Mortgage approvals down 25%

Mortgage approvals hit record low NZ$561.2 mln in week to Oct 29; down 25% on same Labour Weekend week a year ago

3rd Nov 10, 3:31pm by Bernard Hickey

By Bernard Hickey

Reserve Bank figures show mortgage approvals fell to 4,303 worth NZ$561.2 million in the shortened Labour weekend week to October 29, which was the lowest non-Christmas week since the Reserve Bank started recording the series in 2003.

Mortgage approvals in the shortened holiday week were down 25% on the same shortened holiday week a year ago and were also down 16% on the NZ$668.4 million in the shortened Labour weekend week in 2008, which was in the midst of the housing recession.

The numberof mortgage approvals in the 13 weeks to October 29 was down 25.8% on the same period a year earlier, while the value of approvals in the 13 weeks to October 29 is down 28%.

The slowdown in new mortgage lending is consistent with reports that heavily indebted households are looking to repay debts or stabilise their debts rather than add to their debts to buy new or existing houses.

The housing market has appeared to stall in recent months despite expectations of a bounce in activity going into the better spring weather with low interest rates.

Barfoot and Thompson reported earlier today that sales volumes fell 18.6% in October from September and were down 36% from a year ago. However, prices continued to hold up, although an influx of new listings onto the market in October had lifted inventories. See more here.

Realestate.co.nz reported on Monday that 'spring passed the market by' as new listings fell in a "stagnant, buyers market that could last for months." See more here.

Mortgage approvals

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Source: RBNZ

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17 Comments

by Wolly | 3rd Nov 10, 3:55pm 1288752911

This is great news. It shows that Kiwi are learning they need to avoid the mortgage trap. The more who save and do not borrow the better because it forces prices down. We can see this in the Tsunami of retail sales. The govt revenue grab is shrinking fast. Imports of crap are falling.

Top marks to everyone who decided not to chase property with borrowed 'money'. With any luck the number will go on falling and the pace of the drop will increase going into the winter.

by Justice | 3rd Nov 10, 6:33pm 1288762410

Thanks Wolly! Keep saving people. Screw those overstretched PI's well and truly

by Chris | 3rd Nov 10, 5:01pm 1288756873

Are you seriously making headlines out of a weekly figure? On a short week? Why are you using such short time frames? There is too much noise at this time frame to make any sense. I don't remember you making headlines on the recent 15% increases on a weekly basis.

Stop embarrassing yourself, Bernard.

by Boatman | 3rd Nov 10, 5:29pm 1288758542

Get over it Chris

Bernard has at least been consistent in forecasting , reading and reporting signs of some serious adjustment taking place in the residential property market .

Its now apparent that every week we see new signs of what is likely to be a rock-slide in house prices.

This adjustment is both necessary and desirable to bring the still overheated market to its senses

by Bernard Hickey | 3rd Nov 10, 5:33pm 1288758801

Chris,

Here's the third paragraph repeated.

"The number of mortgage approvals in the 13 weeks to October 29 was down 25.8% on the same period a year earlier, while the value of approvals in the 13 weeks to October 29 is down 28%."

We highlighted because it was a record. Sometimes records are newsworthy. It was also consistent with the news from Barfoots and Realestate.co.nz this week.

I'd suggest having a look at the chart too. It's interactive. Have a play. Long term. Short term. Your choice.

Tell me after that if you think this is uninteresting or pointless or not relevant.

cheers

Bernard

by J.C. | 3rd Nov 10, 5:37pm 1288759040

Chris, further to what Bernard pointed out, it pays to think before calling someone an ass.

by Small Kev | 3rd Nov 10, 6:28pm 1288762085

Agree with Chris.

And this is why people are starting to lose interest in interest.co.nz, less vistors and posters...

Its been a little while.....almost forgot my login and password lol

by Chris_J | 3rd Nov 10, 5:37pm 1288759045

A 20% shorter work week and 10% of the market (Christchurch) still in semi-hiatus won't steal Bernard's thunder about a 25% drop in mortgage approvals.

This is a statistic that tells us nothing new. You may have noticed 4303 house sales didn't occur last week (actually we'll be lucky to see that many in the month), so all this decline from 10,000 approvals in 2006 is really telling us is that house sales are at lower levels than in previous years (which we already knew) and that there is a lot less shuffling round of mortgage money and refinancing for other purposes (which we also already knew).

The numbers are in line with the trend of decreasing numbers of approvals since the upswing in 2009 (when long term rates were at record lows). Surprisingly there is not a great correlation (~0.68 for anyone interested) between approvals and house sales - other factors play to much into the mix.

by Bernard Hickey | 3rd Nov 10, 6:28pm 1288762128

Chris_J

Many thanks. Yep. This series is just one piece in the puzzle. Interesting analysis on the correlation.

Where did you see this? Your work.

cheers

Bernard

by Chris_J | 3rd Nov 10, 11:13pm 1288779233

My own analysis as always Bernard.

2 minute stuff really, I'm sure you can do it. Remember approvals are weekly and sales are monthly so I just did the correlation on rolling 12 month periods and used a lookup function to collate them.

Just in case you have problems, I've emailed an excel file. I also graphed the ratio of sales to approvals which you will see is far from linear. Obviously the peak conincides with the 2009 nadir in long term interest rates (very low sales high level of refinancing).

Note that the difference between sales and approvals is back to 2004 levels, with the peak in 2007 coninciding with the period when activity releasing home equity was high.

The series gives interesting insights but tells little about the real estate market going forward.

by Chris_J | 3rd Nov 10, 11:21pm 1288779664

By the way, weekly approvals have been down 20-25% on the 12 months prior pretty much all year. It's really a non-story for where housing is going.

by J.C. | 4th Nov 10, 12:19am 1288783148

I would be surprised if I didn't see a positive correlation between weekly approvals and rising house prices, so it wouldn't surprise me at all if I saw a relationship between falling weekly approvals and falling house prices, if only directionally. However, I can understand what you're saying and BH might want to consider looking at the data differently.

As for it being a "non-story", that might be so when looking at the data at a point of time but I would be surprised to see falling weekly approvals and rising house prices (at least directionally over a period of time; 12 months is not a particularly long time considering that the "bull" market has been in place for years). OTOH, I would not be surprised to see falling weekly approvals and static/falling house prices. But that's just me. Given that we are in unchartered territory, I think that there is much interest in looking at the different patterns. I notice that the banks and the property companies don't seem to hold back with their predictions, regardless of the huge deficiencies in their black box forecasting models.

by Simon | 4th Nov 10, 3:10am 1288793444

Completely disagree with Chris_J.

Using your own figure, 0.68 is moderate to strong correlation, and without the actual volume numbers in hand gives us a real good heads up as to what we can expect from oct national sales volumes.

This past week data, while not out of line with last 12 months holds more value simply because its most recent.

Chris, since things like this only take you 2 minutes due obviously to your immense intelligence, can you find some big data sets (maybe there are some from USA, UK) and find the correlation between house sales volume and house price change. Play around with adding a lag to price change, as volume is generally a leading indicator, i.e low volumes happen first, then prices drop.

by Chris_J | 4th Nov 10, 9:28am 1288816133

Simon, of course there is some correlation between approvals and sales however nothing much is actually happening in the data that we didn't already know. As I said, approvals are running actually over 20% down on the same periods 12 months prior, in fact the week in August 13 2010 had 32% fewer approvals than the one ending August 14 2009 - and we didn't get a story on that.

I don't have US or UK data sets but if you know where they can be accessed for free I would love to know.

by PhilBest | 4th Nov 10, 5:45pm 1288845941

Chris, don't know for sure about the data you are looking for, but "DrHousingBubble" blog has done a lot of number-crunching relating to California real estate particularly.

He has pointed out that it took 2 years from the market volume slowdown, to the real serious price crashes. All the same stuff that is going on here now, was going on there too - "shadow inventory", vendors withdrawing properties unsold, banks sitting on mortgagee sales, etc. And it still is going on - they still have not reached bottom after nearly 3 years.

Of course, using median multiples reveals that if they started at 3.0 and went to 10.0, if they are back to 4.5 now, they still have some way to go to reach historical norms. But Britain provides an example of a country with strict urban planning for half a century. Property price volatility is a new "norm" once you go the over-strict urban planning route. The trouble is, the bottom of each "bust" is the only time houses might be affordable, but then, it is hard to get finance.

It is actually far less damaging to an economy to just let a bit of overbuilding happen every so often, substituting supply volume for price volatility. A LOT more capital is destroyed in price bubbles than in overbuilding booms.

The other consequence of Britain's prolonged experiment in urban planning, is that the size and quality of homes has steadily diminished and the age has risen. Homes that should have been bulldozed and replaced decades ago are still in use and changing hands for hundreds of thousands of poonds - all the price being in the land. The same thing is happening here. The Poms also illustrate just how bleedin' docile the sheeple can be while all this is done to them.

I have no doubt that massive constraint on Britain's economic growth has also resulted. I very much doubt that a very underpopulated nation like NZ can replicate the same folly for so long - our economy will die of strangulation much sooner. We do not have their population efficiencies of scale or easy proximity to markets with many more hundreds of millions of customers.

by me | 4th Nov 10, 9:21am 1288815670

There does seem to be people losing interest with the website, have noticed quite a few who are more positive have quit durig the year. May be it's the better weather and they are more into doing things rather than sitting around at a computer, hard to say what the reasons) are.

by A Banker | 4th Nov 10, 1:34pm 1288830859

I'm still here!

But thats because I do lending in a Bank, but no one is borrowing money so I have nothing to do but read this website and get depressed and wonder if I need to start looking for a new job...