A review of things you need to know before you go home on Wednesday; another mortgage cut, dairy prices lower, confidence down, C/A weakens, jobs growth slows, swaps and NZD firm

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

MORTGAGE RATE CHANGES
In case you missed it yesterday, the Co-operative Bank has cut all its fixed home loan rates by between -6 bps and -40 bps. Its new three year rate is very competitive, and its new 6 month rate is market leading.

TERM DEPOSIT RATE CHANGES
No changes to report today.

DETERIORATION
Dairy prices
slipped yet again today, their eighth dip in a row at the GlobalDairyTrade auction. That takes overall prices back to levels last seen in October 2016. The saving grace is the automatic adjustment we get from our free-floating currency, but even that is not cushioned the result that much. It is only a matter of time now for another cut in the 2018/19 milk payout forecast.

GOING THE WRONG WAY
The Westpac MM consumer confidence survey for Q3-2018 came in a little more pessimistic than the earlier monthly ANZ-Roy Morgan survey, even though both are pointing firmly south now. The high point was June or September 2017, just before the general election and it has been downhill since.

EROSION STARTING?
BNZ reports: "New Zealand’s external accounts have continued their trend deterioration, which began in 2017. Back in December 2016 the current account deficit hit a low of -2.2% of GDP. That has now climbed to -3.3% of GDP and, by our expectation, will be through -4.0% by mid 2019. Driving the balance further and further into red has been the weakness experienced in New Zealand export volumes." [Not BNZ:] But we should also note that we are in our least-weakest position in terms of foreign liabilities-to-GDP (what we owe the rest of the world). The net IIP:GDP ratio is now -54.5%, the smallest it has been since these modern records began in 2000 - and when it was over -80%. We should recall that it is this improvement from disaster levels that was behind those years of necessary pain and adjustment. While it did dip in the GFC, if we kept up the current rate of improvement we have had since then, it would be eliminated in a bit over a generation from now. Yes, "if", and that means current public policy setting will need to turn away from their recent slippage. Hard to be optimistic about that.

EXPANSION SLOWING
The air seems to be going out of jobs growth. Sure, online job ads are still growing, but the pace is slackening. Worryingly, it is slackening fastest for skilled jobs, although for the first time we are seeing a pullback for unskilled jobs, the area that has had surprising growth recently..

A FEW MORE REFUGEES
The Government today announced New Zealand will lift its refugee quota from 1000 to 1500 by 2020. By then, official estimates say overall immigration will fall to the rate of +51,000 per year. It has risen by 63,800 in the year to July. The rise in the refugee intake is to be funded by an additional $33 mln budget allocation.

UPDATED I
For those who use our unique regular savings KiwiSaver analysis, all funds we monitor - and that is most of them - have been updated to the end of August. We will next review fund performance when the September update is completed.

UPDATED II
Still curious about how money is created? Today an RBA official outlined the process here. If you want a New Zealand example, we have this resource here.

SWAP RATES STEEPEN FURTHER
Swap rates rose and steepened yet again today with 2 yr rates unchanged, three year rates up +1 bps, four years and longer up +2 bps. That put the swap 2-10 curve at +89 bps and its steepest in six weeks. The UST 10yr is also rising, now at 3.05% with the UST 2-10 curve now just below +25 bps. The Aussie Govt 10yr is at 2.70% (up +5 bps), the China Govt 10yr is at 3.68% (unchanged), while the NZ Govt 10 yr is at 2.68%, and also up +5 bps. The 90 day bank bill rate is unchanged at 1.89%.

BITCOIN FIRMS
The bitcoin price is marginally higher today at US$6,327, a +1.4% rise from this time yesterday.

NZD UP
The NZD is is having a late rise and is now at 66 USc, essentially unaffected even after a weak dairy auction, a poor consumer confidence result, and a worse balance of payments outcome. On the cross rates we are lower at 91 AUc, and higher at 56.5 euro cents. That puts the TWI-5 at 69.6.

This chart is animated here. For previous users, the animation process has been updated and works better now.

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USD 
NZD
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Source: CoinDesk

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30 Comments

The RBA article by their Christopher Kent is amusing at best, and worrying at worst! Comments like "Australia's banknotes are produced by the Reserve Bank of Australia and account for most (about 95 per cent) of the value of Australian currency." are part of the 'worry'. The 'amusing' tone of the article is that it seems like it was penned by someone who has just discovered that the private banks create debt; money and that it is a revelation to him.
Maybe I'm being harsh and the presentation is aimed at Form 5 High School students. But if so, it is leading them astray by trying to trivialise that way that debt really is created.

Well noted and re your 2nd paragraph, I agree wholeheartedly. I think the naiveté of the tone is that Kent is trying to put himself in the shoes of his reader.

The barrel continues to fill with fish, but no one seems too bothered to load the rifle just yet.

The volume of 'unsold' houses in New Zealand has risen again today (Trademe listings) to 31,713, this time yesterday that number stood at 31,508.

Auckland's barrel of fish now sits at 11,537. Housing Shortage? Nah, just a willing and able buyer shortage!

Just remember that back in September 2008 (just before Lehman), Trade Me listings totalled 18,485 for Auckland, while realestate.co.nz had 14,422. Nationally, these totals ten years ago were 58,804 and 49,363 respecively. So you are reporting just over 53% of the levels a decade ago.

I guess we have a long way to go yet! Nic could always compare the number of cranes in Auckland currently vs Dublin at the height of the Celtic Tiger.

Not necessarily Nzdan. A few months of high listings with low sales rates, while the buyers wait and watch what else comes up could quickly change that dynamic. The stock levels in a little area that I look at with a bit more attention, have gone up from just over 200 to over 250 in 2 weeks.

Also question why the numbers were so high in 2008? That was the peak of the market and as a result seller numbers increased. Sellers are just realising (because the MSM is very slow) that we've had the peak of the market again. Watch them run for the exit between now and Christmas.

Another thing, If Barfoot are only selling 60% of their listings this year (instruction rate against sale rate since January) and those properties that were withdrawn over Winter reappear because Vendors who atucally did want to sell decide to try again, then boom there's another 5000 Auckland listings.

Nzdan

Just to highlight my point, Spring is here now and listing have been outgrowing the aggregate of sales/withdrawn properties by around 200 units a day for the last 3 days.

200 unit overhang over 30 days = 6000 more unsold properties.
over 90 days that's 18,000 extra units all competing with each other. Now I don't think that it will rise that quickly because sellers tend not to list on a Sunday.....but the trend is up....

It's early days still and remember that by the time Lehman collapsed in 2008, that was 14 months after Northern Rock and Bear Stearns was March. The housing market had already been correcting for 12 months or so.

I see your point. Maybe the September 2008 figure David mentions is what a normal NZ market looked like prior to the massive influx of cheap credit being parked into New Zealand housing. We don’t have as many houses for sale on the market because they’ve been converted to investment vehicles. That and we have had a 10 year massive influx of migration coupled with a lack of building.

No that 2008 number is 12 months after the financial crisis had started and 24 months after initial news of trouble in the US housing market. If you have the archives you can pick any number from history to try and argue a point. The US is currently 9 months into housing challenges and there have been 300,000 repossessions this year. The UK is 6 months in. We've just started.

Housing corrections cause recessions in the credit economy.

Okay sweet. Maybe David could provide September 2007 or 2006 numbers as a comparison.

I reckon David probably has the data to provide us with a tabulated history month by month for the last 18 years.. it would be lovely to see it. An article perhaps? Hell, if he's happy to give me the data I'll write the article.

Addendum 7.39pm - my guess is that the 2008 available listing numbers are the highest figures that David has.

I'm more interested in how many buyers are out there than sellers.

No where near as many as there have been, which is why the banks are all having a mortgage rate sale! And with a cash rate at 1.75% they still have some slack to make their sale even more tempting.... until the dollar collapses and rates have to go up.

Housing markets unwind like ice cream in the sun ...

Thanks David - I had no way of getting that data so really appreciate you sharing your archives

So low stock levels and low volume of sales have artificially inflated prices (along with everything else). I've found over the years that people tend not to sell stuff while they are going up and then the floodgates open on the way down - bit like Bitcoin after Christmas. Stock levels do tend to mushroom quite quickly when a market turns South because as prices go down and the differential on cost of exchange reduces more people have a go at trading up. I don't believe it needs to get anywhere near those 2008 stock levels to create a collapse this time because there just won't be enough buyers or credit prop it up.

“Bubbles always look like a new paradigm. Valuations soar and the prudent investors are left speechless, looking like fools because they “missed” the rally.” Daniel Lacalle
https://www.youtube.com/watch?time_continue=24&v=tYK1yF1F6TM

Well said and thank you Andrewj

Andrewj

That graph pretty much explains the Western debt bomb. Essentially everything that has happened since 2008 is because of the GDP support for banks, jobs, indebted households and businesses that the money printing allowed..

It was done so that households could reduce their balance sheets to their debt exposure with lower rates to help them out. What happened in Australasia? Because the money wasn't printed here, but money got cheap anyway, it was thought that we'd avoided the crisis, when in reality all we did was pump ourselves up even more, households and businesses gorging on credit.

I hope you don't mind me adding a bit more to your post?

Stunning chart, Andrewj. Highlights just how much growth has been borrowed from the future.

Very sobering.

Hi David. My guess is that the September 2008 total available listing numbers are the highest figures that you have from the last 15 years?

Happy to be corrected if there was a month higher than that.. Questioning cherry picking otherwise... Nic

Its not cheery picking... simply a period in history that is similar to what you are expecting.... ie.. comparing apples with apples.. ie.. the big downturn you are expecting

best I could come up with for inventory stats is this chart ( scroll down )
https://www.interest.co.nz/property/73515/house-sellers-benefit-further-...

feb 2007 listings were 15,000..
I think interest.co stopped updating the series because REINZ started charging for stats..

Thks David... And I'd also add that the total housing stock has grown in that time....
Not sure if these numbers are correct
Housing numbers in 2008 1,678,200 in 218 1,863,100 .... increase of about 184,000 houses..
https://www.stuff.co.nz/business/industries/103478711/how-many-homes-are...

SO... the listings growth is not the big sign of the "end of the world" event that Nic is looking for.. ie.. a crash
As things stand, I'd argue that it would take a severe economic downturn for something like that to be probable..

Listing numbers grow in spring just like grass grows in spring. I think Nic is attempting to influence things with his comments, grasping onto anything negative to the point of obsessiveness, but what can one man do? Sad!

Who is there to influence here? It seems to me that there are house owners not doing anything and people who can’t afford houses waiting for 1990 prices. Meanwhile 5,000 people per month out there are just getting on with life.

Give it a rest mate your over excited for a disaster it's getting boring.............

Maybe but you're on my list when I get my position at the IRD....

I was in Dublin at the height of the celtic tiger boom and on my job on seventh floor i could count 150 cranes.Way more out of central Dublin.When the bubble burst all the building work dried up in the matter of six months and the ones left it was dog eat dog for the remainder of work.When the boom was on the money was being spent here there and everywhere.Guys were spending there massive wages in four or five days,it was like a whirl pool of money,they spent it then recieved it again.it was crazy!!!I honestly dont think you can compare the NZ boom to the Celtic Tiger.

Taint just the dishwashers we need to know about..Wednesday.............Laundromats aplenty abound..

Danish Banks are not as pure and clean as made out..........Who or what is..... is next?....in the line.......

Spin Dryers......please advise?.

https://www.bloomberg.com/news/articles/2018-09-19/danske-bank-ceo-to-st...