Here's our summary of key economic events overnight that affect New Zealand, with news fear stalks equity markets today.
These investors who were gung-ho yesterday are perhaps starting to realise, as a herd, that the economic future is going to be tough.
Today's trigger is the upsurge in coronavirus infections in the US as it makes the mistake of 'reopening' too soon.
And the US weekly jobless claims show no sign of slowing, adding another 1.5 mln to the grim total that has now risen to 21 mln since March.
The S&P500 has dived -5.8% so far today in a relentless down track. Overnight European markets fell about -4.5%. All that optimism, irrational and exuberant for weeks now, seems to be vanishing as investors realise earnings will be very stunted as economies suffer under the twin handicaps of a global pandemic and gigantic trade policy missteps.
And the Fed said the net worth of American households fell more than -5% in the first three months of 2020 as equity prices fell. That removed a staggering -US$6 tln from those household balance sheets and it is almost certain that when the Q2 results are released, this vanishing will grow. A -US$6 tln reduction is equal to more than a quarter of US annual GDP. And this is March data and just the start.
We should also note that the USDA, WASDE report indicates rising American milk production even if minor, and softer prices (page 33). It also reports rising global beef production and slightly firmer prices although neither is a major shift. US beef imports are expected to rise.
In China, car sales rose almost +15% in May after a +4% rise in April. China is the world's largest car market selling 2.2 mln vehicles in May alone.
And China is raising the heat on Australia in another area, bristling at the Aussie changes to their takeover code, widely believed to be aimed at preventing Chinese companies investing in Australia. The cumulative effect of the Australia-China rift is likely to build to open economic conflict, easier for Beijing to set an example with Canberra than with Washington, but get the same point across. And Washington seems unlikely to support Canberra when the chips are down. It walks away from traditional allies these days.
The latest compilation of Covid-19 data is here. The global tally is now 7,432.300 which is up +141,000 in a day, and a faster rising pace. Global deaths now exceed 418,000.
Just on 27% of all cases globally are in the US, which is up +22,000 since this time yesterday to 2,009,200. This is also a faster rate of increase. It is becoming clear that 'reopening' is raising the infection rate. US deaths now exceed 113,000.
In Australia, there have been 7285 cases (+9 since yesterday), 102 deaths (unchanged) and a recovery rate of just over 92% (unchanged). 18 people are in hospital there (-2) with 2 in ICU (-1). There are now 422 active cases in Australia (-8).
The UST 10yr yield is down sharply get again, this time by another -8 bps to 0.66%. You have to say the bond market signaled the equity retreat a couple of days ago. Their 2-10 curve has flattened further and faster to +49 bps. Their 1-5 curve is also much flatter at +12 bps, and their 3m-10yr curve is also flatter at +54 bps. The Aussie Govt 10yr yield is down -9 bps to 0.90%. The China Govt 10yr is down -5 bps at 2.80%. And the NZ Govt 10 yr yield is much lower too, down -9 bps to 0.86%.
The gold price is higher, again, rising by another +US$13 to US$1,731/oz.
Oil prices are sharply lower today. They are down more than -US$3 to just over US$36/bbl in the US. The Brent price is down to just on US$38.50/bbl.
And the Kiwi dollar is a lot weaker on the rising market risk aversion, down more than -1c to 64.2 USc. On the cross rates we are marginally firmer at 93.8 AUc. Against the euro we have are firmish at 57.9 euro cents. That means our TWI-5 is down at 68.9 and giving up all the gains over the past week.
The bitcoin price has also moved lower sharply, down -6.3% overnight to US$9,353. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Our currency charts are here.
193 Comments
To be absolutely crystal clear, this is from the USA - the same struggling USA mentioned at the beginning of this article; the one with the Dow currently down 7%...
A housing ‘apocalypse’ is coming as coronavirus protections across the country expire
But, of course, it won't happen here......
https://www.cnbc.com/2020/06/10/how-to-prevent-the-coming-coronavirus-t…
Kezza have you seen any change in your orders for later in the year? I think you do construction? Your tone seems to have changed a lot over the last month I'm curious if that is real world influence or something else.
Obviously none of my business how your operation is doing just if you are comfortable sharing info.
As far as I see it, we were at the end of a house price boom for the last couple of years. I acted and sold my houses. This virus has hit and I expect it to sink what I thought was going to be a 15% / 20% reduction to a hell of a lot more than that. The 10 year index dipped below which always indicates a recession and that is what I acted on.
I am a builder but basically only do my own projects now days and a few smaller jobs on the side for beer money. I had a PAYE job for a few months at the start of the year but threw it in as I prefer calling the shots myself.
I am definitely bearish on houses and have been for over year now. Just waiting now because from what I can see is no one has the faintest clue of what is going to happen, the rule book has been ripped up and burnt. Risk is all good when you have done your homework from front to back ten times over and it becomes perceived risk.
In Dunedin the trades are going flat out and houses selling in a few days.
I am at a loose end wanting a project but I know full well what my wife will say if I go to her with an idea.
'great idea do the maths and run it by the accountant and our investor friends to see what they think'. Then if it passes those hurdles she will want me to give my honest opinion if it is more than a 80% chance of a good win for us and that is the hurdle I won't get over.
Here is a link to a guy that I follow. Peter Leads, don't know if you have heard of him. He is a voice of reason in a world of PR / fake news / what is real and what is fake is impossible to get your head arround now days. Play ahead of the game instead of being a follower is about where I'm at. When I get nervous of my current direction, I sit back and have listen to him.
https://youtu.be/tAu4KlDTxo0
TD rates are low because there are only a few creditworthy loan candidates with existing unencumbered collateral and bullet proof incomes. And even they cannot be fooled to get in debt at this time no matter how low rates fall. Hence banks keep lowering the depo rates to offer better terms to attract reluctant top end of town borrowers.
Indeed. Reality should apply but Central banks have been printing at fire hose levels to keep asset prices up. If this fake ponzi is still in place come election time it will be interesting to see what lies the Pollys tell during their parade in this years three year beauty pageant.
NZ & NZrs are surrounded by uncertainty. This is when the politicians and highly paid top level public servants must earn their spurs. Just like for example an airline pilot is paid highly for that moment of crisis. Three months to an election and the electorate has every right to know what policies are being proposed and how it will affect them. Whether they realise it or not this is actually a moment of opportunity for National to set out a cogent and straightforward recovery plan to pointedly challenge the government to do the same.The people are looking for a pathway to choose. Instead it seems National think they just need to revert to their happy world of the first term 2009. The way it stands as the incumbent, Labour will canter in without thinking they have to say much about anything.
Agreed. I wonder if any other party is going to use this to their advantage. The Greens, for example, would gain a bit more support if they strongly vocalized criticism of the CCP. The regular NZers opinion on China has seemed to have changed greatly over the last few months, however, politicians are definitely trying to remain neutral on the matter.
"this is actually a moment of opportunity for National to set out a cogent and straightforward recovery plan ..."
Really?
There is no opportunity here ... and certainly no recovery possible
NZ is totally reliant on (basically) the American consumer's ability to keep spending ... which props up the merry go round we call the world economy
We are a cork shouting at the sea
The only opportunity here is to acknowledge the pie is about to get far smaller
Until National comes up with a plan that doesn't involve selling state assets and mass immigration to prop up the economy then they really have nothing to offer. As soon as the rural sector wakes up to the fact that they don't have their best interests at heart then they are toast.
Advised yesterday of a restructure in a large firm, reducing the number of roles, roles that are on the immigration skill shortage list. I have over ten years experience in similar local government and consulting roles. More of this will start coming through in the next few weeks as the wage subsidy expires.
I have options and a bit of a buffer built up (maybe four months with the covid $490/week) since I realised a few months back that this was going to get worse, but with a family and a large mortgage (and being the sole income earner) it won't exactly be easy.
The dilemma though is, if I'm one of the first, I have a lot of equity in my home, should I sell and bank this now if I can? Before lots of other people are in a similar position. I have other free or cheap housing options that I can take advantage of. Obviously disruptive to schooling though. It's tricky as I am in an expensive NZ city, but the house also limits retraining opportunities elsewhere.
Everything's an opportunity though, I've been looking at a new path for awhile and this could actually help financially for this to happen (I would rather claw my eyes out then go back to local government). Tried tourism over summer and loved it, but probably not going to pay the bills in the short term at least.
Feel for you, another friend yesterday, a highly skilled engineer was given the letter of death. His manager made comment that they can perhaps retrain as a wilding pine exterminator as that's about all there is, not much hope for someone who spent 5 years training to do his role. In your situation go interest only and maintain as much cashflow as you can to buy some time and give you some time to make a informed and correct decision. Remain positive and reach out for help if you need it.
Some of my friends were let go yesterday too. The sort of job that requires a Uni education and pay decently, and the same industry as myself. All while we have this "buy buy buy, cheap free debt!" narrative in the background. Looks like reality has indeed come knocking. No rush for us FHBs.
One of our neighbours lost his job two months ago and has been getting through with some reserves and mortgage holiday. But he's now put the house on the market, and will rent, with the equity from his house supporting him and his family until he gets another job (may take a while)
A friend lost his job 2 weeks ago and is doing the same thing.
I suspect, sadly, this is going to become far more common over the next 2-3 months.
Yep, we live in a small affluent suburb and one of the well connected local real estate agents says 20 people she knows are out of work since March. We've torpedoed both COVID and our economy in the process. Great that we have no active cases now. Probably won't remain like that for the medium term though, unless we want to move to the bottom of the OECD rankings. Whatever way you cut this, austerity is ahead - at this stage all we have left to choose is the severity.
We'll have more clarity soon, but does seem level 4 did more harm than good - Oz is nearing eradication (down to equivalent of 1-2 cases a day in NZ) and had far less severe lockdown. Coalition can be forgiven for reacting strongly at start as situation was unclear, but within a few weeks it was clear that severe lockdown was not needed for eradication and much more damage was done to the economy that way than would have occurred with less doctrinaire approach.
Australia has a 92% recovery rate - and it has stuck there for weeks. There are new cases there every day. How near eradication are they? Give us a date when they will reach it. You could also explain how you came to the conclusion that a severe lockdown was not needed - people qualified in epidemiology disagree with you. What are your qualifications in epidemiology?
It's effectively gone from everywhere but two states: NSW and Victoria, so about half their population already in the clear, and on recent trends is approximately halving every two weeks so looks to be as little as a couple of weeks from being gone everywhere, NSW looks like will be next to clear and VIC last. Two days in last week with only 2 new cases. https://www.covid19data.com.au/
One of the troubles we have is the narrative that has been pushed around our country by vested interests, be it central bankers, retail bankers, real estate agents, landlords or even the government - all who have financial and/or professional interests in pushing the agenda that we've had the last 15-20 years. Increasing debt levels and lowering rates - i.e. buying houses!
But we can't, there isn't the capacity to do that again. Businesses have been loading up on cheap debt due to the tax advantages of doing so, share buy backs. Private debt levels are sky high - equal to the property bubble itself. If the businesses get in trouble, what happens - they cut costs including staff...see present moment. If people can't pay rents and mortgages because businesses got in trouble? They default on rents and mortgages. House prices tumble and the banks get in serious trouble.
How we thought our strategy of the previous few decades was a good idea I don't know - even though central bankers, retail bankers, landlords and governments are still trying to push that narrative...even now...when it could all collapse.
"How we thought our strategy of the previous few decades was a good idea I don't know "
It was a never a good idea ... a game of increasing leverage eventually has a end point
But if we wanted to maintain standards of living, it was the only option ... and a great vote winner
If it's your own home you should be able to sit tight; have a roof over your head and your lenders will accommodate you until you find your feet.
If it's an investment Property you are talking about - you should have sold that some time ago when the writing was on the wall.
Good luck all the same. ( I have family in a similar situation)
What's that saying about "if everyone is panicking, it pays to panic first". Basically in a downturn in any market, lots of people rush for the exit, but the exit doors keep shrinking. Real estate won't be any different IF there is a downturn. Central banks may just prop up the market though, so it's anybodies guess.
I know of a couple of real estate investors however who have sold up all their properties and and are now renting. One had done this by the end of last year, another has their last house on the market now. Both are happy with their decision as they are less stressed out about a housing market shock,which they both see coming.
IMO it's smart thinking to use a time of great upheaval as an opportunity for a change to your circumstances and improve yourself.
Experienced investors have seen this coming for a long time, perhaps ten years, and will have a buffer in place, selling down and reducing borrowing, but not completely leaving the house market, question is where to you store your equity to protect its value, hopefully your answer is not in a bank!!!.
This is interesting in terms of market psychology.
"The dilemma though is, if I'm one of the first, I have a lot of equity in my home, should I sell and bank this now if I can? Before lots of other people are in a similar position."
You're probably not the only having the same thoughts. And if enough people have those same thoughts, that is how our property bubble bursts.
I lived through the GFC in the US and this was the thinking that evolved over there as well as their property bubble turned and started falling.
Thanks for all the advice and kind words, yes a lot to think about, but don't have to rush which is a blessing. Tried as a family for a long time to not get into that both parents working full time and no time for the kids routine. A retrain is a big drop in income as well, which plays into it a lot.
As a society we really have been duped into this idea of both parents working flat out on the pretense of equal achievement of career goals. All we've really got to show for it as a society is inflated house prices and inflated mortgages on 30 year terms. I came to the realisation a long time ago that I'm never going to pay a mortgage off. Just making it work so the kids have a roof over their heads, and then the long term dream is to downsize (whatever that means) mortgage free. Working in the development sector has made me realise that unless as a country we make living affordability the absolute priority, inequality will continue to get worse. The key problem is that there is literally hundreds of people involved in building a house, and everybody takes a cut. Until that changes (how hard is it to build a house, we've been doing it for thousands of years!), affordability never will.
But then that's a real mind meld working in a industry that isn't good for you, and every month just falling further and further behind...
Yes its certainly tough and can understand how difficult it is for many, yourself included.
In part this is why I've been very vocal about this odd property cult we've had in NZ as I moved back here after living through the GFC in the US - and seeing the hardship a property bubble has on people. It can have some severe impacts on society and peoples mental health - but I came home to see NZ promoting and even bigger bubble than the US - its been very painful to watch as I know how bad things can get on the way down. Yet property speculators everywhere have been talking the market up, John Key and co included. Its madness. It can destroy the quality of communities and society.
From watching people deal with a property bubble in the US during the GFC, look after yourself as best as you can, physically and mentally. Go to the gym or do yoga. Where I was working the staff turned into slaves as they couldn't afford to lose their jobs (as they would default on mortgages) and management knew that - so they told staff to work 60hr minimum weeks! Staff couldn't say no, otherwise it was out the door. Those who some how found the energy to stay in shape came out of it best, as hard as it can be with kids and work stresses etc.
Its a real shame that we've got to this, but perhaps its a lesson we needed to learn. High house prices aren't a blessing, they are a curse, but most in NZ don't seem to understand that yet. Perhaps in time they will.
From the outside looking in it defies belief. It really is a cult in NZ.
Personal view is if you're stupid enough to take on a 7 digit debt for a generic building in a soulless Auckland suburb you dont deserve success. That was first division lotto not long ago.
Greed and fear. Oh how the tables turn.
Imagine if people rallied against the social injustice of the capitalist financial system they way they rallied behind BLM. It could be argued that BLM is a symptom of the rigged financial system (many have already pointed this out) and that all it has achieved is getting angry at the tail, and doesn't address the teeth.
You cannot own an older car in Japan..its not worth it -
Three years after purchase, every new car has to go through an expensive inspection process, and once every two years after that. Furthermore, vehicles older than 10 years have to pass the inspection every year. As a result, most car owners in Japan write off their cars after 10 years and buy new ones
After the GFC in the US second hand car prices went crazily high for the next 5+ years. The absence of new car purchases during the depths of the GFC meant a huge supply shock downstream. Not sure that will happen in NZ as we are primarily an outlet for Japanese market that is 10x larger. A second impact is that new car buyers will soon start putting off purchases for a couple of years to buy EV's when they get a little cheaper. Another supply disruption that will bump up second hand prices over next decade.
Foyle that is not really accurate. I lend money on cars in the US.
Used car prices went somewhat higher for a period but it was due to Obama doing Cash for Clunkers. Taking working cars out of the second hand market and shredding them did support prices for a brief period. They definitely never went crazily high and it was for no where near five years.
Same with me, I'm watching jetskis and jet boats and no movement yet even in Q'town. Being toys they should indicate where we are heading a lot faster than the housing market. If you are sitting on a loans for this that and the other thing, the toys will be the first to go when Da Bank comes a knocking.
'The key problem is that there is literally hundreds of people involved in building a house, and everybody takes a cut. Until that changes (how hard is it to build a house, we've been doing it for thousands of years!), affordability never will.'
As a builder that has done a few houses for myself, I would use 20 people max for a house build. The Govt pushing for bigger companies to do the builds is in my view why they are so expensive. My last project, two simi detached two bed houses cost $150k for the materials and wages at less than $80k. The Bright Line tax adds another 30% on the profit. If Kiwi Build made it possible for small builders to enter the system we would have 500 builders smacking out three houses each per year.
I have to factor it in if I want to do a build / renovation and flick it after. When I do my maths and come out with a $50k win, then pay 30% on that, I walk due to risk / reward. There are plenty of stories out there of people making a $100k plus but a lot of them make very little $10k / $20k is about the average, so plenty out there make little to nothing for a tone of risk.
Kezza - sorry I should have phrased that better. I’ve been more involved at the front end before and after sections are up for sale. I have very little knowledge on the people involved in a build. I’m thinking people involved at the front end include:
So many Council staff - elected members in plan changes, policy planners, strategy planners, resource consent planners, engineers, asset managers. NZTA people. Iwi reps. Geotechnical engineers. Transportation experts. Building consent officers. Admin people. Soil contamination experts. Wastewater people. Stakeholders (council speak for looking after vested interests).
I could go on and on, the number is almost endless. And it’s the homeowner that ends up paying for it. Until you’ve worked in a council it’s hard to comprehend the sheer magnitude of people who each cause house prices to inflate.
I did a 5 lot subdivision awhile ago in Lower Hutt. The surveyor cost started at about $30k doing it in 3 stages, then down to $15k going the whole hog all in one go. Cheap as chips.
From what I see with the larger building companies is offices, nice utes, advertising and a hell of a lot more.
I have my cell phone and a spot on the kitchen table. Instead of promoting the large companies the Govt should be helping by he small guy but then on the flip side it makes it easy for me to compete.
I'm experiencing this at the moment. Builder I am using tells me in my instance it has added more than $70k above what it would have done 10 years back, and won't improve the strength or durability of the house a jot. Councils are monopolies that grow without check (and foster rafts of associated parasites) because there is nothing to keep them in check, they pay no price for waste and inefficiency.
Kezza R, is that $150+$80=$230k for material and labour or is it all of the construction costs (i.e $115k per house)? what about land? financing costs? council rates etc? is it possible to tell us how much the total cost of the finished houses were (if you do not mind off course)?
Just thinking out loud. The banks may be less forgiving on those with substantial equity (where they can force a sale and recover their loan) than they will on those with no equity. Age may also play a part in bank decisions around mortgage stressed defaulters, those that are younger may have loan terms extended as they have the time to recover the debt position over longer working careers. Older mortgage stressed borrowers may not get the same leeway if they are running out of working life to recover their positions. We’ll see what happens.
Interesting point, I have often wondered the same thing. In a widespread crash scenario it makes more sense for the banks to force sales from distressed borrowers with substantial equity. It is counter intuitive but that way the bankers take no losses. In terms of ethics it sends the wrong signals again as the prudent (those who've repaid principal) are punished while the low equity risk takers are given more time. Anyone actually experienced this?
NZ is a small place and Bankers especially the big decision makers may find it difficult to hide and some of those older people may decide that if those Bankers choose to penalise them the consequences for some one in their eighties who feels so aggrieved as to take drastic action is worth the consequences and that Banker may not see the justice but it will be a warning to others. I sincerely hope the current wave of protest does not turn even more violent and our leaders will be well advised to actually address the anger caused by their incompetence and greed.
Great attitude. Tough choices. There are generally a lot more job opportunities in big cities, but for this downturn rural support centers in most heavily farmed areas are likely to be the most robust. In your situation I think I would try to hunker down and ride it out where I was, bloody hard on family and kids to move with little to no income (and there will be few jobs available until we start to lift out of recession again. With a lot of equity you can probably draw down on mortgage to supplement welfare for a year or two if necessary - and will be better to ride out the house price dip than sell. Kia Kaha and good luck.
Wanderer, sorry to hear your situation. Hope things turn out better than we all expecting.
In terms of selling your property; yes if its investment property, put lot more thought if its your home as renting is a bi@$*h. The uncertainty and the number of times we have had to move was very hard on the family and remember number of landlords will be getting out too. Talk to your bank about interest only for a while; with current rates should be cheaper than renting. If you need that equity in your house for a business venture, you can approach the bank for some equity funding if possible. Of course, you can simply sell if you get an acceptable price and try other ventures with the surplus. Property prices will not be going up for the next little while and you can always get back in when things improve for you. Wish you all the best and hope things work out.
thewanderer from my perspective it is a no-brainer to bank the equity. Best case we are in a severe recession but currently we are in a depression. It would take an almost immediate explosion in economic activity for this to go down in history as something less severe than a depression. So unless this is the first depression in history where asset prices rise (Hertz is getting bids so who knows!) selling before the rush is likely to be a phenomenal decision.
I lived through the US housing downturn the mood shifts from "houses only go up" to "sell, sell, sell!" seemingly in a day. No way to predict what that day is but it happens too fast to get in front of it when the switch flips.
Mike1 - I was in the US as well during the bust over there. Many in NZ don't understand the psychology when the market turns. Its like there is no downside to property investment. Painful to watch NZ blow a bubble, that in real terms, is on a completely different scale to even the housing bubble the US experienced. I have no idea how bad it could get here if the bubble bursts properly, but if the psychology mentioned above gains momentum (fear of missing out turns to fear of getting out), it could be very bad (much worse than the US in my view).
IO it is close to guaranteed that it will be worse than the US housing collapse. That was a fairly focused event. This time we have an Everything Bubble. There is no safe asset anywhere on earth.
One thing I hear a lot here is that tourism is "only" x amount of GDP. The number is wildly off for many reasons but the number one is that most other businesses derive money from tourism indirectly. The endless new houses in Wanaka and Queenstown are counted as construction but are obviously purely tourism derived.
Timing re-entry into the market is a dice roll. If you have high equity then stay in - your equity will erode, but it would n be balanced by the permanent loss in savings you'd get if you sold, as renting slowly ate away your capital gains, which would then reduce your deposit for reentry. Like others have said, home ownership is often cheaper than rent, and living with family isn't a long-term solution for anything. Kiwibank's floating rate looks real good.
I'd think long and hard before shifting the family back to renting - even in the short term.
Renting in NZ is terrible, especially if you have kids. Hunting for a rental and then moving is stressful for everyone; there is no guarantee you will find a rental near their school, so they might have to leave their friends (or you have to add in extra hours commuting to drop them at a far-away school, which costs you the money you're meant to be saving); if you have pets, they might have to go (since finding a rental that lets you have pets can be difficult at the best of times). Plus, rentals are almost always colder and damper than owner-occupied houses - even if you do everything "right", you as a renter can't fix underlying issues with the property that the owner probably would deal with if they lived there.
Then there is the risk the landlord decides to get out of the market as well, and that means a 42 day notice to leave. So another hunt for a reasonable rental, another move, potentially another new school for the kids, another round of upending your whole life.
You'd have to give me an awful lot of money to do that to my family.
I totally disagree with you. I vet my landlord. I will only rent directly from a landlord, property managers are a waste of oxygen. In 10 years we have been in 2 properties and had 3 rent increases. We moved because we wanted too. As it turned out, where we live now we know the landlord, no invasive property inspections, we have a dog, we live how we want too.
I wouldnt rent off a mum and pop show, or someone who has left Auckland (this means ripped the equity out of the AK pad for the Tauranga pad and will sell at the drop of a hat).
"You'd have to give me an awful lot of money to do that to my family."
How much cost are home owners willing to pay for this peace of mind? It is a very different choice for each home owner based on their own set of circumstances.
Remember most buyers of houses need to use debt to finance their purchase. For an 80% LVR owner occupier, a 10% fall in the house price would mean a 50% loss in their equity. Is a 50% loss in equity enough for peace of mind? Especially if they are forced to sell due to a significant reduction in the household income (resulting in inability to maintain high debt service ratios), or nearing retirement and needing to downsize - the home owner would then be forced to realise the loss.
Here is a reminder of the impact of leverage (it amplifies property price changes both on the up and down):
Scenarios of financial impact of leverage on equity, assuming an 80% LVR for owner occupier, for a recent $1,000,000 property purchase, $200,000 initial deposit, mortgage $800,000. (simple round numbers used for illustration purposes)
A) Scenario - property price falls:
1) property price falls 5% to $950,000, mortgage $800,000, equity $150,000, so 25% loss in equity value from $200,000.
2) property price falls 10% to $900,000, mortgage $800,000, equity $100,000, so 50% loss in equity value from $200,000.
3) property price falls 15% to $850,000, mortgage $800,000, equity $50,000, so 75% loss in equity value from $200,000.
4) property price falls 20% to $800,000, mortgage $800,000, equity is ZERO, so 100% loss in equity value from $200,000.
5) property price falls 25% to $750,000, mortgage $800,000, equity is NEGATIVE $50,000, so 125% loss in equity value from $200,000.
6) property price falls 30% to $700,000, mortgage $800,000, equity is NEGATIVE $100,000, so 150% loss in equity value from $200,000.
7) property price falls 35% to $650,000, mortgage $800,000, equity is NEGATIVE $150,000, so 175% loss in equity value from $200,000.
8) property price falls 40% to $600,000, mortgage $800,000, equity is NEGATIVE $200,000, so 200% loss in equity value from $200,000.
9) property price falls 45% to $550,000, mortgage $800,000, equity is NEGATIVE $250,000, so 225% loss in equity value from $200,000.
10) property price falls 50% to $500,000, mortgage $800,000, equity is NEGATIVE $300,000, so 250% loss in equity value from $200,000.
Hi wanderer. Don't sell. It's the same as trying to time the market. Just when you think it's all heading south, it all get propped up again.
I'll wager there are 1000s of folk out there in a worse position than you, so they are going to take the hit first. Plus the govt and central bank has some pretty crazy tools to bail people out with, that we haven't seen yet because it hasn't gotten that far.
If you need to go to two incomes to tide things over, remember it will only be a temporary change in circumstances.
Be prepared to do something completely different for work, but for the most part, stay the course!
Stock market acts and than the so called experts/ media finds justification of the same and the same is reflected in their headline like :
Dow plunges nearly 1,900 points, on track for worst day since March as coronavirus cases rise, Fed’s offers grim outlook
Question to be asked : was it not rising earlier .
Earlier when stock market was moving up - it seems their was no coronavirus or was it not spreading.
Always : After the event experts finds reason for it.
One down day is not a crash, but the ferocity of this fall would suggest it won’t be a blip in the bull run.
The fall itself doesn’t surprise me, I’ve been anticipating this for months and had sold most my shares. What surprises me is the timing. Nothing has changed; financial news is as grim as it was 2 months ago. I can’t figure out what the trigger is.
Markets likely in the long retreat phase now, the bear trap has sprung. You will note this is right after all the small retail investors really piled in (news article yesterday about sharsies and investnow with $1b of FUM). Retail investors thrown under the bus, hopefully a good lesson for them and hopefully they didn't bet the house.
I was waiting for the Bear Trap to spring. First I thought it was going to spring in mid May, but lo and behold the market's 2nd-stage booster ignited and up the market went into the stratosphere!
Maybe this sudden drop marks the springing of the Bear Trap. I half expect the Dow to bounce up a couple of hundred tomorrow, but then, what do I know. If it continues to fall for a second day, then it is more likely that the trap has sprung.
"Retail investors thrown under the bus, hopefully a good lesson for them and hopefully they didn't bet the house."
I suspect this idiot bet more than (s)he could afford to lose.
https://www.reddit.com/r/PersonalFinanceNZ/comments/h79jti/urgent_help_…
https://www.stuff.co.nz/business/121789923/employees-allege-liquor-baro…
P***** me off on so many levels. What I've assumed has been happening for a while across different industries, good to see some of these exploited workers coming forward. Can suggest a few more industries that need investigation.
24 up votes too. By certain nationalities you mean people who are CEOs of the likes of Google and MicroSoft, a large number of doctors in all English Speaking countries, etc. And not to say Indians are "repeat offenders" in this space is PC. Well, almost all of the people who embezzled millions of dollars from Kiwis have been white, including the directors of the failed finance companies. And they stole millions of dollars. Do you associate their acts with their Nationalities, or skin colors too?
What does it take for rogue Indian employers to be stripped of their liqour licences and of illegally gained wealth (in the same manner as proceeds of crime)? A precedent needs to be set. At present these type operators (same as some parts of the Kiwifruit industry) are just taking the piss out of NZ's legal system, knowing the risk and easy accumulation of wealth far outweighs the employment law and tax law sanctions (if ever they are enforced). These types of operation should be nailed for tax avoidance as well as employment law breaches with full IRD audits.
Huh...
We already have proceeds of crime laws. Allowing people to keep money they steal is not capitalism, nor is not allowing it socialism. Do you really think that allowing bank robbers to pay a fine but keep their loot would be better than having them lose the stolen loot? Because "slippery slope to socialism"?
I am sure this is happening in a number of businesses. Part of the issue is probably our lax immigration policies.
This is time for NZ to start looking after its own people ie permanent residents and citizens. There will be a number of unemployed people at various levels. No more importing of senior positions or unskilled labour from other countries while kiwis are out of work. Immigration and the govt need to address this asap.
Chessmaster what about the vast numbers of migrant labor here that NZ taxpayers are feeding and housing? I'm curious how there seems to be no strategy here at all apart from keeping huge numbers of people on NZ welfare ( at the same time there are real roadblocks to getting benefits for NZ citizens). Queenstown is literally jammed full of people fully living on your tax payments and new debt you will have to pay.
I've spent years writing anti-immigration comments on this site (one of the few that allows rational discussion) but now my sympathy is with the large number of immigrants already here. We read of families split into different countries because one parent or child managed to get a flight just before lockdown and the rest of the family stranded overseas. The opportunity for low skill 3rd world immigrants to come to NZ where they keep wages and conditions of employment bad should never have been available but they were and the families involved deserve our sympathy and Jacinda's Kindness. But no more low paid in future.
Market is not running on fundamentals but is supported and promoted by printing of money (Ventilator) though most organs of the economy have stopped
In NZ with containment of coronavirus (Is a big achievement) euphoria is created that everything is fine not realizing that we may have come out of health crisis but economy crisis has not even started - real affect.
One of the reason for Euphoria may be monetary measures by the government (served its purpose to avoid panic and depression) but still will have to face the consequence, which may be very bad.
spare a thought for me I have to spend a couple of hundred k on cattle and the markets are looking dodgy.
'Cash feeder cattle prices have begun to slip a little and knowledge that the supply of feeder cattle outside feedyards is the largest in 10 years is beginning to alter attitudes. Given that it will take months, not weeks to work through the 800k head back log of fed cattle, breakevens are uncomfortably high.
The number of pounds carcasses are exceeding any other time in history is adding another 20k head to the weekly kill and will push weekly, monthly, quarterly beef production throughout the remainder of 2020 into record territory.
Expectations for this week’s slaughter is still +650k head with further gains expected until the weekly kill stabilizes +660k. The enormous supply that will be produced at this slaughter level will pressure wholesale beef prices dramatically lower, potentially sub-$200.'
Same goes for Pork, then Brazil except Brazil is much much bigger and it's currency has collapsed making its meat very cheap on world markets.
No one was prepared for a collapse like this. The data are all over the place. Two government agencies differ by 9 million unemployed. The jobs crisis bottomed in May. But “over 30 million” people remain without work. Making sense of the chaos.
https://wolfstreet.com/2020/06/11/a-word-about-the-chaos-in-the-unemplo…
Anyone see this? Powell at the top of his game
https://twitter.com/i/status/1270802620953886726
This fall in stocks today has been attributed by many to Fed.
This again goes to prove that how much stock market is dependent on easy and cheap money /printing of money.
Now anytime any reserve bank does not come with printing of money or decline interest rate to zero or minus, market will throw tantrums and blackmail them.
How long can it and will continue.
"It walks away from traditional allies these days."
America's allies, like New Zealand, often deliberately antagonise it to win votes at home. The "we're superior to the Americans" complex plays well here. Why does America always need to be the "bigger man" on the world stage? The rest of the world has been milking the American taxpayer for decades, some balance is about due.
What, David biassed? Surely, not? The US is having a bit of internal strife and the Democrats are stirring up shit, putting party before country and pitting man against man. Both the Democrats and Republicans are war-mongering lick-spittles of their sponsors; why else did the good people of the USA choose the only anti-war candidate on offer? Glad I don't live there, but there are a lot of perfectly decent ordinary Americans who do, not that you would know it from the hate filled media propaganda machine.
Many countries deserve to be congratulated Kate, including those like Vietnam who have used their resources well.
While Aussie has done some things well, I'm not sure their ruling elite really has much idea of what to do next. In terms of the future, they appear to be doubling down on the past.
Moves going on behind the scenes, about time.
The British government has approached the US with the prospect of creating a 5G club of 10 democracies, including India, amid growing security concerns related to Chinese telecom giant Huawei, according to a UK media report.
https://telecom.economictimes.indiatimes.com/news/britain-pushing-us-to…
Just need India and Britain to join the TPPPPPPP or whatever it is called and we will have a nice free trade zone of like minded countries, without the US bullying it around (they can't help it, they just cannnot see anything from any perspective but their own).
RE lobby : Email to all registered with Trade Me.
Creating FOMO
Intense buyer interest drives June market
Reports of multiple offers on homes in the big cities are supported by Trade Me Property data.
11 June 2020
A beautifully presented Island Bay home with gob-smacking ocean views attracted an almighty 72 groups through at open home last Sunday.
Tommy’s agent, Jane Higgie, says that a lot of the potential buyers interested in the $895,000 plus home were small families and professionals, buying their first home.
Last week, meanwhile, a down at heel 5 bedroom home on Douglas Road, Mt Eden, in dire need of some major DIY, attracted 27 offers and sold for more than $1.5 million.
These are just a couple of examples of intense buyer interest being reflected in this June market.
“I think people have been bottled up for about two months. A lot of those who came through Douglas Road were looking for a massive DIY project,” says Ray White agent Rick Mozessohn, who co-listed the home.
The main demographic he’s seeing are families who want to move into something more substantial where they can give the kids more separate space. People generally like the area they live in, he says.
Meanwhile in the week starting 8 June, the Ray White agent is about to launch three property campaigns, and he describes the enquiries already as “off the hook”.
"They are around 250% over that of the norm on Trade Me Property,” he says.
A number of offers have come from buyers conditional on selling their own houses. House hunters are confident they will be able to sell their own homes quickly given the buyer interest they are seeing at open homes, says Mr Mozessohn.
Trade Me Property site engagement figures support strong buyer interest
These signs of buyer interest are more than just anecdotal. Trade Me Property is seeing a stark contrast between last June’s buyer engagement on site and this year’s, with email enquiries and Watchlist adds, a key sign of buyer interest, well up.
Email enquiries to agents and private sellers, over a two week period from 25 May to 8 June 2020, compared with 2019 at the same time, were up 148% in Wellington, close to 140% up in Auckland and 132% up in Christchurch.
In Auckland, all districts were up between 100 and 200% in buyer email enquiries, Franklin up 210% and Wellington City showed strong growth, up 140%.
Over the same period, (25 May to 8 June 2020 vs 2019) Trade Me Property Watchlist Adds have risen this year with a 46% jump in Hawkes Bay, up 44% in Auckland, 33% in Wellington and 42% in Christchurch city.
REINZ and economist Tony Alexander’s real estate survey of agents around the country, published on 10 June, found that interest was especially strong among first home buyers. The survey also noted that property appraisals were going up and a net 18% felt that prices were rising.
Mr Alexander says 19,000 properties are listed for sale around New Zealand currently, compared to 58,000 when the country was heading into the 2009-9 Global Financial Crisis.
Agents in the survey said buyers were concerned that there were not enough listings available – 50% of respondents saying this was a main concern of buyers.
“Buyers are still there… and are revealing themselves to be more confident,” says Mr Alexander, after seeing share markets rally and job numbers go up again.
Johnny Sinclair, Bayleys’ national director residential, agreed with the survey’s findings, adding that sales are happening at all levels, although there is particular interest in the sub $1 million price bracket.
At the higher end, a Bayleys salesperson on the North Shore has seen four deals in the last six weeks go through of properties in the $3 million to $6 million price range, and these were listings that had been on the market for the past six to 12 months.
“Vendors don’t have their heads in the clouds. It’s a perfect storm for us at the moment, buyers are prepared to meet the market as well,” he says.
Buyer interest likely to last in coming months
Will all this buyer intention remain? The market would normally be quieter by late June going into wintry July and August. But given the current level of buyer interest and the fact that people will not be flying off to sunny climes overseas, the activity is likely to continue, says Tommy’s senior agent, Nicki Cruickshank.
“Every June/July most people with any money go away, now none of these people can go anywhere,” says Ms Cruickshank.
Gower Buchanan, managing director of the Ray White Damerell Group, is seeing multiple offers on homes being sold by his agents in the Ponsonby, Grey Lynn, Mt Albert and Birkenhead markets.
With the election coming up there will usually be a decrease in activity, he says.
But between now and end of July/August there will be plenty of activity, he believes. “People are in a hurry to strike,” he says.
Mortgage pre-approvals another key signal
Mr Buchanan’s confidence is buoyed by the news from Loan Market mortgage advisers, that it is seeing mortgage pre-approvals significantly rise on this time last year.
Tracey Warner, a Loan Market mortgage adviser, is heartened by what she is seeing.
“Our pre-approval pipeline has returned to similar levels it sat at pre-Covid in March, which shows a strong and active pipeline,” she says.
Meanwhile looking at June 2019 compared with June 2020, pre-approvals at the end of May 2019 sat at $900 million, compared with $1.2 billion for the end of May 2020. Loan Market, the largest mortgage advisory group in New Zealand with 150 advisers, has a 20% share of the advisory marketplace.
Ms Warner adds that she has also seen more enquiries on open bridging finance as people try to move from one home to the next.
How to spin.... (Pre approval ending may 2020 is high but may be because most pre approval were done till March 2020 when housing market was at peak and the same pre approval reflevt in May 2020 as are normally valid for 3 months plus)
Do they really that Housing market boom is intact and infact on the rise.
Surprise.
My own observations support a highly exuberant RE market, with nearby properties previously stagnating on the market for whatever reason now selling, and others recently to market selling very quickly due to demand. Inquiries elsewhere around the country, by myself and others, also support this - there certainly seems to be a very strong demand for property.
I contrast this with the angst I'm hearing second-hand from a recruiter, with most previously open roles to fulfill now cancelled, and now operating as a grief counselor to extremely anxious clients, many now without jobs (tech sector).
I'm really struggling to make any sense of current spending behaviour.
Spending is all we know, over the past 10 years the concept of saving for a purchase has evaporated, everything can be bought for now and paid off later. There's no incentive to saving when rates are so low and if the system collapses your debt will be written off anyway. No one knows what the future holds so spend now worry later. We have been trained into only worrying about 'now' - I need this now, I have to buy this now, I can have this now. Whatever happens tomorrow is the market's will.
So America is having this social-economical meltdown right now; the current political climate could well trigger the 2nd wave of Covid19 in the West, especially after what happened in Aussie. Meanwhile, two big BRIC countries Russia and India are busy with sorting out their pandemic problem. Without the support of the West, Taiwan is vulnerable... after putting everything together, CCP seems to be the winner in this shitshow so far.
China has and is been exposed on a daily basis so will be hard to redeem its image unless have change of leadership which is not possuble being a dictatrial state.
https://www.express.co.uk/news/world/1293294/China-news-south-china-sea…
Air NZ down 13% but I'm sure there will be any number of gullible suckers Sharesies customers who will buy the dip here. Once that sort of sentiment has been thrashed out of the market, then....we'll get a true picture of the market fundamentals. But not until then.
bw. Think you are right that the weight of newbie money is delaying the market finding its true floor. Everyone seems suddenly interested in shares. A mate on modest income, with a mortgage and no equity investing history recently piled into THL, AIA and AIRNZ 'because everyone's doing it'. We might be waiting a while though to 'get a true picture of the market fundamentals' as there is still a lot of hopefuls with gold fever. At the bank recently when a mature staffer noted that dividends were a significant part of my income and confided that she was about to dive into the market with her savings.
Neither. These are funds that allow low dollar volume investors who don't have the means or ability to directly invest in the stock exchange, to buy shares. This type of investing has boomed during lockdown, not just in NZ, it's a world wide phenomenon. EG an astonishingly large number of new investors have entered the Indian sharemarket. It is accompanied by a worrying level of unsophistication.
What I would like to see by both parties going into the election is a real focus on assisting small and medium sizes small Businesses to grow. Not this constant realestate narrative that we having had for the last few decades. It will not work going forward. New Zealand needs new and existing businesses to thrive, cut the red tape, support creativity, and allow them to fulfil their potential. This is the key to a 21st Century New Zealand and the same for Australia too whose “red tape is wrapped in red tape.” (Thanks@DFA for that quote). Do this and our little part of the world be be the envy of all. It will take real guts to carve out this new road to recovery in both Aus and NZ. Do either party have the foresight to think like this or will we see the same old regurgitated policies of the last few Years?
Do either party have the foresight to think like this.
No. Labour is busy Purchasing the votes needed to get back in by spraying Munny around indiscriminately. This will stop at 2359 on Sept 18th, and if it has worked, they will consider thinking about an actual Strategy via working groups and polling, sometime after Christmas.
National is keeping its powder so dry that no-one actually knows What they are thinking yet.
The job, as Jay Powell currently sees it, means building up the S&P 500 as sky high as it can go. The FOMC used to pay lip service to valuations, but now everything is different. He’ll signal to all those fund managers by QE raising bank reserves, leading them on in what they all want to believe is “money printing” (that isn’t). This provides the financial services industry with the rationalization those working within it desperately want for them to do what they already want to anyway. Link
So Cinders is very angry at the warehouse for its impending layoffs. Apparently not though at the numerous other businesses doing likewise, eg placemakers etc. How one is chosen for her rage list is unknown. Maybe painting yourself as a big red target mightn't be the wisest although mitre10 orange could also be risky.
redcows. Nope. The warehouse has been struggling with low margins and restructuring costs for some years now. Share price and dividends have tanked to reflect poor ROE. The explanation might lie in the warehouse being immediately relateable to those with little business experience and knowledge and thus be a simplistic target. Or it might be a more cynically calculated play. Shane Jones is frantically splashing the cash to buy the northland seat for NZFs survival and the warehouse has over the years proved politically emblematic in small town NZ. So an opportunity for our brave leader to stick it to the man on behalf of struggle street and show the love to wine box Winnie.
I've been saying for a long time now our economy and housing market have been stoked by high levels of immigration. This has now been completely severed for the foreseeable future (despite people like Ashley Church claiming returning New Zealanders could see a bump in housing demand).
https://www.newsroom.co.nz/2020/06/12/1225937/the-limit-on-nz-incs-migr…
This will start to flow through to the housing market and economy soon, but its being deferred by the Wage subsidy. If a sizable portion of the 300K people on temporary work visa's no longer require housing, or contributing to the economy what are the impacts? Unfortunately this short term thinking on supporting the economy with ponzi like immigration has ultimately failed both New Zealanders and those who just came here looking to improve their lives.
Does anyone else get this weird (and ongoing) issue where, whenever interest.co.nz wants to show the bitcoin price graph, it instead has a map of soil moisture deficit around NZ?
It's been happening for ~12 months for me, and have never seen anyone else mention it.
A word of advice, if you have lost your job don't be panicked into selling your house, it can be a long road back from renting. Who knows what can materialise in 3 to 6 months? Talk to your bank, renegotiate terms, do what ever it takes. But don't give up your house without exhausting all other options first. There are options.
We sold our house in Hawke's Bay late last year, as some kind of crash this year looked likely. Have been lucky to find a nice rental and landlord but as a young family can relate to the uncertainty others have voiced here about renting. We're holding out for a significant correction in a year or so and a more affordable home next time. Looking back at HB values, it seems like the 'average' $500k house now was the average $300k place in 2016. Would it stand to reason that a true correction takes values back not just 15-20%, but to where they were 4-5 years ago?
What you say about property prices jumping over the last 4 years in Hawkes Bay is so true. I don't know if values in Hawkes Bay will go back to where they were 5 years ago because essentially that would take them back a lot further. Hawkes Bay property values had been flat for many years and only really took off from late 2015 onwards. I guess you could say it was catching up for lost time. I follow the property market in Napier closely and properties are still selling fast. OK, things will almost certainly slip....but back to 2015 prices? Maybe, maybe not.....but my money would be on maybe not.
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