A review of things you need to know before you sign off on Wednesday; one retail rate change, dairy price variances, card transactions lackluster, Air NZ upgraded, swaps stable, NZ on hold, & more

An article for those who still whistle tunes from an outdated song sheet.

The shock that rippled through global housing markets as central banks rapidly raised interest rates last year has given way to a cold new reality: The real estate bonanza that fueled wealth for millions of people is over. That’s straining the path to wealth in countries such as New Zealand, Australia and Canada, where many people turned into amateur property investors.

https://www.bloomberg.com/news/newsletters/2023-11-21/australia-news-today-real-estate-rba-interest-rates-lithium-outlook?srnd=premium-asia

A NEW NZ STABLECOIN

Firstly a disclaimer, I know very little about crypto and "coins".  I often hear for example that Bitcoin's value is because it is finite, you can't make any more Bitcoin.  Why is that?  If it was created before, why can't it be created again in the future?  Also can't there be endless production of new coins ad infinitum lowering the value of existing coins?  Happy to be educated.  

Probably nothing

The share of US home sellers dropping prices is at a record high. Nearly 7% of for-sale homes in the U.S. posted a price drop during the four weeks ending Oct. 29, which is the highest portion since Redfin started tracking this data in 2012.

https://fortune.com/2023/11/06/housing-market-record-number-sellers-cut…

Once the masses and the bag holders realise property is overvalued, they only thing that will put a floor in is lower rates, the RBNZ knows this and once its fallen will drop rates.....    the question is how far does it fall before those rate cuts impact bids, most are donkey deep in RE already, some... not so much...

PASS THE GREEN SHOOTS TO THE LEFT HAND SIDE.

 

Watching pennies

One of the most extreme cases is playing out in New Zealand, which was home to one of the world’s biggest pandemic booms, with property prices rising almost 30 per cent in 2021 alone. About 25 per cent of the current stock of mortgage lending was taken out that year, and a fifth of those were first-time buyers, according to the Reserve Bank of New Zealand.

Mortgage rates in the country are typically fixed for less than three years – meaning the central bank’s 525 basis points of rate increases since October 2021 are sending house payments soaring.

The RBNZ says around half of the outstanding stock of mortgages have been refinanced this year. It estimates the share of borrowers’ disposable income dedicated to interest costs will rise from a low of 9 per cent in 2021 to about 20 per cent by the middle of 2024.

That’s squeezing the budgets of people such as Aaron Rubin, who took out a $NZ1 million ($920,000) mortgage in 2021 to finance the purchase of a $NZ1.2 million four-bedroom house.

After moving to New Zealand from the US eight years ago, he and his wife, Jessica, thought buying a home in the coastal city of Nelson was a decision that would provide stability for their two young children. At first, the couple paid about $NZ4000 a month on their mortgage. After a refinancing, it’s now up to about $NZ6400.

“We can no longer afford to visit our family in the US, and we are literally watching every penny that flows in and out of the account,” says Aaron, a 46-year-old software engineer. “It’s time-consuming and stressful, and it’s changed our lifestyle.”

He considers himself lucky – his financial situation isn’t dire, and the couple can afford to continue paying their mortgage. He sees many Kiwis under far greater pressure.

The saving grace for many households has been strong wage and employment growth that has kept distress to a minimum, says Sharon Zollner, chief New Zealand economist at ANZ in Auckland.

“Once you deflate it by household income growth, debt is actually considerably lower than it was in 2007,” she says. “But, of course, the average hides a million stories, and there are certainly some stressed people out there.”

Investor pullback

The global housing boom of the last decade made real estate a fast path to wealth in countries such as New Zealand, Australia and, especially, Canada, where tens of thousands of people turned into amateur investors. By 2020, people with multiple homes had come to account for almost a third of the housing stock in two of Canada’s three most populous provinces, Ontario and British Columbia.

But higher interest rates and bond yields mean the math has suddenly flipped. Owning an apartment in Canada’s biggest city, Toronto, will now yield only 3.9 per cent after mortgage costs and other expenses, less than the 5 per cent earned by investing in a Canadian government treasury bill, according to a Bank of Montreal study.

“I don’t see how you can replicate the last 20 years going forward,” says Robert Kavcic, the Bank of Montreal economist who authored the report. “You’re going to have a whole generation of investors learn a pretty hard lesson.”

Higher borrowing costs have already pushed some investment properties deep into negative cash flow, forcing their owners to sell while also damping interest in new purchases. That could spell trouble for regular people just looking for a place to live, too.

Investors buying units pre-construction has become a key source of financing for developers in the last decade, and their pullback has already seen the delay or cancellation of thousands of planned units in cities such as Toronto. Canada’s already under-supplied market is one reason home prices have proved surprisingly resilient to higher interest rates, and the expected slowdown in building could only exacerbate the shortage.

A similar situation is playing out in Europe, where higher rates and soaring construction costs threaten to intensify supply strains. In Germany, new building permits fell more than 27 per cent in the first half of the year, and in France they dropped 28 per cent through July.

Sweden, suffering its worst slump since a crisis in the 1990s, has building rates running at less than a third what’s deemed necessary to keep up with demand, threatening to further test the limits of affordability.

And that’s not even getting into the compounding strain from skyrocketing consumer prices generally. In the UK, which is facing the highest cost-of-living increase in a generation, nearly two million people have resorted to using buy now, pay later credit to cover groceries, bills and other essentials, according to a survey this year by the Money and Pensions Service.

With more than 1 million home owners estimated to be refinancing their mortgages this year at much higher levels, that pressure will only get worse.

Your link to the Sodium ion battery very interesting. Some of the lithium stocks have been easing (PLS.asx) with new technologies lurking. Interesting times as EVs are now hitting big production. Also I see Ryman is back down at $5.30 today, testing lows.

Kinda fitting that the comments thread today is houses and crypto - both speculative assets! At least you can live in a house - or rent it out to the poors.

My crude view is that house prices are simply a function of how much people can afford to pay, which is a function of (i) credit costs, (ii) availability of credit, and (iii) household income of buyers. Indeed, if you look at mortgage payments as a % of household income the data is very steady overtime at between 36% and 39% - only spiking when rates are hiked and people are forced to spend more than they wanted to (GFC, 2022, 2023 etc). What this means of course is that house prices go up when borrowing costs come down, and up when borrowing costs go down. Of course they do.

Now, very serious people will tell you that we just need to free the mighty market up - strip the regulations away and we will have a surplus of houses and then the prices will come down. Bless their cotton socks. Why would developers build houses if there was a surplus?!? And, even if they did, where do people aspire to live - everywhere? Nope. Housing markets and prices are localised - houses can be 25% more expensive on one side of the street because the catchment area for a good school has a border down the middle of the road.   

Over in Aussie, property interest payable on dwellings increased from $45 billion to $91 billion in the 2023 financial year, more than doubling in recording an increase of +102 per cent.

Wowzer. 

https://petewargent.blogspot.com/2023/11/property-interest-bill-doubles…