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A review of things you need to know before you go home on Tuesday; some minor rate changes, housing sales start 2020 strongly, FHB lending rises sharply, swaps hold, NZD lower, & more

A review of things you need to know before you go home on Tuesday; some minor rate changes, housing sales start 2020 strongly, FHB lending rises sharply, swaps hold, NZD lower, & more

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
No changes to report today.

TERM DEPOSIT RATE CHANGES
NZCU Auckland has dropped its Success Saver rate from 2.50% to 2.00%. And we have updated rates for General Finance which we had missed earlier.

FLYING START
The housing market is off to a flying start in 2020 with January sales numbers at a four year high. Housing sales volumes were particularly strong in Auckland in January although prices remained around recent levels. We have noticed a strong rise in auction activity especially in Auckland. Many other centres also recorded strong results.

NOT THERE YET
Our population is struggling to arrive at the 5 mln level. Census revisions, how migrants are counted, and a low birthrate are all combining to slow the country's population growth. We are currently at 4.951,500 as at December. That's a revised growth of +1.4% in 2019 which in earlier versions was thought to be +1.7% pa. On this new basis we now expect the 5 mln level for resident population to be reached in early July this year sometime.

KELLEHER CONFIRMED AS ANZ HEAD OF RETAIL & BUSINESS BANKING
ANZ New Zealand has confirmed Ben Kelleher as its managing director of retail and business banking. Kelleher has been acting managing director of retail and business banking for the past six months having succeeded ANZ NZ's new CEO Antonia Watson in the role. Previously Kelleher was ANZ's Auckland and Northland general manager for retail and business banking.

STRICT ENFORCEMENT
The owners of three properties in Twizel will have to sell-up after they failed to seek consent from the Overseas Investment Office (OIO). The buyer got [local] legal advice, but it was wrong. As part of the resulting original settlement they sold two properties totaling 308 hectares and sought retrospective approval for a third 19 ha property. The OIO has now ruled that it must quit the third property too. While they sympathised with the owner because the wrong legal advice wasn't because they didn't try to do the right thing, they have applied the letter of the law.

HOUSING SEES THE RICH GET RICHER ...
In the year ended June 2019, households spent on average $17,227 on housing costs. This is relatively unchanged from 2018 (up +0.6% overall). Changes were seen in property and ground rents (up by +10.5% from $110.80 to $122.50 a week) and mortgage interest payments (down -9.6% from $88.50 to $80.00 a week). So overall, renters were worse off, homeowners better off.

LENDING STANDARDS EASE
Banks have quite recently eased lending standards, as measured by the RBNZ's debt-to-income ratio data series. Of the total $6.3 bln in new mortgage commitments in December, lending to FHBs with a DTI of 3 is unchanged inb a year while those with a DTI of between 5 and 6 rose by almost 50%, and those over 6 more than doubled. In Auckland this FHB lending swing was similar but not quite as pronounced as for the rest of the country.

FHB'S RICH AND RICHER
The RBNZ C41 series shows that first home buyers who get lender approvals are getting wealthier. The level of approvals rose +31% in December 2019 from December 2018 and 31% of those had household incomes of $140,000 and greater. (5% had a household income over $240,000 pa !) That is up from 28% a year ago. 21% had incomes between $115,000 and $140,000, 28% had incomes between $90,000 and $115,000, and 18% between $65,000 and $90,000. Only 6% had incomes lower than $60,000 pa..

A SHARP SUDDEN TURN LOWER
China's sudden pullback in demand for beef is showing up dramatically in saleyard and processor schedule prices here with sudden and heady drops back to the low 2014/2015 levels. Bull prices have dropped sharply too. It is a reminder that farmers are price takers and not price setters, and heavy cost impositions by regulators who assume farmers have endless resources won't be helping either. (And farming was the only sector making productivity progress.)

LOW RATES RAISE HOUSING INEQUALITY
In Australia, new official research finds that "lower interest rates increase housing wealth inequality, while higher rates do the opposite". And they find that investor activity accentuates the inequality effect of low rates.

LOCAL SWAP RATES HOLD
Wholesale swap rates are unchanged today across the curve. The 90-day bank bill rate is down another -1 bp to 1.18% and a new low for the year. Australian swap rates are down by -2 bps across their curve. The Aussie Govt 10yr is down -1 bp to 1.06%. The China Govt 10yr is now up +4 bps at 2.93%. The NZ Govt 10 yr yield is down -3 bps to 1.34%. And the UST 10yr yield is also down -3 bps from this morning at 1.56%.

NZ DOLLAR FALLS
The Kiwi dollar is lower against the greenback at 64.1 USc. Against the Aussie we are little-changed at 95.8 AUc. Against the euro we soft at 59.2 euro cents. That means the TWI-5 is now under 70.

BITCOIN SLIPS
Bitcoin is a little lower since this time yesterday, down -1.5% to US$9,755. The bitcoin price is charted in the currency set below.

This chart is animated here.

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

Our exchange rate chart is here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

47 Comments

Max Keiser raises his forecast for Bitcoin to USD400,000 (approx 20x higher than the digital asset's peak). That should easily match the bullishness of the average NZer and bank economist.

https://www.fxstreet.com/cryptocurrencies/news/why-max-keiser-raised-bi…

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Haven't you heard? Ethereum is the big new crypto now. As for that price forecast, it seems a bit insane but what is the time frame? In a thousand years after inflation a Big Mac might also cost USD400,000. Having said that have a look at Plan B's Stock to Flow Model which proposes an 80k or so price by end of 2021.

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Usually these price predictions are based around taking varying share from the gold market. And yes, there are very bullish forecasts on ETH. Definitely worthy of a place in anyone's portfolio.

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Aussie banks made $5.128 bio out of the NZ market in 2018. That equates to $585,000 per hour. All through the wonderful mechanism of lending into existence.

When you put BTC's max 21 mio units into perspective, it doesn't make Keiser's predictions seem so nutty after all.

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"We have noticed a strong rise in auction activity especially in Auckland" CJ099 ? Any comment?

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Cars, antiques, or houses?

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"The housing market is off to a flying start in 2020"

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OK, but that's about sales in general. Not auctions.

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Yes it is about auctions (for houses) specifically, read the paragraph

"The housing market is off to a flying start in 2020 with January sales numbers at a four year high…. We have noticed a strong rise in auction activity especially in Auckland."

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Fritz's comment in case you missed it: China's shameful treatment of the Uighurs:

https://www.bbc.com/news/world-asia-china-51520622

Reading it made me feel sick. Is it our future to have our every action recorded and interpreted? For the most part of two thousand years whatever started in China eventually reached the rest of the world. The compass, paper making, kites, umbrellas and porcelain were OK; universal surveillance will not be OK.

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Machine learning based surveillance technology makes overturning autocracies impossible from here on in. Given the technology's existence Democracy and freedom can likely not endure in the long term, and 1984 is the almost inevitable future. Everyone needs to remain extremely resistant and vigilant against moves down that path, (erosion of freedoms and greater bureaucratic powers) - whatever the pretext.

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Agreed: AI based survelliance technology is very very dangerous. Genuine dystopian future. And China is only the start - I'm sure most Chinese believe they are being protected from terrorists and are all for it. In NZ it might start with something the public is strongly in favour of - say a mechanism for identifying those responsible for leaving a four year old in hospital brain damaged only a week ago.

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Meanwhile, we're lucky enough to get both Orwell and Huxley, with Adrian Orr's admonition to get on out there and spend up.

“The more stitches, the less riches.”

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You just lost some of your social credits by asking too many questions mate

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Granny Herald reports the loss of "17 million jobs" in Waihi gold mines (actually it's 17 jobs, but approx 50% of the workforce) due to OceanaGold's process improvements.

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12305663

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Great to see more FHB's owning their first home and also them getting "richer" whilst doing so

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As I read it, the point was, the majority of FHBs able to buy a house are the high income ("rich") FHBs. In other words, FHBs on medium/low incomes are locked out.

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Yes Kate – you’re correct - that’s actually in fact how it reads – I was going to point it out earlier to others but sadly lost the will, and inclination to do so.

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Putting it another way while housing is affordable IF you have the necessary deposit in the first place. If not housing is not affordable.

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Or about to carry the can

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You appear to have forgotten the sarcasm tag

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Recommend everybody reads this before forming opinions on the relationship between climate change, plague, and disparity of income,etc.

https://www.eh-resources.org/timeline-prehistory/

click on "Resources" and then click on "Timeline of Environmental History"

This video by Bruce Campbell is also worth watching:

https://www.ehs.org.uk/multimedia/the-tawney-memorial-lecture-2008

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thx - will ponder

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dp

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A couple of weeks ago:

“Korean doctor Won Joo Hur was this month convicted and fined $100,000 after he and his lawyer Jaeho Choi concocted a plan to hoodwink the OIO over the purchase of a $3 million Auckland property.”

What happens next:

“A civil proceeding is now underway to dispose of the 18ha rural property and Choi will be sentenced later this year. He could face up to a year in jail or a fine of up to $300,000.”

But - what happens with the proceeds of sale?

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12309394

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The FHB stats are frightening. Only high income FHB's can afford property and when they buy, they get massive mortgages.

Inequality (particularly housing) is growing to epic proportions and nobody seems to want to stop it. Multiple governments are asleep at the wheel - it's pretty inevitable we are going to crash. In NZ it may mean that we see people leave in droves (already picking up) and/or a revolution if people cannot.

I keep saying it - when will we learn that you cannot eat house price increases.

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Our morality has plumeted over the last 30-40 years, and we've seen the huge growth in greedy, self interested individuals like TTP and Yvil who care very little, if at all, about the average person on the street.
It will come back to bite, that much is certain.

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Fritz, you can give 50% of your assets to someone who has less if you're really less "self-interested" than I am, will you?

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Let's take money out of the equation - would you give one of your kidneys to someone who needed a transplant. You have two , you really only need one.....

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Ask Fritz, he's the one who claims to care more about others thanI do

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But I'm asking you - and I'll take your reply as a no.

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Maybe we should just give the younger generations today as much policy help to access affordable housing as older generations received. If it's about what's good for goose and gander.

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The trick is to construct a society in which we are comfortable enough with our own lives and future security, or have sufficiently strong community bonds that we want to help others get ahead. Making everyone richer and more prosperous is the way to do that - because poor societies are much much less generous to their worst off. Likewise scapegoating (jews or 1%ers or kulaks etc) and holding a gun to people's head with forced redistribution is unlikely to spark generous altruistic impulses - in fact quite the opposite.

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Great post

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Nor is enriching a small group of society by pulling forward wealth and growth from others instead. What you're proposing is a good thing, it's just not what New Zealand is doing (nor other countries and their monetary and tax policies). What's going on now is actually eroding community and intergenerational bonds.

Monetary policy to inflate assets at the ultimate expense of younger generations is just another bad form of forced redistribution. And then it's expected that the government takes their income and hands it to the enriched older folks regardless of need, to boot...

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Your point that: because poor societies are much much less generous to their worst off. requires some clarification. Poor communities are far more generous/charitable/willing to share than their wealthier counterparts; poor countries are much less able to provide adequate safety nets for their worst off.

https://www.theguardian.com/society/2001/dec/21/voluntarysector.fundrai…

https://www.psychologytoday.com/us/blog/the-science-behind-behavior/201…

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And just imagine if the interest rates on those mortgages increase. This lower bound new normal cannot last forever.

I wonder if anyone's done that kind of stress test?

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Even if rates go negative, deflation and the evaporation of credit will do the rest.

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by Audaxes | 31st Jan 20, 7:00pm

The growth of housing debt continues to rise, up +6.9% in the year to December 2019 and that is the fastest growth rate since mid 2017. Total housing debt is now $276.7 bln and 99% is owed to banks.

By around one third of households, which averages out to ~$465,986 each.

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That is, of course, the average across the 1/3 of h'holds. Not the distribution. The media probably doesn't want to dig into that too much.

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An Australian perspective, thankfully not the same banks !
https://www.smh.com.au/politics/federal/low-rates-for-years-rba-warns-o…

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Quite interesting how all of a sudden the central bankers are "concerned."

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We just completed a new build in a South Auckland suburb. It's amazing to see the number of buyers of Indian descent...

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LOW RATES RAISE HOUSING INEQUALITY.

Who'd a guessed.

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Indeed :

When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:

"[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.

When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link

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On a stock basis , real estate sales volumes remain at historic lows, (the banner headline is all fluff) the OCR and mortgage rates are at historic lows, home ownership at decade lows, (dependent upon Stats NZ revisions ). To push a few more into the raft , our RBNZ in the name of financial modelling, has absolutely slashed the OCR over the past 12 months ,while the banks have pushed the DTIs, and adjusted the LVRs upwards to keep the debt train going. With everyone that can fit in the raft , unfortunately all on one side, as it meanders ever closer to the edge ,no matter how many orrs are in the boat there will be no saving the ending at the bottom.

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DTI over 6 doubling - great so the latest surge is based on more risky lending and greater leverage.

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