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/LOAN RATE CHANGES
ICBC has cut -16 bps from its 18 month fixed rate to 6.79%, and -10 bps from its 2 year rate to 6.75%. Apart from Heartland Bank's offers, these are the lowest (or lowest equal) in the home loan market now.
TERM DEPOSIT/SAVINGS RATE CHANGES
ICBC has raised its rates for terms less than a year, and lowered them for 1 year and longer. Xceded Finance has raised its 6 mth and 1yr TD rates, and lowered rates for all longer terms.
GOING NOWHERE
Average dwelling value increased by just +$351 in February. Auckland's average value declined by -$5391. Nationally, average values monitored by QV are flattening out.
RETAIL SPENDING SLUMPS
Stats NZ figures show that retail card spending fell a seasonally-adjusted -1.8% in February after a bounce in activity in January. And as Westpac notes: "Overall today’s data reinforces the picture of softening domestic demand. We expect households to remain cautious with regards to their spending over the coming months. That’s likely to be compounded by the softening in the labour market already in train."
STILL TRENDING LOWER
ANZ's truckometer series isn't showing much to cheer about either. Both their light vehicle series (cars) and heavy vehicle series (trucks) are still trending lower even it there were rises in the February month..
THROUGH A RECENT TROUGH?
Japanese producer prices rose by +0.6% year-on-year in February, an acceleration from the +0.2% rise in the prior month and above market forecasts of +0.5%. It was the highest producer inflation since last October. But it is nothing like the increases they had in the 2023 months to September.
CONDITIONS IMPROVE BUT CONFIDENCE DOESN'T
In Australia, the NAB business sentiment survey reported that business conditions rose in February, signalling their economy has remained resilient in the new year but inflation is still a challenge despite slowing growth. Business confidence fell slightly however, as firms struggled to deal with combination.
CHEAP WHEAT, PLENTIFUL SUPPLIES
Russia's invasion of Ukraine caused wheat prices to spike. But that is over now with prices falling to a four year low and back to levels we had in the 2015-2020 period. Buyers rule. And now China is cancelling purchase contracts from the US - and at a rate faster than usual. This is because it can buy supplies cheaper elsewhere.
REMINDER
If you haven't done so yet, we would appreciate it if you could complete our car insurance survey. More about it here. The survey itself is here.
SWAP RATES HOLD
Wholesale swap rates have probably stopped falling today. Our chart below records the final positions. The 90 day bank bill rate is unchanged yet again at 5.65%. The Australian 10 year bond yield is up +1 bp from yesterday at 3.98%. The China 10 year bond rate is up +5 bps to 2.34%. And the NZ Government 10 year bond rate is up +1 bp at 4.67% and its lowest since late January, while the earlier RBNZ fixing was at 4.61% and unchanged from yesterday. The UST 10 year yield is now at 4.10% and up +4 bps from this time yesterday. The UST 2yr is now up to 4.54% and so that key inversion is deeper at -44 bps.
EQUITY WINNERS & LOSERS
Wall Street slipped slightly today with the S&P500 down a minor -0.1%. Tokyo has opened its Tuesday session down another -1.0% on top of yesterday's big fall. Hong Kong is roaring again today, up +1.2% at its open. Shanghai however is little-changed. Singapore is up +0.4% at its open. The ASX200 is up +0.3% in early afternoon trade. The NZX50 is down -0.5% in late trade.
OIL FIRMS
Oil prices are up +50 USc today at just over US$77.50/bbl in the US while the international Brent price is now just over US$82/bbl.
GOLD HIGH BUT UNCHANGED
In early Asian trade, gold is little-changed at US$2181.
NZD STILL ON HOLD
The Kiwi dollar is still at 61.7 USc and little-changed from this time yesterday. Against the Aussie we are softish at 93.2 AUc. Against the euro we are little-changed at 56.4 euro cents. That means the TWI-5 is marginally lower at 70.4 today.
BITCOIN RISES
The bitcoin price is much higher at US$72,078 and up +5.5% from this this time yesterday. Volatility has been high at +/- 3.8% today.
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85 Comments
Tova O’Brien tackles "the new Government and cost of living" in the much maligned Stuff. Really empty reading for me and I have nothing to really take away. It would be much better if Stuff could publish the meaningful content re inflation and the cost of living from interest dot co.
Anyway, there's nothing that can be done. The blind leading the blind. According to Tova,
"Given wage growth typically increases faster than inflation it will mean smaller increases to benefits than would otherwise have been the case."
And people swallow this nonsense?
https://www.stuff.co.nz/politics/350209052/tova-obrien-new-government-a…
From RNZ.
"Internal Affairs Minister Brooke van Velden said she understood Fire and Emergency New Zealand (FENZ) was working with the brigade to give back the money raised during last weekend's charity ride, following "several negative comments" and complaints from the public"
Its OK to accept donations from the tabacco industry but not a fundraising ride organised by a Wellsford motorcycle club.
Don’t even bother to visit the site now. Reminds me way back in the days of the Christchurch Press there was a reporter who penned lightweight, vague opinion pieces. He was a relative of friends of my grandmother who referred to him, in the vernacular of their age, as a milksop and that actually describes the whole damn outfit nowadays.
And then there's this - https://www.youtube.com/watch?v=47JFpFH0bw0
He can't answer the question put to him.
It'd be funny if it wasn't a tragedy in the making.
The comparison to a coffee shop or any other "business" is a massively flawed rhetoric but landlords have bought it left, right and center.
When asked about his own rental properties he looked like a stunned mullet.
Renting properties is not a "business"? Of course it it. That's what it should be. If it's not a "business", people should buy REITs if they want an "investment".
The interviewer is atrocious. She states that 'businesses pay taxes on profits but rental properties don't pay tax on capital gains'. Luxon tells her she's being 'economically incoherent'
How is Luxon wrong?
It is done as a business, but just like every business there's a variety of quality of the operators.
If you're paying rent, you should expect a functional home that's maintained, everything fixed that needs to be, etc. There's a service component involved, that has to be paid for, somehow.
Generally 3-5k a year likely needs to be spent annually.
I thought they were just "mom and pop" saving for their retirement? But yes they are defined as a business according to the MBIE. A unique business model that doesn't have the same complex range of overheads and challenges most other businesses have to endure, yet the most vocal and disingenuous.
Luxon is 100% correct. A business won't pay tax on capital gains, that's not limited to just rental properties.
https://www.business.govt.nz/news/if-youre-a-landlord-youre-in-business/
Its a business when it suits (interest deductibility, expenses) and a private investment when it suits (private mortgage rates not the business rate). And no CGT. So it remains the number one by value investment for Kiwis. Cant blame the Kiwis..........Unprincipled and vested politicians keeping a large lobby happy.
Okay. Selling a business alone is not taxed on profits, but I guess if you had depreciated assets you sold above book value then you'd pay tax on that.
https://www.business.govt.nz/how-to-grow/planning-to-exit/what-to-do-wh….
Herds are not businesses though, they're treated as capital under the Herd Scheme? So I guess if you call it capital, and you're taxed on the gain, then it's a "capital gain". But all that's happening is you're being taxed on your product I would have thought, happy to be proven wrong.
Nup. It's an investment and they're both different models with different tax treatments.
A for profit business won't survive more than a couple of years if it's not making a profit and it's usually not relying on capital gains or tax refunds to fund it. A standard rental property usually does not make positive cashflow until the mortgage is extinguished or considerably lowered. A retail or service business is actually choosing to provide a service - landlords try to justify themselves they're doing the same when the majority couldn't give a shit and would gladly take the gains if they could do it without tenants. The Residential Investment Property market (note 'investment') was highly promoted as tax free gains, tax refunds and the tenant paying your mortgage. No other "business" is promoted this way and most business owners actually require an interest in what their offering to run it for the benefit of their customers and therefore themselves. It's a basic premise that has been lost in the narrative of "creating" wealth buying and selling houses to each other or owning as many as possible.
This is all why for the past 2 decades we've had the overinvestment in house speculation over productive businesses, why we've had tax issues and the need for government to introduce various forms of taxes and tax credits, the lack of infrastructure maintenance and social services (health, education, police etc), and the financial stability and inflation issues. It's the expansion of financialisation/investment into peoples need for a home. Basic greed and exploitation - the fundamentals of capitalism.
She was technically incorrect and also technically correct - capital gain is generally the only profit a rental property makes. And Luxon's not being economically incoherent with his answers?
But the highlight of the interview to me was Luxon not being able to answer the $800M hole and the belief that not only will the landlord tax relief package reduce rents but will apparently add more supply to the rental market. And in his own case if he doesn't have the cost pressures he must be able to significantly lower rent taking the pressure off renters. That was his rant.
I don't understand how you only saw her one error? I didn't think you were a Luxon fanboy.
Yeah, intention and reality doesn't always reconcile. It may have been that way in the 80's and 90's but with the boom everyone practically became a speculator, even those "investing" in the family home.
It still highlights that it's an investment with many favourable criteria that distinguishes it from a "real" business.
I don't even know if there's the data to substantiate the claims as to how much capital gains are driving rental investment.
Capital gains or retained value can definitely make landlording a more attractive vehicle, but I think it's pretty hard pressed to overlook how most people would like a semi passive revenue stream, and the options are few, or of higher risk profile.
Earning money actively, is significantly more involved, and requires continual effort.
The data has literally been the predominant narrative, the articles, the advertising, the news, for the last 20 years. Bank economists, Corelogic, QV, OneRoof, REINZ, all attempting to drive house prices, property investment, FOMO, capital gains. House prices, the property market, Residential Property Investment, the rockstar economy, the energy given here to anything property related, the property related reality shows. I wasn't limiting it to just rental investment. One doesn't need any official statistical data to see this.
Prior to the boom, buying a home, maybe a bach even was just a normal human activity. It didn't make the daily news.
There's a lot of talk about capital gains. And there are capital gains.
But determining the capital gains are the prime motivation for having a rental property, is a much harder thing.
I can do some napkin maths that can make a preferential case for a 35 year old with 120k buying a rental, than investing in Kiwisaver, exclusive of capital gains. That you may also see capital gains, is a bonus, but one you can't necessarily model, or depend on.
And the losses are carried forward. Load as much mortgage debt against the rental property as you can and chalk up the loss each year. Eventually rents rise and you start making a small "profit", you start extinguishing those tax losses. Might be a good 15 years before a rental starts paying tax, by then the landlord has either sold or leveraged the portfolio back into negative cashflow position.
Every negatively geared rental property that puts the rent up takes money out of the economy that would have otherwise been GST bearing.
Is it a bad point? At least it's a point. The money could have been spent and not saved too, I fail to see your point.
Also, $50 per week into a savings account will generate a return that is....taxed? How much tax revenue do we see on landlords paying down their mortgages? I suppose the bank makes a profit and that's taxed, but it would be ideal if tax was paid every time a business transaction takes place, unfortunately not guaranteed when landlords are involved.
I don't know either. But if we look at RBNZ C31 Investors from December 2019 to December 2023:
- 130k borrowers and $60b total lending = average $460k mortgage.
- $460k @ 7% p.a. = $700 per week P & I on 30 year.
- What if they took out a 5 year interest only period??
- Then it becomes $750 per week on remaining 25 years, up from $350 pw interest only if @ 4%.
- What's rates + insurance, and how much is the average rent???
- $460k @ 7% p.a. = $700 per week P & I on 30 year.
- 20k borrowers were higher than 70% LVR.
Edit: was replying to the wrong post.
So 1/5th of rental properties have a mortgage, although we don't know for sure the distribution of mortgage in that 1/5th. Based on your numbers, the mortgage servicing is break even - however the principal repayments are net positive returns.
So probably safe to say that most rental properties should be in the black.
If we go to Aug 2014 (when C31 started), so 10 years....395k borrowers, $150 billion. So an avg mortgage of $380k. The avg investor loan in 2015 was $330k. $500 per week @ 7% p.a. Sure, there'll be some subsequent sales and discharges....
I'd also ask the question: Does equity leverage from an owner occupied property count as investor lending? It's a mortgage top up against an OO account, and wouldn't satisfy LVR's if it were loaded against the rental. So $380k + what was the deposit??
Also interesting is RBNZ C32. Over that same period (well to July 2015) new investor lending at interest only (Figure D2) was $60 billion.
The data is fairly interesting.
If house prices doubled in 10 years, mortgages on investment properties only increased by 20%.
Whether the equity leverage gets counted as investor lending could be dependent on the structure of the leverage. Potentially someone would be increasing the lending on an existing property as the deposit, if it's against a private home then that amount may not be deductible. If it's against another taxable property, it's a different story.
Interest only has fallen fairly out of favour from lenders since the 2010s.
Another fun fact is during that period (or even slightly before) borrowers were able to borrow 110% of the purchase value (definitely private, unsure about investment).
31.5% of rental properties have no mortgage according to this survey......of 420 landlords.
https://d39d3mj7qio96p.cloudfront.net/media/documents/ER78_The_New_Zeal…
GDP falling, consumer spending falling, inflation falling- this will lead to cuts in OCR and fall in mortgage rates (note that swap rates are already crashing) which will stimulate the housing market enough to prevent any major falls, and the market is likely to remain static for the next six months.
The London Stock Exchange has announced it would be accepting applications for bitcoin and ether exchange-noted notes (ETNs) in Q2.
Don't expect the ASX to follow suit. Followers not leaders.
https://www.fca.org.uk/news/statements/fca-updates-position-cryptoasset…
Tax advantages ...hmmm
I quite like a few of these clangers by Kunstler
https://kunstler.com/clusterfuck-nation/twilight-of-the-blobs/
"In our zeal to become Gods, we miss a lot ... Bitcoin has gone “hockey stick” the past month, meaning on a chart the move up looks nearly vertical. Do you know why it’s going up? I’ll tell you: it’s going up . . . because it’s going up. People and groups of people (wealth funds, banks) see the up-trend and deduce that Bitcoin is going “to the moon.” Meanwhile, they view the tea leaves of the currency scene and see a lot of brown, crumbly debris where there used to be “capital.” The money itself is losing its “moneyness” all over the place...
Sure. But Kunstler thinks through these things for himself. There's a lesson right there. There's no henchman standing behind people forcing them to buy these ETFs. And they have to work out out for themselves what can happen on the downside. It's no secret. It's played out before.
The Fed was right to close off the BTFP from an optics standpoint. It got to be a nuisance and distraction from original purpose. But did the Fed leave realistic alternative in the Discount Window? Last year's experience says, no. The reason: collateral. https://youtu.be/-CUdFiZRxFI Link
"Plummet" is way too strong and out of context - agree.
E.g. in the last 5 days, 2y is down from a high of 5.035 to 4.87. 5y gone from a high of 4.4725 to 4.32.
The context being 2y has seen a 4.6175 - 5.81 range in the last 12 months (was 5.08 1 year ago), whilst 5y has seen a 4.065 - 5.3625 range in 12 months (and only ~14 bps lower than this time a year ago).
This is going on in Aussie:
Surely it's a similar scenario here but nothing about it in the media. Strange.
It's sort of happening, but not as bad.
Many Aussie projects were fixed price, and couldn't keep up with materials inflation, whilst also having projects drag out, because COVID.
That and their government handed out cash for the public to spend on construction early in the pandemic.
Basically, the industry there imploded. "Boom" periods are often more testing on a firm than lean times.
NZ got to see cost blowouts instead, but less firms close to the wire. It'll get worse, likely for the house building companies this year, but they should have deeper war chests than the equivalent Aussie firm.
People are going to lose jobs, sure.
Very hard to say by how much, there still seems like plenty of demand. It has actually really fired up in the last couple of weeks, the common theme is businesses that have been super busy over COVID, who've had to defer new projects or upgrades, due to either being too busy over COVID, or haven't been able to get work done, because there was no one to do it.
I really don't want to increase my payroll, but it does seem like the next 12-24 months will still be presenting more than enough opportunity.
Ok this is speculation:
1. They’ve kept the bust under cover very well to date
2. One of the companies has received quite favourable press coverage before in granny herald. Who knows maybe they chucked a fair bit of money the herald’s way as advertising revenue and the herald is doing ‘the honourable thing’ lol
Often the winding up process can be long, with creditors often needing to be protected - if it's made public a company is about to go down the gurgler, the chances of allowing things to wind up and pay out at least something diminish.
We are getting about 200 construction firms liquidated a year (last year). Much of that will be fairly low tier - Australia's rate is over 200% higher, per head of population.
Jamie Dimon is head of JP Morgan, comments crossing news wires:
- US economy is doing fine
- US economy almost a kind of boom now
- Sees a little bit of a bubble in equity markets right now
- He thinks the Federal Reserve needs to be data dependent, and if he were the FOMC he'd wait until after June to cut rates
Sounds like rates need to move up in the US next move not down to me.....
Roy Morgan poll
"National/ ACT/ NZ First (55%) increase lead over Labour/ Greens/ Maori on 41% – now at 14% points"
https://www.roymorgan.com/findings/9483-nz-national-voting-intention-fe…
Our demands don't seem to be compatible with our budget.
We're seeing an almost synchronized recession/economic outcome occuring globally, albeit at varying speeds and intensities, declining state services, and state balance sheets go backwards.
It's hard to ignore there are many facets of the life we have that are not, or cannot deliver what we think they should.
Our politicians promise way more then they can deliver to get our votes
Look at WGTN council and essential services, same as AKL but not quite so bad.
NZ Super and its affordability but unwillingness to adress
Old age care ( Hot Potatoe in Aussie that you should contribute.....) and elderly poverty in NZ, possible worse then child poverty, definitely better hidden.
I think countries like India are better placed as there are no unwritten social contracts, no money... no honey.
Its classic fourth turning theory in late stage capitalism as limits are meet. We are well past our limit of believing politicians can change much...
Does anyone on this board think now $170 a week goes back into land lords pockets that ANY of this will find its way into lower rents?
Rents pretty much never lower, especially currently when there are so many cost pressures on residential real estate. But I think the deductibility phase in will likely cushion rate rises.
As for India, most of the working class are resigned to the fact their government is a corrupt money go round.
The difference is they still have some semblance of mystical social contract and cultural grounding amoung much of it's citizenry, making up for the lack of government social welfare.
NZdan, that's one take on it. Another is, Act and NZ First are pushing their agendas hard, and the loud minority are in the news (hakas / spitting at PMs), while the quieter majority are reflected in the above poll results. Also, you forgot to mention, it's a positive result for the coalition as a whole.
He said the poorest 25 per cent of Americans were likely to have lost their jobs during COVID-19, or could not afford to pay their medical bills.
“They are dying five years younger. They are the ones who live in parts of town that are more dangerous … They have more drug problems, more broken homes,” he said.
“If you care about your country, we should acknowledge that and say ‘what are we going to do about it’?”
He said the US “screwed up” its mortgage industry because of rules that made the process “more expensive”.
“That mortgage is the first way, usually, a lower income person makes money and builds net worth,” Mr Dimon said.
“I have been begging regulators here to change that. They just do not. They are afraid of their own shadows when it comes to making changes. It hurts lower-income people, not JPMorgan.”
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