing birth rates.

Wealthier people also become more interested in protecting their environment as they become less concerned about surving until the end of the week.

Wealtheir economies also urbanise so that populations are more concentrated in smaller spaces. This allows the continued greening of the planet we have seen in the last 40 years.

Somewhere around 2 billion people (obviously very poor) burn cow dung for energy. It generates all manner of poisonous pollutants and causes all manner of health problems. It is far dirtier than burning wood which itself is dirtier than getting electricity from a coal fired power plant. So it is not a simple metric of "more wealth = more polluting".

The "too many people on the planet" crowd strike me as remarkably callous if not entirely unethical. I would propose getting the poor wealthy is the most ethical and effient solution. On the balance it seems to have had the best effect. What would you propose?

by murray86 | 11th Jan 23, 11:51am 1673391093

Because you think it is too callous then you think it shouldn't even be discussed? The evidence is around us every day and the success of the solutions in place so far. Lanthanide and Carlos both comment in the right direction. In nature itself (is your nom-de-plume indicative?) examples abound of the consequences when a species overwhelms their habitat. What makes you think that humans are any different?

by tis i | 11th Jan 23, 12:20pm 1673392833

There’s nothing sustainable about 8 billion people on this planet.

by Palmtree08 | 11th Jan 23, 1:28pm 1673396907

By which metric is burning wood more polluting than coal? Certainly not in terms of the heavy metals released, including Uranium, the aerosols produced, the mountains of toxic fly ash? Perhaps wood produces more CO2/unit energy released? Well true, but wood isn't a geologically stored source of carbon. Its renewable, if burnt at a rate within that at which it is grown. This of course would require less energy use and less people using energy, but wood can be renewable, unlike coal.

by rastus1 | 11th Jan 23, 11:42am 1673390577

Murray - look at demographics.

One reason for the popn growth numbers has been the extension of life span - this has delayed deaths, making increases look much higher.

China is about to find that out - popn expected to half within 30 years (and that's without food or disease crisis). And they are not alone.

by Palmtree08 | 11th Jan 23, 1:34pm 1673397271

"making increases look much higher." Increases don't look higher, they are higher. We are adding a France in population growth every year. That's caused by births. Not a lack of deaths!

by murray86 | 11th Jan 23, 1:59pm 1673398778

Rastus said "one reason" and he's not wrong. But better living standards and medical science combine to improve longevity. But a more pertinent issue is as you indicate, the birth rate. Too many children being born. But this is not only a genetic requirement, but also a cultural one. Both the Bible and the Koran charge people with going out and multiplying. There is no suggestion that there is a limit, or consequences to perpetual population growth. Culturally there are still large groups who are not far out of the stone age philosophically, and any suggestion they can't do what their religious texts urge them to is a blasphemy, or apostasy. (Iran is sentencing people to death for crimes against God). There is no easy or simple solution.

by Palmtree08 | 11th Jan 23, 2:28pm 1673400483

Rastus' point was to say, "look over there". Too much of that going on. Sustainable, dignified human existence in perpetuity will not be achieved without addressing population overshoot.

https://www.npr.org/sections/thetwo-way/2015/01/20/378559550/pope-franc…

by kiwikidsnz | 11th Jan 23, 2:53pm 1673401990

Offer anyone currently receiving a taxpayer funded benefit a free IUD/Vasectomy + $1000 ?

by interesting1234 | 11th Jan 23, 4:33pm 1673408004

If the last couple years are something to go by, throw in a free KFC voucher and see the results replicate nationwide

by Hamish | 11th Jan 23, 9:52am 1673383924

But as many indicate,any changes must be pragmatic. Change is required, but people have to be able to survive too, so the change must be affordable.

The forces of nature don't really care about affordability or not.

by chebbo | 11th Jan 23, 10:07am 1673384832

The problem is Murray that any meaningful change is going to be unpleasant, which means unpopular, which means politically unpalatable. The only thing governments can do is pretend to have the perfect solution, where we can all carry on with BAU, just in a "greener" kind of way.

So top-down "solutions" will always consist of dead-end initiatives like subsidising luxury EV manufacturers, ponzi schemes like the ETS, or pretending that hydrogen is the answer to anything. Meaningful change will have to come from grassroots level, and the sooner we realise this the better.

by murray86 | 11th Jan 23, 10:17am 1673385453

Don't disagree largely. Governments have become lazy, pandering to the wealthy while the rest suffer. Justifying the suffering of the majority while a minority bear no burden is unacceptable. But that doesn't mean practical solutions and a pragmatic approach to change cannot be found and implemented. But ultimately the biggest problem will require the hardest and most painful solutions.

by sit23 | 11th Jan 23, 10:35am 1673386548

We could possibly bring back a vibrant Liberal Democracy. But that would never work. The other problem is that without laws to regulate our behaviour, we will do what suits us in the next five minutes or so. Not much longer term than that. If I introduce climate change policies into my business that cost me fifty cents an hour, my competitors will beat me on every job quote by fifty cents an hour. Not rocket science. The only solution is to pass laws we all have to obey. Unfortunately, governments can only pass laws that the majority of us want passed. As this government is going to find out later this year.

by Lanthanide | 11th Jan 23, 11:14am 1673388876

Yip, I've been saying it for a long time - turkeys don't vote for Christmas.

In a democracy any party that seriously campaigns on climate change action, which is unpopular, will lose elections to opposition parties who say it isn't necessary.

by profile | 11th Jan 23, 1:18pm 1673396316

Especially when places like urban heat island Sydney couldn't even hit 32 degrees in 2022 - for the first time in recorded history. A hard sell.

by Palmtree08 | 11th Jan 23, 2:03pm 1673398985

Don't you need sun for high temperatures?

https://www.washingtonpost.com/climate-environment/2022/10/06/sydney-au…

by profile | 11th Jan 23, 3:14pm 1673403271

No, you only need geologically low levels of CO2. All the cool kids know that.

"The next 50 years offer Sydney the last chance to avoid catastrophic climate change that would devastate south-eastern Australia, the scientist Tim Flannery has warned.

Speaking last night at the State Government's Sydney Futures forum, Dr Flannery warned of a city grappling with up to 60 per cent less water."

https://www.smh.com.au/environment/sydneys-future-eaten-the-flannery-pr…

by nigelh | 11th Jan 23, 6:37pm 1673415454

Is this the same Flannery that predicted in 2007 that rains won’t fill Australia’s dams, only to see record busting floods in 2011, and who encouraged investment in “straightforward” hot rock geothermal energy, which kind of went nowhere, feels time has vindicated his climate track record.

by Palmtree08 | 11th Jan 23, 7:38pm 1673419135

"The next 50 years offer Sydney the last chance to avoid catastrophic climate change that would devastate south-eastern Australia"

Devastating, yeah.

https://www.reuters.com/business/environment/australia-battles-floods-f…

by Palmtree08 | 11th Jan 23, 7:44pm 1673419471

Heard of ENSO Profile? You're an intelligent guy. I'm sure you have?

https://www.abc.net.au/news/2019-03-12/state-of-the-drought-is-not-good…

by Whatwillhappen | 11th Jan 23, 1:27pm 1673396844

Unfortunately, governments can only pass laws that the majority of us want passed.

Unfortunately, you're only partly right. The way we're set up here is that we elect what is essentially a dictatorship for 3 years. Then, if our memories aren't completely whacked and we don't agree with the laws we chuck out the government making the laws. But only after 3 years. Without an upper house a government can act with impunity for 3 years (2 1/2 years + election period).

by DMC45 | 11th Jan 23, 12:59pm 1673395190

I think meaningful change will likely come from the top when there is a catastrophic environment/climate-related event that impacts a, or a number of, major wealthy nations. It will be the catalyst for change. Probably too late by then, but let's see.

I wrote an essay about this turning point event in a post-grad essay I wrote about sustainable development in 1996. Wasn't a particularly great essay but I still firmly believe the key point (as explained above) and nothing in the intervening 25-years has happened to change my mind.

by Foxglove. | 11th Jan 23, 1:37pm 1673397434

I remember ages ago in the hills overlooking Adelaide a bloke booted over a small ant’s nest. The occupants en masse scurried about and set about rebuilding it. I was reminded of that same process full well during the EQs in Christchurch but this time in contrast of course it was delivered by mother nature herself. Seems to me humanity has long based itself on survivorship. The dead are dead and can’t say much about it, the survivors regather and push on, those not involved observe and think won’t happen to us. History, folklore etc has provided warning words such as armageddon, apocalypse, ragnarok all largely ignored and irrelevant to 99% of the world’s population every morning they wake up. That embedded complacency, I suggest is largely what makes the perils of climate change a hard sell.

by Chris-M | 11th Jan 23, 2:56pm 1673402210

Yes. We will all be dead before the government solves this one. Population is and always will be the most significant factor at about 7 ton of CO2 equivalent per capita per year.

We can all do our bit in that regard and that is by far the most significant thing that anybody can do.

by nguturoa | 11th Jan 23, 10:46am 1673387166

Yeah let's keep on pushing the silly ideas if subsidies on electric cars to the rich who can afford those expensive cars. This is not the government which is pro poor but pro rich.

And all that subsidy does diddly all for climate change as that big boat which brings in the cars doesn't run electric engines.

by Advisor | 11th Jan 23, 11:19am 1673389176

The increase in EV uptake from the government subsidy should create a larger second-hand EV market in the years to come.

Unless NZ invents a big electric boat that can carry cargo around the globe or other groundbreaking green tech, the best we can do is buy items/adopt IP created elsewhere to reduce greenhouse emissions.

Continuing to let companies extract fossil fuels from our seabed and diverting the royalties towards clean-tech R&D could've achieved better outcomes for our planet but doesn't come with the same photo op for Cindy.

Even Trudeau is smarter than that.

by nigelh | 11th Jan 23, 6:41pm 1673415709

"The increase in EV uptake from the government subsidy should create a larger second-hand EV market in the years to come."

All with about 10% battery life left no doubt. I don't study vehicle EVs but a few on this website have purchased Teslas. I'm sure they did their homework and asked what a new battery would cost at the time of purchase.

by Palmtree08 | 12th Jan 23, 9:52am 1673470373

I am grateful to have a government that displays a rare commodity among recent governments, called "leadership". There are too many of those awful chunks of metal status symbol, known as "twin cab utes", clogging our roads. Nice to see, with a little push in the right direction, positive change can happen. Of course change is practical too, unless people love paying a huge chunk of the weekly wage on polluting gas guzzlers. Electric is expensive up front, a barrier, then cheap.

by nktokyo | 11th Jan 23, 7:57am 1673377025

The sector under the most stress, property development, is facing debt repayment in 2023 of NZ$220 bln, up about +10% from 2022. About a third of this will be offshore debt. Rising debt prepayment comes as sales and revenues decrease.

https://youtu.be/haZpwAm_xEY

by HW2 | 11th Jan 23, 8:19am 1673378389

"The second week of the new year has commenced on a positive footing, risk assets extending gains in the wake of Friday’s encouraging US jobs report. US equities and more broadly global equities are a sea of green "https://www.interest.co.nz/currencies/119013/although-markets-may-now-s…

Also notice how the bottom of the US share indexes and the bottom for non usd currencies align in October last year. That's not a coincidence. It's all about perceived risk combined with growing confidence that we have seen the worst.

What did Buffett say, be greedy when others are fearful... The worst financial day during the pandemic, the bottom of the cycle was in March 2020. Had the pandemic ended, no of course not but fears were subsiding from that point.

by IT GUY | 11th Jan 23, 8:29am 1673378972

The World Bank sharply lowered its growth forecast for the global economy this year as persistently high inflation has elevated the risk for a worldwide recession. They now expect global growth to be only +1.7% in 2023, a sharp downgrade from the 3% forecast they made six months ago. They say we are headed for a sharp downturn, only overshadowed by the GFC and pandemic reversals.

Pandemic has ended and the financial recession is just starting. In NZ just to get back to pre covid madness....

National Avg price 615k 810k 24.1% fall required

Auckland Avg price 875k 1065k 17.8% fall required

ex AKL nat avg was 525k 715k 26.5% fall required

by HW2 | 11th Jan 23, 8:34am 1673379277

"In NZ just to get back to pre covid madness....

National Avg price 615k 810k 24.1% fall required

Auckland Avg price 875k 1065k 17.8% fall required

ex AKL nat avg was 525k 715k 26.5% fall required"

What are you trying to say... That the Auckland average price rose 21.7 percent over 3 years, And non Auckland property rose on average 36.19 percent.

Hmm that sounds pretty good. Or Is it something else

by IT GUY | 11th Jan 23, 8:39am 1673379585

I am giving you a lesson in the power of interest rates, take it or leave it.

At the top AKL prices where avg 1,300k do the math, its a big fall for those

who did not sell in Nov 21. Heading for 875k

a 32.6% fall just to the precovid madness level

by HW2 | 11th Jan 23, 8:42am 1673379744

That story is sooo 2022

The narrative of "property has an inverse relationship to int rates"

In other words, as interest rates doubled, property prices would halve.

Its no wonder I am laughing

🤡

by Retired-Poppy | 11th Jan 23, 9:17am 1673381827

IT GUY, go easy on HW2. Its his first real life "Rodeo" 🏇⏬

by Averageman | 11th Jan 23, 9:14am 1673381679

Warren Buffet often highlights a relationship between interest rates and asset values. He is one of the world's greatest investors. Is he a clown as well...?

Values are definitely in retreat. Where to exactly who knows.

by HW2 | 11th Jan 23, 9:21am 1673382115

The commentary from others was, as interest rates doubled, property prices would halve.

by Retired-Poppy | 11th Jan 23, 9:33am 1673382795

HW2, from the Nov-22 highs, how do you know they won't halve? You've already been warned that using that Astronomical Almanac of yours will cause blindness 🕶️

by J.C. | 11th Jan 23, 9:31am 1673382712

The commentary from others was, as interest rates doubled, property prices would halve.

You would be foolish to discount or ignore the possibility of the outcome.

by DTRH | 11th Jan 23, 9:42am 1673383376

HW2 over next year property price’s halving looks possible. If rates go up 1% house prices come down around 10%, if rates come down 1% house prices goes up around 10%. It all depends on central banks who basically follow the FED or your local currency will be devalued causing higher inflation. It looks like the FED’s narrative is higher rates for longer. the rate hikes already put in place will take a while to work into system but over next year you should see the decline in house prices accelerate.

by HW2 | 11th Jan 23, 9:53am 1673384034

Lets deal in some actual facts rather than the theoretical based models you learned in econ 101

Last year int rate moves were unprecedented, 400bp. By that example prices should have fallen 40 percent. Not 10 percent (5 percent according to corelogic)

Explain how your proposition fits with nz interest rates rising in early 90s and mid 2000s and what happened to property prices at the time . The reverse also in late 2000s

by Retired-Poppy | 11th Jan 23, 11:28am 1673389683

HW2, be patient. It will take time for higher interest rates to work their magic on this Ponzi. People are only now rolling of their artificially low fixed rates. It might take another 24-months to complete the corresponding correction.

Has Mr Orr been shredding your letters requesting interest rate restraint?

by HW2 | 11th Jan 23, 10:15am 1673385346

DTRH who has been spending too long reading his falling REIT prices, reckons if rates go up 1 percent, residential property falls 10 percent, and vice versa. Show me some actual foundatonal evidence that counters the evidence I gave. Not your reckons

by Amokk | 11th Jan 23, 10:20am 1673385659

HouseWorks - our little boomer spruiking friend.

Have another update from the Facebook Property Property Investors Chat Group:

Just got my new rates -2.6% to 7.7%. A jump of 600 a fortnite on approx 300k. Luckily I had savings that paid off that portion of the loans however got me thinking. Lots of investors will be in the same situation that they will be rolling off low fixed rates to high rates now or shortly. What is your game plan to mitigate these increases? Sell in the coming or something else?Or will you just suck it up and wait for the next cycle ?

At this point 101 comments and an excerpt of comments are below:

- This year will be interesting. Most mortgages ($100b) or I think over 70% are due to be come off fixed this year before September. I think once this happens the economy will fall off a cliff

- XX is doing a good job highlighting the reality of the situation and its a good warning to those out there not to get suckered into the rhetoric being pumped to try and get people to buy by RE industry. This happened from late 2020 to early 2022 and those people are in negative equity now. Unless you are paying 10% gross its a waste of time. Values need to revert back to 2017 values to make close to any sense.

But hey you keep deluding yourself - maybe CWBW has some room in his basement with his boys for you to help with the propaganda?

by HW2 | 11th Jan 23, 10:31am 1673386269

HouseWorks - our little boomer spruiking friend.

Clearly you do not know anything much about me

by redheadonist | 11th Jan 23, 10:35am 1673386536

Indeed, all we know is what you yourself have written on this forum.

by HW2 | 11th Jan 23, 11:39am 1673390360

Houseworks?

Boomer?

by DTRH | 11th Jan 23, 3:59pm 1673405990

It works out over time when emergency rates were put in place the housing market went up 40% over time now it is in reverse by end of this year the house prices would probably drop around 40% in some places it has already dropped 20% from top and we are only at start of downturn, it’s is just my thoughts why are you so upset HW2 could this be the first time you have seen a housing price downturn you seem quite naive go and see a financial advisor or you could ask retired poppy he might help you if you listen.

by HW2 | 11th Jan 23, 5:41pm 1673412084

why are you so upset HW2 could this be the first time you have seen a housing price downturn you seem quite naive go and see a financial advisor or you could ask retired poppy he might help you if you listen.

You are welcome to hold any random views that suit you, and hopefully something you can justify. The same goes for me right? A genuinely held wrong view is better than pushing a lie.

I haven't said that I am upset, your reading between the lines needs help.

by DTRH | 11th Jan 23, 7:13pm 1673417606

Facts are house price’s are falling very quickly. We are looking at a 40% fall from top of market at end of 2021 by end of year, these forecast’s seem to upset a number of people on this website, the smart investors left the market months ago but some of the head in sand types will be looking down the barrel of large losses and there’s no point crying about it, many people on this website have seen downturns before and have tried to warn user’s of the coming house price crash.

by Harvey W | 11th Jan 23, 8:10pm 1673421045

Nope, prices rising before the end of the year, don't wait until 2024 to buy!

by nguturoa | 11th Jan 23, 10:22am 1673385778

I agree that interest rate changes are still to bite. In one of my conversations yesterday, I was thrown off my seat when a friend bullish on buying property all the time just said that he thinks it's not right to do it with 7% interest rates.

He has been bothering me for 3 years to buy more and it will always keep increasing. He did it himself and what happened is that he had to sell his family house so he can afford to move to into the new house he has been building to make those big profits. Now he is back to square one with one house albeit a bit bigger but a lot further away from their work.

Is this sensible doing ?

by Snow | 11th Jan 23, 10:10am 1673385034

Last year int rate moves were unprecedented, 400bp.

How long do you think it will take for the full effect of that unprecedented 400bp rise to show up in property prices?

by HW2 | 11th Jan 23, 10:17am 1673385478

I am not an economist. Find one, then find another that agrees with the first.

by Snow | 11th Jan 23, 10:48am 1673387295

Lets deal in some actual facts rather than the theoretical based models you learned in econ 101

Understanding hypocrisy isn’t your thing? You can’t argue a fact is a fact until it’s happened. As you say, we’ve had unprecedented actions from the RBNZ. Nothing to say unprecedented results can’t come from that. Anything else is theoretical.

by HW2 | 11th Jan 23, 11:53am 1673391203

Nothing to say unprecedented results can’t come from that.

Resi property is not the sharemarket where results are more immediate. I gave several examples where prices do not follow conventional logic as the resi property market is more intuitive.

In Q2 2020 sellers retreated, when amateur commenters and professional commentators alike were expecting sellers to bail. They held firm, then a small increase in buyers caused small gains to lead to big gains as first speculators and then desperate fomo buyers started to pile in. Available stocks shrank as owners continued to hold on as there was fear of not being able to re-buy. Various factors drove prices up and up. Interest rates was merely one.

by Snow | 11th Jan 23, 12:09pm 1673392183

Is there an over arching factor in your view or do they all have fairly equal weightings as far as having an effect on pricing?

What are the combination of factors around market psychology that has helped cause the turn around and reduction in property prices over the last 10 months or so outside of interest rate rises/availability of credit?

by HW2 | 11th Jan 23, 7:32pm 1673418758

Good question. Tax rules, lending requirements, interest rates, low population growth, a huge air of uncertainty over int rates and inflation, a vicious circle. Also the fact that we gorged ourselves on property the previous 18 months and needed to digest the meal. Anything I've missed, increased supply?

There are still thousands of homes transacting each month even now after 12 months of toe curling worries. First home buyers are taking their biggest share ever so does that say something to you

by HouseMouse | 11th Jan 23, 11:11pm 1673431879

All it says is that sales to investors have fallen off a huge cliff. FHBs accordingly comprise a larger share of sales. Diddly squat.

by kiwikidsnz | 11th Jan 23, 10:58am 1673387881

The Mexican standoff is currently in play which is why property agents inventory & days to sell have both increased over the last year. Waiting for someone to blink first.

by HW2 | 11th Jan 23, 11:59am 1673391567

The level of inventory is down. I am not saying it will stay down, but it might.

by kiwikidsnz | 11th Jan 23, 12:33pm 1673393587

? see housing stock graph in this article 2022 ended as a buyers market | interest.co.nz

Final paragraph:

"Even at the lower levels of listings, they still represent a substantial overhang in dwellings for sale in this market. There are now 28 weeks of listing inventories at the current rates of sale. That is up from 11 weeks a year ago, and up from 23 weeks in November. The largest deterioration has been in the Coromandel.

The shift from November to December was the largest rise in this overhang since the GFC (ignoring the twists in the early months of the pandemic in 2020)."

by WestieAJ | 11th Jan 23, 11:06am 1673388402

In NZ when interest rates are in a rising cycle. House prices plateau or fall as people stop trading in houses. But incomes rise as it is in everyone's collective interest to have more money to service the increased interest costs. This wasn't necessarily inflationary as the increased income just went to servicing debt. There was no excess income to boost demand and prices for other goods and services. When the wealth effect is needed again politically/economically then interest rates start to be cut. Suddenly everyone can afford to service more debt from their increased incomes and hey presto the property prices start to rise again. Each round of the cycle sees the total mortgage debt increased. 50 billion was added in the 2020-2021.

Will the unprecedented tripling of mortgage interest rates on 330 billion of mortgage debt be the end of the game?

by GV 27 | 11th Jan 23, 11:20am 1673389239

Almost certainly yes, the question now is effectively 'what level of intervention will it require to stop everything grinding to a halt?'

We've taken 'Keepy-uppy' for as long as possible, but it's no longer sustainable. There's going to be fall-out. So who cops it, and to what extent?

by HW2 | 11th Jan 23, 11:38am 1673390302

In NZ when interest rates are in a rising cycle. House prices plateau or fall as people stop trading in houses.

Not so from '93 to '97. Or '02 to 07.

But incomes rise as it is in everyone's collective interest to have more money to service the increased interest costs. This wasn't necessarily inflationary

Therefore at what point do higher pay packets effect the cpi

by tomjones_04 | 11th Jan 23, 12:36pm 1673393773

https://www.oneroof.co.nz/news/42878

Even Tony says you are talking out of your arse.

by HW2 | 11th Jan 23, 12:57pm 1673395048

After the rubbishing of Tony that goes on here. How about keep it seemly

by Jonny.Foe | 11th Jan 23, 12:55pm 1673394912

No, the % change in interest rates has an inverse but not equal effect on the % change in house prices. In NZ, increases in house prices follow about 9 months behind decreases in mortgage rates (and decreases in house prices follow increases in the rates with the same lag).

by HW2 | 11th Jan 23, 2:34pm 1673400871

A significant factor is it the level of economic confidence. Certainly having high levels of employment as we do, helps greatly to keep the wheels of commerce turning. I am surprised you have not qualified your comment for relevant other influences

by Neutral_Observer | 11th Jan 23, 8:31am 1673379070

So just ignore the yield curve inversion because "this time is different"? Also, the economic effects of rate hikes take many quarters to be fully felt, which means 2023 is going to be non stop body blows as the 7 hikes last year all repeatedly pummel the economy but "she'll be right Mike"?

by HW2 | 11th Jan 23, 10:26am 1673385972

"Also, the economic effects of rate hikes take many quarters to be fully felt"

Most people here think that the guvna is increasing short term int rates to reduce property prices. Wrong. House prices aren't part of the cpi. Which infers that when residential property prices recover, inflation could also be falling.

by redheadonist | 11th Jan 23, 10:56am 1673387785

You tell others they know nothing about you and out of the other side of your mouth you make gross generalisations about what "Most people here think".

What a sad life.

by HW2 | 11th Jan 23, 12:32pm 1673393549

What a sad life

You know virtually nothing about my life. Stop making gross generalisations yourself mate/matess

by redheadonist | 11th Jan 23, 3:06pm 1673402763

I am not claiming you are a representative of a whole class of objects or phenomena.

by Albert2020 | 11th Jan 23, 9:38am 1673383098

Using that logic you’ll be heading to the bank to take out a mortgage for an investment property then?

by HW2 | 11th Jan 23, 12:31pm 1673393476

If I find the right property I will be in like the proverbial. I have seen a few out of my budget and others out of my preferred areas. If I need a mortgage there are various lenders, not just banks.

There again, I might be posting from emergency accom using the smart phone I just found

As IT Guy says, take your pick

by King of the whiners | 11th Jan 23, 8:42am 1673379767

Climate change is coming for the US economy whether the Fed want to do anything about it or not.

First up, the insurance industry:

https://www.theguardian.com/environment/2023/jan/10/extreme-weather-cli…

Given the Insurance industry is the 'I' in their precious FIRE economy you would of thought an intelligent central banker (an oxymoron?) might have joined the dots..........

by linklater01 | 11th Jan 23, 9:02am 1673380938

King of,

"Scientists say emissions must be cut in half this decade globally, and be zeroed out entirely by 2050",

I don't question climate change/global warming, but it is certain that global emissions will not half this decade for at least 2 reasons. Energy security will ensure that fossil fuel development and use will increase and the perhaps inconvenient fact that a transition to a Green(er) economy cannot happen without fossil fuels.

by Averageman | 11th Jan 23, 9:16am 1673381814

Two reasons. China and India have nil chance of doing so.

by nktokyo | 11th Jan 23, 9:18am 1673381938

If the carrot doesn't work the stick will. No more factory investment.

by Advisor | 11th Jan 23, 9:25am 1673382342

And pay multiples more for everything from a pen to an airplane? I think not. The stick you speak of is firmly up the backsides of nations that depend on the low-cost industrial skills available en masse in those polluting countries.

by Foxglove. | 11th Jan 23, 9:20am 1673382002

Add to that, to echo PDK (where is he lately) until the population(s) demand for energy decreases, its consumption of that and all other resources too, will continue towards blowing out what the planet can provide.

by Palmtree08 | 11th Jan 23, 2:44pm 1673401468

"until the population(s) demand for energy decreases". A more likely scenario is the bottom end, both countries and within countries, will be priced out of the energy market, leaving the top end of town grumbling, but immune. Although more will fall off the bottom end as the depletion graph steepens.

by Audaxes | 11th Jan 23, 9:22am 1673382160

#Apple & #Amazon have lost almost $2tn in combined value - or roughly Switzerland’s entire mkt cap - since hitting record highs, BBG has calculated. The iPhone maker has lost $916bn from its peak in Jan2022, while e-commerce giant is down $991bn since topping out in July 2021. Link

US is punching well above its weight, Ruchir Sharma says. US stock mkt value has reached 60% of global total, 15ppts >long-term avg. US real footprint much smaller: ~50% of corp earnings, 25% of world GDP, 1/5th of listed comps, 4% of global population. https://ft.com/content/3e040c Link

Show me the cash flows = wealth, not capitalisation.

by Audaxes | 11th Jan 23, 9:27am 1673382457

Americans appear to think bringing back their manufacturing base is like shelling peas. How exactly are people going to afford massive hike in prices? By paying higher wages? Who is going to finance trillions needed for massive infrastructure rebuild? Printed money? Link

by Audaxes | 11th Jan 23, 9:36am 1673382983

Another wake-up call: China's car exports in 2022 were up 50% yoy and more importantly has now surpassed Germany as the world’s second largest exporter of cars. Link

by Carlos67 | 11th Jan 23, 11:30am 1673389843

China is top dog now and if it isn't its only a couple of years away. The USA will continue to implode, its beyond the tipping point. So much easier to hang onto your manufacturing than to try and get it back up and running. Its like your personal fitness, easier to do a little every week and maintain a base than to do nothing for years, get to 150Kg then try to recover. America got lazy and greedy, sat back and continued to spout that "we are the greatest nation on earth" crap and blew out to 150Kg.

by Dale Smith | 11th Jan 23, 12:40pm 1673394019

Peter Zeihan has a different take on China https://www.youtube.com/watch?v=iWolH-ewUIU 

by Baywatch | 11th Jan 23, 3:58pm 1673405900

Another Carlos clanger...please Carlos do some research this year on subjects before commenting, or at least read the news here daily to get some insight!

by Carlos67 | 11th Jan 23, 9:04pm 1673424243

Well I will give it to the USA, they are right on the same level with Brazil after the 6th January incident there just yesterday. Not quite as bad apparently at least people were not getting killed in Brazil.

by Averageman | 11th Jan 23, 11:07am 1673388432

Indeed. Fueled by record low cost of debt and speculation on capital gain, totally unsupported by yield.

Sound familiar...?

by NZGecko | 11th Jan 23, 12:37pm 1673393846

Its the Father of all the Crashes in history. Ours has only just begun.

by interesting1234 | 12th Jan 23, 10:26am 1673472378

US stock mkt value has reached 60% of global total

A good indicator that the world is backing the USA over other markets. The question will be will this hold up given the global financial debt levels at present, or will we see the dollar milkshake play out and see the USD plummett if the share market cops a walloping

by J.C. | 11th Jan 23, 9:28am 1673382489

Oh my. Fed research shows the surge in retirements since 2020 "accounts for essentially all of the shortfall" in labor force participation rates.

"More than half of the increase in the number of retirees appears to be a direct result of the pandemic."

https://www.federalreserve.gov/econres/feds/files/2022081pap.pdf

by Hans Brink | 11th Jan 23, 9:53am 1673384034

USA needs to ramp up manufacturing in Mexico. Probably would sort out lots of issues.

by Carlos67 | 11th Jan 23, 9:07pm 1673424440

Maybe they should have not left Mexico in the first place. Gear I repair that is made in the USA used to have made in Mexico 20 years ago. Maybe they wouldn't have tens of thousands of people flooding the Texas border looking for work in the USA. Shame it all now has made in China.

by Squishy | 11th Jan 23, 10:48am 1673387336

Developed countries are getting old. We are going from a prevailing environment of excess labor to excess job openings:

https://fred.stlouisfed.org/series/LFWA64TTUSM647S

by Squishy | 11th Jan 23, 1:15pm 1673396125

Just to add high asset prices have probably encouraged many to retire or exit the workforce as well.

by Tim Depositor | 11th Jan 23, 9:53am 1673383981

https://www.reuters.com/business/sustainable-business/world-bank-seeks-…

by J.C. | 11th Jan 23, 11:00am 1673388021

Policy brief on 'The Federal Reserve’s Balance Sheet: Costs to Taxpayers of Quantitative Easing'

It might seem extraordinary that a US government institution could conduct any program that is likely to incur a cost of nearly $1 trillion to taxpayers. And it might seem equally extraordinary that such a program could be undertaken without congressional approval or even any forewarning about the magnitude of the risks. Yet that is the expected outcome of the Federal Reserve’s securities purchase program known as QE4 (its fourth round of quantitative easing).

https://www.mercatus.org/research/policy-briefs/federal-reserves-balanc…

by Squishy | 11th Jan 23, 10:42am 1673386966

And oil prices start today +50 USc higher than yesterday's levels at just under US$75.50/bbl in the US while the international Brent price is just under US$80.50/bbl.

Is the nominal difference between Brent and US larger than usual?