A review of things you need to know before you go home on Friday; ASB trims mortgage rates, PMIs drag, job ads up, food prices higher than CPI, rents too, high DTI lending tiny, swaps stay up, NZD down, & more

A review of things you need to know before you go home on Friday; ASB trims mortgage rates, PMIs drag, job ads up, food prices higher than CPI, rents too, high DTI lending tiny, swaps stay up, NZD down, & more
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Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
ASB has instituted a 30% LVR restriction for investors, "immediately". Other banks may already have followed even if no announcements has been made. ASB also trimmed some fixed rates, and although none of the new rates are market-leading, their two year rate is lower than any of the main five banks.

TERM DEPOSIT RATE CHANGES
ASB and Nelson Building Society both cut TD rates today.

NOT SO FAST!
The latest factory PMI for October served as a gentle reminder says BNZ. "That is, of not getting too carried away with the sense of recovery, even if the worst of COVID’s impacts can be assumed to be behind us. The PMI slipped back to a seasonally adjusted 51.7, having lifted to 54.0 in September."

JOB AD PICKUP
BNZ also says: "The ongoing pick-up in job ads in October is, to some extent at least, consistent with the recent lifting of COVID-19 restrictions. Advertising rose a further 5.9% in the month, in seasonally adjusted terms. This is after September’s amount rebounded 8.8%, from an August that stalled in the face of markedly re- tightened COVID-19 restrictions that month." They point out that the jobs where job ads are strongest are linked to Government activity.

LESS THAN PERFECT
The FMA released its Audit Quality Monitoring Report for 2020. The annual review, part of a three-year monitoring cycle of all licensed auditors, scrutinises selected audit files for listed companies and other entities that report under the Financial Markets Conduct (FMC) Act. Audit quality has continued to improve, with the overall number of issues discovered by the FMA reducing over time. However, while the number of individual issues in each file reduced, 35% of files in the sample were rated non-compliant, which is consistent with previous reviews.

LESS THAN TALKED ABOUT
Claims that returning New Zealanders could have a big impact on the economy and the property market appear to be severely overstated. See Greg Ninness' analysis.

OWN GOAL?
Food prices are rising faster than the overall CPI which rose only +1.4% in the year to September. Food however rose +2.7% in the year to October but that was the lowest rise since December 2019. Keeping food prices elevated were fruit and vegetables (up +10%) and they are likely to rise further as farmers can't get the necessary labour to harvest. Take-out meals rose +3.4% over the year. Going the other way, grocery food rose just +0.7%, and meat, poultry, and fish rose just +1.0% in the year.

RENTS RISING
Also rising faster than overall CPI are rents. The latest official data shows them up +2.3% pa on a 'flow' basis (properties changing hands in the period), and +3.2% on a 'stock' basis (all properties). The pressure in Auckland is minimal (+1.5% pa), but in Wellington rents are up +2.6% and in provincial North Island, rents have zoomed higher at the rate of +5.8%. Christchurch is also seeing rents up +5.8%. But provincial South Island is seeing them actually fall and quite substantially, down -5.8%.

LOAN SIZE JUMPS
The latest DTI data released by the RBNZ allows us to see the overall size of the mortgage loan commitments being made. This data only starts in June 2017, but it is monthly and reveals the sudden rise in amounts being borrowed in the past two months (August and September). Loan size grew +20.7% and +19.4% respectively in these months as the housing frenzy took hold. But to the banks' credit, the average loan size has only reached $287,000 so is unlikely to be anywhere near risking financial stability.

HIGH DTI LENDING IN AUCKLAND TINY
The real purpose of today's data release is to shine a light on the debt-to-income relationship of borrowers. We will have more on this later, but the vast majority (86%) of FHB's are getting loans with less than 6x their income. For 57% of them it is less than 5x. In Auckland, 21% of FHB borrowers are borrowing with a DTI of 6x or more, and 58% are doing it with a DTI of 5x or more. The number of such borrowers aren't especially large however, being less than 530 borrowers in September (or just 2% of all borrowesr in that month).

'DON"T QUESTION US'
China's Foreign Ministry has unloaded on Australia in official comments in Beijing today. They are worth reading. China is not backing away from tackling Australia for "repeatedly [haven] spoken and acted out of turn on issues concerning China's core interests". And they see it is up to Australia to reverse their positions.

GOLD PRICE UP
The price of gold risen in Asian trade, now at US$1880/oz and up by +US$17 from this time yesterday. The closing New York price was US$1877 and this was +US$2 more than the afternoon London fix of US$1875/oz.

EQUITIES UPDATE
The S&P500 ended its session earlier today down -1.0% in a partial retracement of its recent enthusiasm. Following its lead, Shanghai, Hong Kong and Tokyo have all opened -1.0% lower as well. The ASX200 is down -0.5% in mid-day trade while the NZX50 Capital Index is up +0.3% in late trade. That means the ASX200 is heading for a weekly rise of +3.1% and the NZX50 Capital Index is also up +3.0% for the week.

SWAPS AND BOND YIELDS HOLD HIGHER
Wholesale swap rates held on to their recent rise yesterday. If there are material movements today, we will update them here later. The scale of the recent rises is discussed here. The 90 day bank bill rate is unchanged today at 0.28%. The Australian Govt ten year benchmark rate is down -3 bps to 0.90%. The China Govt ten year bond is up +2 bps at 3.28%. And the New Zealand Govt ten year is down -5 bps to just under 0.84% and now well above the earlier RBNZ-recorded fix of 0.84% (unchanged). And the US Govt ten year is down another -6 bps to 0.88% as the US risks rise (COVID and politics).

NZD DOWN
The Kiwi dollar is noticeably weaker than this time yesterday, now at just on 68.3 USc and a fall of -¾c. Against the Aussie we are marginally softer at 94.5 AUc. Against the euro however we are marginally firmer at 58.9 euro cents. That all means our TWI-5 has fallen to just under 71.4.

BITCOIN JUMPS
Bitcoin is up +5.6% from this time yesterday and now just on US$16,470. That is a gain of +US$870 in just one day. The bitcoin rate is charted in the exchange rate set below.

This soil moisture chart is animated here.

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49 Comments

Don't get too excited. NZD to Euro is 57.9

11
up

So this data really shows how the poor and renters are getting whacked, while the well off / home owners are doing swell.
Well done Jacinda and co!!@

Fritz
What’s the issue?
I saw Court Jester posting yesterday he is far better off renting and leaving his potential deposit in term deposits.
Bizarre I know, but that’s what Court Jester reckons. :)

10
up

What's the issue?
Rents up, food prices up including prices up a lot for healthier food.

Meanwhile, mortgage rates continue to fall for home owners and investors.

Seems pretty clear to me that these statistics show that inequality is being perpetuated and worsening.

If he's waiting for prices to fall then it makes sense. Otherwise the only benefit I would see if someone is managing good investment returns (not in term deposits).

Rent is always useful if you plan to relocate at some point but also doesn't stack up in the current environment.

17
up

Yep. Investors - here, have your mortgages cut by around 50% or so, plus a 20% gain, tax free. Renters - here, have a nice big rental increase. Maybe even a PAYE tax increase.

30% self imposed “LVR” on investors will have limited impact.
Most investors are not FHB and will be leveraging on their home or existing properties. With CG of 15% over that past year most - others than those sailing very close to the wind - will have sufficient equity to meet that. Those with multiple investment properties will not be concerned unless very highly leveraged already.
The only real downer would seem the loss of a tax advantage/efficiency. For investors the tax strategy was to have as much debt clearly against the investment property (and hence tax deductible) and as little as practical against the non-deductible home interest.
While many on this site will take some joy over the tax situation, the step will have on very minor impact on house inflation. Will be interesting to see RBNZ mortgage data in two or three months to see whether this move has impacted on investor borrowing.

yes agreed, this just kills forever the idea of starting your property owning journey with a rental, that eventually might become your home.

Shamino
I think you need to talk to your bank. For a start it is a self-imposed restriction and any self-imposed restriction can be lifted by one’s self - this principle can clearly be seen apply to my wife and her promises about eating chocolate biscuits.
The reality is that banks here are protecting their butts. Whenever there is a boom there is always the over-leveraged ten houses before 30 and retired at 40 newbies in property investment. I recall this clearly in the boom around 2002/4 when the PI magazine was full of such ambitious “success stories”. When a slight correct came or some personal life event such as job loss or marriage breakup then it all turned to custard and the banks had mortgagee sales on their hands. Banks just don’t like messy mortgagee sales - too messy and they may not recoup all their money.
This self imposed LVR is nothing about wanting to cool the market, nor about giving FHB are fair crack - it is simply about protecting their self interest.
As to FHB, what I have been hearing is that banks have been pretty demanding regarding FHB equity.
Personally; if you planned to do what you intended it shows initiative, having a clear realistic plan and prudence and banks just love those qualities.

Shamino
Also be aware that not all lending was not necessary within even the RBNZ mandated LVRs. Banks could lend a portion at a lower LVR.
However, the bummer was that these mortgages attracted a low equity premium -about 1% - over standard rates. It’s quite possible that banks have established these self-imposed LVRs so that they can then more readily attach the low equity premium.

If you take out 30% equity against your own home to buy an investment property its still tax deductible. Its the intention of the borrowing that makes it tax deductible, not the type of security its over.

K.W.
Agreed but for transparency and to save muddying the water such as in paying down the mortgages it’s easier if they are seperate.
Cheers

The PM met with Auckland SMEs and Otago manufacturers yesterday on understanding business needs.

Policy reforms, better access to skills and targeted infrastructure spending came up as top expectations from the new government; driving down cost of bank lending wasn't on the wish-list.

2 more banks coming onboard with self imposed LVRs of 30% for investors - ANZ and Westpac.

It's farcical that the banks are now telling the regulator how to act responsibly. A shocking indictment of the ineptitude at the head of our central bank.

Grant and Adrian should be getting serious now and putting DTI's in the RBNZ toolkit. 43% of FHBs having a >5 DTI is pretty bad, particularly when in other jurisdictions the top of the range is 4.5.

Duplicate comment warning, I posted this quite recently on an article written yesterday. Should have instead posted it here...

I ran across this headline today and decided to do a visit to interest.co.nz to see how they would cover the very "National" sounding quote from Adrian Orr. Not really a peep here.

The headline:

Reserve Bank Governor Adrian Orr describes high house prices as 'first-class problem', alternative is 'depression'

Let them eat cake indeed...

Lame from Orr.
Another frown from Jacinda. Earth to Ardern - we don't want frowns, we need action - something you and your government seem to be awful at.

Weird seeing Orr do the PR rounds...

There seems to be a lot of butt covering going on right now and groups drawing a line in the sand as to where their responsibilities start and finish. In the workplace this usually happens when people with information know something bad is occurring and want to clear their name before management find out - and you know you’re working for the wrong company when management are doing what we see the likes of RBNZ and the retail banks currently are.

RBNZ governer defending that he is not responsible for rising house price in itself is a farce :

https://youtu.be/pWC6AvBAx_s

Well in reality he's a bit player. Money creation really happens at the banks through mortgage lending. The regulatory / political / legal framework has been in place for a long time.

The real issue is that the price of human labor is being destroyed. The old farts won't be concerned but for young people it's soul destroying. Nevertheless, society wants them to play the game, even if it's not in their interests.

Not so sure. Another way to think about it is that a young person is a yielding asset: future earnings. In this zirp world, something with yield is soaring in value. Retirees with cash, on the other hand...

That’s why, as a (relatively) young person, the only safe investment seems to be... my own skills. The locust horde is sucking the margin out of every investment sector... but those assets will have to be exchanged for tangible goods or services at some point.

Hilarious video. It's all the banking systems fault (which we regulate). The earliest we can reintroduce the LVRs is March (oh, but we can remove them overnight, just ignore that). It's a "first world best problem" that house prices are so high. Bulls@$t.

At least he recognises society is being slowly ripped apart. Laughable that he takes no responsibility.

My daughter is a stay at home mother, she told me today that the local playgroups for children have almost gone. The reason being it takes two incomes to support a family today, local daycare facilities are packed.
She is lucky she can live in our cottage and the rent is just my cost of maintaining it, also her husband is a doctor. They share multiple passports so can move easily, either to the UK or Scandinavia, they are not trapped, she has been living outside NZ for 6 or seven years and finds the change quite dramatic.

This is a tragic set of circumstances we have got ourselves into. While at playgroup today she met a couple walking about town, from Napier and looking locally for rentals, they already have a few in Napier, what a screw up.

It's all wrong but i'm glad your daughter has been able to make it work for now. A lot of women don't have the choice to be a stay at home Mum, even if they wanted to, it's just not affordable. I had to go back to work 10 months after giving birth with my first and I used to sit in the loo and sob at work because I missed my baby so much. I felt like my heart was being ripped out. By the time I had my second, we could afford for me not to work, but we also moved out of London to make that work. It remains one of my biggest regrets that I missed those precious years with my first born because of money and the high cost of housing.

It might have made you a very good mother

Ha. I hope so. It was all in the middle of the GFC too so a lot of peoples plans were also being shat on from a great height! But yes, it certainly helped me focus on priorities. It was probably back then that I started dreaming of moving to NZ, undoubtedly one of the best things we ever did for the kids. They are so much happier here. My Kiwi husband was very reticent to begin with as he loved the UK, but he has reverted back to full Kiwi now and my youngest doesn't remember England. We'll be spending the whole of Jan in Napier with zero regrets about anything! Just an unrelenting shame that the housing market is putting the entire economy at risk.

GN it seems from what I see and read that women have been lured by the fools gold of a corporate career. It is almost certain that the demographic shift of women increasingly participating in the workforce has contributed to higher house prices in urban area's. IMO careers are vastly over-rated and raising kids vastly under-rated, women have been the losers in this trade. How can a career ever be as rewarding as raising your children?

A big part of the issue Te Kooti is for a large proportion of the population it's impossible to afford a house without two incomes.

Yes, I realise that. I guess my point is that society has increasingly placed an expectation on women to pursue a career, which of course they should if that's what they want. But now house prices are higher, it is now a necessity for most so it's a moot point as you point out. I just think raising kids was massively undervalued and not a great trade for a corporate career. I actually have a few friends who raise the kids while their wives pursue the corporate career. Who do you think is happier with that arrangement?

We did that swap in roles in 1985 when we had one 2 year old and one 8 month old. My mother visited from the US shortly after the swap and helped (hahahaha) the husband learn how to be a homemaker :-). He never took to the idea of baking but mastered the cooking meat/roasts; developed a vacuuming fetish; and learned how to more successfully peg out nappies on the washing line. Funniest thing was all his friends wished they could be him, and all my friends wished they could be me. But both of us knew the hardest job was his.

My work wasn't corporate and was incredibly rewarding.
It's kinda nuts that we were two post-graduate educated parents with "professional" jobs, who were frugal and sensible with money, yet still struggled financially. It tells me that those who earned less than we did, struggle even more. House prices are out of control all over the world with next to no wage inflation for over a decade.

That’s really interesting. I have some exposure to high and complex needs children indirectly, some amazingly dedicated people out there.

It was always the resilience of the kids that used to blow my mind. It amazed me that they ever risked trusting any adult again, after what they'd been through. But certainly some very fine examples of humanity working in the field too! Couple work in NZ now actually.

If raising kids was so wonderful, how come more men don't want to do it? Please go ask all the men you know why they prefer to have careers rather than stay home and look after the kids, so you can answer your own question.

I was only speaking for myself. And speaking to the broader issue where life usually requires two full time salaries without much wiggle room. More and more fathers are choosing to be stay-at-home parents, so it would be nice if either parent had the choice. If you breast feed, it's definitely easier for the mother to do the first year, for obvious reasons but it's not having the choice that's the kicker.

I’d love to be a stay at home dad. Financially impossible, unless maybe we moved to Kaitaia and went on the dole.

I didn’t say it wasn’t hard work, I said it was more rewarding. If you would rather be at work than with your kids I reckon that makes you a dick.

It's all about trade offs isn't it.
My wife didn't work again till our daughter was 5 and off to school. It definitely affected our ability to buy a house.
But we don't regret it. Not one bit.

There's a lot of luck to it too. Vagaries of the housing market and all that. I had my first in the middle of the GFC so the housing and job market were super sketchy and nobody wanted to take risks. I didn't feel like I could leave my job in case there wasn't a job to return back to. Plus when you're a new parent you actually have no real concept of how much having a kid is going to actually cost. It's just a series of... W the f's.

Stay at home mums in our family consider they are privileged. Same story re playgroups and daycares in their area. Similar story for the small rural school too - easier for mum to have the kids in town/city schools were mum is working, than send them to the local rural school.

Spoke to a friend up north today, they have taken their funds out of term deposit and bought their first beach house - bach/crib on Nth Is west coast. Original beach bach, complete with asbestos. They see it as an investment to buy do up the bach and subdivide section and sell - though that may change once they and the family starts to use it. They were surprised when their accountant told them they would have to pay capital gains tax if they sold it within five years. Made me wonder how many others have bought with similar intentions, and likewise are/were unaware of the brightline text.

Going by the posts on Facebook property groups, most first time investors are equally clueless about the new rules around insulation and Healthy Home standards. They are shocked when they find out they cant just rent a recently purchased property out without spending thousands of dollars on the place to make it "rentable".
I was also chatting to a property lawyer the other week, who said its now costing upwards of $100k to subdivide a section. Another wake up call for the unwary.

Huh, that might explain a listing I saw yesterday, with a massive backyard of flat grass fenced off from the back of the house. Definitely looked like a subdivision attempt given up on.

And the difference between QLDC and CODC in subdivision costs/requirements is 10's of thousands of dollars. The reserve contributions are a big part of it.

dp

A really worthwhile read on the US election situation;

https://www.newyorker.com/news/our-columnists/how-far-could-republicans-...

Good read. Even if most of the fraud claims are specious, now that they have been spread so vociferously, they have to be challenged legally for the sake of the integrity of American democracy. I still consider it highly unlikely that any kind of widespread fraud is possible and I think the number of allegations that have already been summarily dismissed, speaks to that. *But* if there is any doubt of fraud, any grounds at all, they need to go through the whole recount and legal process. Trump tweets and the alt-right media have a long reach. Their demands have to be answered to with evidence and scrutiny whether they are unfounded or not, simply because of the number of Americans that believe them.

After that? Who knows. Their virus numbers might be a lot worse this time next month too. It's a shame they couldn't have a temporary bi-partisan government just until they get on top of their pandemic.

I had to laugh at your video interview with RBNZ yesterday: "we cannot control house prices"
I bet you if their OCR was 4% and home loans 6% we would have a 750k median Auckland house price, not 1 million.

Orr is just covering his butt for if prices now depart controlled flight in either direction he can continue to say ‘this isn’t my issue’ - even though they’ve already said that house price falls would be very bad for our economy - but if they do fall ‘well I don’t care...’