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
Liberty Financial raised their floating rate by +75 bps to 8.34%. They also raised fixed rates sharply too. Resimac cut their 2-5 year fixed rates, following banks.
TERM DEPOSIT/SAVINGS RATE CHANGES
BNZ raised some short term deposit rates. Bank of Baroda raised its Online Saving from 1.00% to 2.25%.
PERSONAL LOAN
BNZ is reducing its personal loan interest rate from 17.85% to 12.90%.
BARFOOTS REPORT UNUSUALLY GLOOMY RESULTS
Dominant Auckland realtor Barfoot & Thompson just had its lowest April sales volumes in 22 years. Their median selling price slipped below $1 mln in April, now down -$245,000 or -20% from its November 2021 peak. Nationally, auction activity is very low. All this is consistent with many agents giving up their licenses.
BANK BONDS AS REGULATORY CAPITAL
Kiwibank is looking for $200 mln of 10 year bonds, with a rate reset at 5 years. These funds will qualify as Tier 2 capital in the event of default. Holders will have no right to require that the bonds be repaid early. These bonds are not guaranteed by any party, including Kiwibank's parent, nor the Government. The indicative margin is 2.20% to 2.40% pa above the five year swap rate. Yesterday the five year swap rate closed at 4.28% suggesting potential investors are eyeing a five-year yield of about 7.6%. (BNZ has a bond maturing in 2028 currently yielding 5.38%. Westpac has one maturing in 2027 yielding 6.10%. But neither of these comparatives are T2 capital bonds.) Moody's is rating these bonds Baa2, which is investment grade.
FASTER RURAL BROADBAND
The wait may be getting shorter for very much faster broadband speeds for the 13% of users who battle with slow and inconsistent copper-based ADSL, 4G wireless or copper-based VDSL. The Commerce Commission says it is excited by the potential of low Earth orbit satellite broadband internet. The main option for that is Elon Musk's Starlink with tests showing peak hour download speeds above 120 Mbps.
FEWER NEW CAR SALES
April new car sales data from NZTA came in at 7,061 which was -17% lower than year-ago levels and almost -40% lower than in March. Used imports were 7,945 in April which was +22% higher than year-ago levels but -18% lower than March levels. We will report electric/hybrid sales later in the week. New sales to rental car companies were weakish.
FEWER DISCOUNTS, MORE PENALTY FEES
The Government has tightened its Clean Car Discount rules as the allocated fund runs out of money. Most plugless hybrids and petrol cars to be dropped from the rebate scheme, while more utes will face fees. Farmers aren't happy because there are few alternatives and it just becomes a new tax. Car dealers aren't happy because the changes are happening very soon and it means dealers and customers who have had to order very early due to the worldwide supply-chain restrictions now won't be getting what they assumed when they ordered in advance.
WATCHING FOR MORTGAGE STRESS
The Reserve Bank says about a quarter of the current outstanding mortgage stock was taken out during the peak of the housing boom in 2020-21 - with a fifth of this taken by first home buyers. They expect more mortgage borrowers to fall behind with payments this year.
'DON'T DO IT'
The FMA is asking bank bosses to reaffirm they've removed sales incentives. Clare Bolingford says the regulator has heard some banks may have reintroduced sales targets, and it wants confirmation they haven't.
EYES ON THE RBA
The RBA will review its policy rate at 4:30 pm today. It is currently 3.60% and isn't ex[pcted to change, but there is a minor possibility of a change given their highish inflation. If it does rise, there will be a significant financial market reaction. Update: The RBA has raised its policy rate by +25 bps to 3.85%. We have more on this separately.
BIG BUCKS
Just how desperate Australian employers are to keep and win new employees is exemplified by the Australian Defence Force. Troops will get bonuses up to AU$50,000 to stay in their Army. This is part of a AU$400 mln retention scheme announced there.
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SWAP RATES RISE
Wholesale swap rates are probably higher today following international tren ds. However, the real action in swap rates comes near the close. Our chart will record the final positions. The 90 day bank bill rate is up +1 bp at 5.59% and 34 bps above the OCR. The Australian 10 year bond yield is now at 3.38% and up +3 bps from this time yesterday. The China 10 year bond rate is unchanged at 2.79%. And the NZ Government 10 year bond rate is now at 4.17%, and that is up +10 bps from this time yesterday, and still above the earlier RBNZ fix at 4.13% which has bounced back +11 bps from yesterday. The UST 10 year yield is now at 3.55% and up +10 bps from this time yesterday.
EQUITIES LITTLE-CHANGED
The NZX50 is down -0.1% in late trade today. The ASX200 is down -0.2% in afternoon trade. Tokyo has opened down -0.1%. Hong Kong is down -0.5% at their open today. Shanghai will be closed until Thursday this week for its Golden Week holiday. The S&P500 closed virtually unchanged in their Monday trade earlier today.
GOLD BECALMED
In early Asian trade, gold is little-changed from this time yesterday, down -US$1/oz at US$1982/oz. That is also very little changed from either the New York or London closings.
NZD LITTLE-CHANGED
The Kiwi dollar remains at 61.8 USc with little-change from this time yesterday. Against the Aussie we are down frationally at 93.2 AUc. And against the euro we are up fractionally at 56.3 euro cents. That means the TWI-5 is still at 69.8.
BITCOIN FALLS FURTHER
The bitcoin price has fallen further after yesterday's dip, now at US$27,990 and down another -2.3% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.9%.
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66 Comments
Barfoot Auckland median price down $30,000 for the month of April - 2.9%
IS THAT A RECORD FALL?
Total DISASTER on a monthly basis here in AUCKLAND
The median price in March at $1,025,000 and the average price at $1,102,933 for the month.
The median price in April at $995,000 and The average price at $1,086,866 for the month.
I wonder how many false starts they will get until we stop believing them. The credit conditions are just not there at the moment for a recovery. The sales numbers need to go up but no one is borrowing. It's getting worse not better.
Maybe after the election if other economies crash but ours is untouched then rates can go down a bit and they might get their recovery.
Not spruiking, I expect further falls myself, but this series is very noisy from month to month. Untwist your knickers with this chart from our hosts. You will need to select average price, the display defaults to year on year price change. It displays both mean and median and you will see these falls are not at all unusual in themselves.
https://www.interest.co.nz/charts/real-estate/barfoot-auckland
Not spruiking, I expect further falls myself, but this series is very noisy from month to month. Untwist your knickers with this chart from our hosts. You will need to select average price, the display defaults to year on year price change. It displays both mean and median and you will see these falls are not at all unusual in themselves.
Kind of meaningless without understanding sales vol (which helps to give a directional understanding of variance) and median prices (to help understand skew).
Mortgage stress. Let's be clear what is happening here...
- RBNZ is significantly reducing the disposable income of a few hundred thousand households with high mortgage debts - in the hope that cutting the spending of this specially selected team will reduce consumer demand and (somehow) slow the growth in prices
- At the same time higher term-deposit and savings rates for wealthier households are more than offsetting the losses suffered by households with mortgages. Yes, that's right, in aggregate, households are better off in cash terms because RBNZ is hiking rates. The theory is that consumer demand will still reduce because wealthier savers will leave their money in the bank
- But, how can households be net cash winners? Easy, because we are seeing huge increases in interest rate costs for non-financial businesses (including landlords, food growers etc). The cost of credit is a major input cost for many NZ businesses. Anyone who thinks these huge increases ($ billions) in input costs won't flow through to higher prices is crazy. Cost + margin is the dominant pricing approach in NZ (economists need to put away their dumb supply and demand curves)
- So, are wealthier savers getting all of this extra interest? Nope, silly, most of it is flowing to the equity holders of the banks
So, this my friends, is monetary policy. Take from the indebted, load costs onto business, and protect the wealth of the wealthy at all costs. That's how we slow price growth in 2023.
A lot of 'wealthy' New Zealander have a lot of Debt. That's how they got a lot of their net worth.
But that might be about to change.
Yes, the very top always had it. But there are an awful lot of those who thought they'd 'made it' who are about to find out, they never did.
I always thought it was the 35 year old Mums picking up the kids from school with the latest Range Rover who were the wealthy ones?
The number of these increased in proportion/in high correlation with Auckland property prices when living there - especially on the North Shore.
"The theory is that consumer demand will still reduce because wealthier savers will leave their money in the bank"
The boomers I've talked to who are mortgage free and have $500,000 or more in cash/term deposits are far more confident about spending now than saving when compared to 1-2 years ago.
Why? Because income they were receiving from their cash when the OCR was zero was very little (so they didn't want to spend), and now that its 5%, they are earning an additional $20,000 -$30,000 in income (before tax) each year for doing nothing different.
But their expenses haven't gone up by that much so they now have a cash/budget surplus that they didn't previously have - so have money to spend without eroding their capital/net worth position.
Yeah although shares haven’t done well in the last 1.5 years.
My 83 year old dad has 70% in shares and 30% in term deposits. He’s pulled his discretionary spend back a bit over the last 12 months because of the weakness in the returns on his shares, although the dividends have plowed on ok.. He’s started to open his wallet a little less cautiously with the very recent lift in shares. He won’t be able to reset his TDs at a higher rate for another few months.
He's pretty keen having 70% shares at his age and the last 12-18 months. Have you tried to get him to reduce risk? (to me he still has the opportunity to do so as I think its a higher probability that shares will underperform than overperform the next 12 months or so).
My suggestion to those no longer working was to mostly avoid shares and bonds the last 12+ months. (i.e. some exposure but very little) as rising interest rates aren't a good environment for them.
Too many unknowns to have that much risk - especially those who have only just retired (65-75 age bracket) as the last thing you want is to get wiped out a few years after retirement - knowing you might have another 20+ years to live.
Just cycle money market/cash funds/TD's in the interim and perhaps lock in some longer rates around now for steady/low risk income around 5%. Pounce when rates start dropping/earnings start improving again.
Yep I tried. He’s stubborn. His friend made a lot of money in shares a few years ago and I think he’s trying to make up for lost time.
But what would I know, according to some here shares are bouncing back and that is going to be sustained. Maybe they will be right.
Yeah well with the US 2/10 inverted (and starting to recover to a normal/uninverted spread) and the money supply shrinking over there for the first time in 90 years....I think we're entering into a period where if your net worth is the same in 12 months time to now, you've likely done quite well. There will be opportunities ahead. Perhaps generational opportunities.
But good luck with the father - once they get to that age it is pretty hard to have much sway.
Better than an Auckland rental losing 3% a month.
And I'm regularly told around here that it is pointless to view investment returns in real/inflation adjusted terms....so yeah a negative real return on cash doesn't matter as equally it doesn't matter for property nor shares.
Because if we want to talk about the Wellington or Auckland housing market in CPI or income inflation adjusted terms over the last 18 months its down over 30% which is a USA GFC style crash....which I was also assured was impossible by nearly every spruiker on this site over the last 5+ years.
Same as the idea floating around in the housing market pre-downturn that the purchase price of the house should not matter to FHB/OO if they don’t plan to sell in the short run.
A guy I met the other day bought a 55-year old crapbox in Taita at the market peak in 2021. The house wasn’t in good shape at the time of purchase and he hoped to borrow on the built up equity in a few years’ time to apply lipstick on the pig. Now he sits on negative ~25% equity and will have nowhere to go with his wife and toddler if the roof were to start leaking tonight.
Example: $500,000 in TDs at 2% (ignoring tax for simplicity) was covering their expenses of $10,000 with Super covering their living expenses. Super goes up by inflation so living expenses are covered. Discretionary spending from TDs at 5% is now $25,000 vs the inflation-adjusted cost of $10,700.
Exactly, the question is whether the stimulatory effects of OCR increases (including shovelling $7m a day at banks in interest) are outweighing the negative. I do t think so looking at the stats, although it is quite possible that it is the higher prices that are really killing demand.
April new car sales data from NZTA came in at 7,061 which was -17 lower than year-ago levels and almost -40% lower than in March.
Very interesting and perhaps worth watching. However, such variation might not be unusual. Saw an interesting correlation between luxury car sales and house price growth in Aussie.
https://www.macrobusiness.com.au/2019/09/luxury-car-sales-lift-with-hou…
So assuming that house prices are almost completely tied to interest rates (which is looking very likely), and assuming the RBNZ need to lower interest rates at some stage in the future, what is going to stop excessive investment in the housing market? I know I won't miss out next time!
Barry Humphries was asked how he managed to avoid an almost certain death from over drinking in the 70s, and replied that "I gave up. And once I did, I didn't go back into the Lion's Den to get my hat"
That's what's going to stop future property mania. A near-Death Experience for many current speculators. So bad that they shudder that the mere mention of the words "Investment Property"
Therein lies the dragons, monetary policy alone cannot fix the housing problem.
It needs to be a co-ordinated policy addressing supply (Zoning), limiting credit (DTIs) and making sure those with existing equity don't outcompete the FHBers... (Tax rules). What chance of all this being delivered ZERO
We would all love to roll the clock back and trade the housing chart again, we could all make free money, just be careful this is a very political football.
BW - Developers and speculators are like chainsaws, they only have two speeds.....
Riobertson and Orr needs a crash to correct the housing affordability problem ( cheap money, debt, inflation...) but cant crash it because they created the problem and would be strung up by thier gonads by the masses!
Thus, the scrambled cluster appoach... which is not and will not work.
Just how desperate Australian employers are to keep and win new employees is exemplified by the Australian Defence Force. Troops will get bonuses up to AU$50,000 to stay in their Army. This is part of a AU$400 mln retention scheme announced there.
The Defence Force Is Bleeding Out
The New Zealand Defence Force is facing an “unbelievable surge” in people leaving the organisation.
Speaking to The Front Page podcast, freelance journalist Pete McKenzie says that while the country commemorates Anzac Day, the Defence Force finds itself in a state of crisis.
“Right now, we’re seeing attrition rates of upwards of 10 or 15 per cent, and upwards of 20 or 30 per cent for some of the most skilled people in the organisation,” McKenzie says.
“That’s just not a rate that the organisation can sustain.”
"The Commerce Commission says it is excited by the potential of low Earth orbit satellite broadband internet."
Another development to support escape from expensive cities. Although the Doom Goblin in me (to be honest, there is little else) expects we will gear up to take full advantage of low earth orbit comms satellites, and then the Kessler Syndrome will strike and wipe them all out and the orbit for 200 years.
2 years ago we lived in a vallen on a rural road next to a rural school. the school had fibre. everyone else was on very slow but rapidly deteriorating adsl or wireless internet. Note that the ADSL was getting worse because population in the valley had increased - interference along 8km of old telephone lines got worse and worse. Then the forestry guys came in.
Chorus refused to allow anyone local to connect to the fibre line, so I wrote to the minister responsible at the time - that's right, Mr Mountainbike-during-lockdown himself.
His response was: we're waiting for LEOS for the internet. Surely your business can wait another two years or more for your internet to be fixed.
We ended up moving, and my neighbour told me the internet in the valley fully crapped out the week after we left.
Meanwhile, there's a perfectly good fibre line running the length of the valley no one was allowed to use - but the government is waiting for private foreign vendors to fulfill a critical infrastructure need!
NZ is losing its high tech tractor technicians to Australia. A particular well known, and supported brand, in the southern region, only has one tractor technician to cover the region. 4 have left for Oz in the last month, and replacements are just not out there. One tractor tech from another region left last month for Oz - can make $170k. Ag technology has made some big strides in the last decade, but it does rely on specialist tech knowledge to keep it going. The days of a spanner, screwdriver and crescent fixing a breakdown are long gone.
The lax approach to health and safety in this country continues to astound me.
Thanks to the ‘She’ll be Right’ mentality.
I have had moderate injuries and near serious misses basically joked about by managers in the past.
https://www.rnz.co.nz/news/business/489132/company-given-multiple-safet…
This has flown under the radar a bit. Desperate from Woods:
https://www.newsroom.co.nz/pro/govt-green-light-for-riskier-kiwibuild-p…
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