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A review of things you need to know before you go home on Wednesday; no rate changes, first homes less affordable, bear market for dairy, good farm sales, more job vacancies, swap rates on hold, NZD slips, & more

A review of things you need to know before you go home on Wednesday; no rate changes, first homes less affordable, bear market for dairy, good farm sales, more job vacancies, swap rates on hold, NZD slips, & more

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

MORTGAGE RATE CHANGES
No changes to report today.

TERM DEPOSIT RATE CHANGES
None here either.

LESS AFFORDABLE, NOT UNAFFORDABLE
Today's release of our home loan affordability reports shows that rising house prices have more than offset falling interest rates in 11 of 12 regions over the last six months making home loan affordability for first home buyers a little tougher. That said, such buying is still affordable almost everywhere with the usual suspects (Auckland and Queenstown) still tough. The issue is not so much the mortgage payments, or even the incomes required. The big inhibitor is finding the initial deposit. If you don't have 20% you will likely not get access to 'special' mortgage rates - plus you may get slugged with a "low equity premium". But if you have saved a deposit, most first quartile houses will be affordable for most people on a medium income aged 25-29, in most locations. (But this won't apply to leafy suburbs in inner Auckland. Then again, it never did.)

BEAR MARKET FOR DAIRY PRICES
The dairy auction overnight brought a tough result, compounding the 13 prior declines and taking the full drop to -20% so dairy prices are now in a bear market. It wasn't as fierce for whole link powder however. The rising NZD isn't helping either.

GOOD FARM SALES - FOR AN OCTOBER
Farm sales
weren't too bad in October. 100 farms were sold in the month nationally, up from 85 in October 2017, and that compares with 105 sold in October 2016. But only 3 of them were dairy units. October is often a low month for dairy farm sales but the ten year average is 10 in an October month. In addition, 32 finishing units and 37 grazing properties were sold in the month, and there were 13 horticultural sales. Canterbury and the Bay of Plenty did a bit of a starve. Northland and the Manawatu both had good sales activity. More details here. The REINZ said a lot of farms came on to the market in October, so all eyes will be on November results. Typically 180 farms sell in November.

HEALTHY LIFESTYLE BLOCK MARKET
The situation was similar for lifestyle blocks which sold at normal levels in October, and sales were up +10% from the sale month a year ago. Sales in almost all regions were normal to healthy.

MORE JOB VACANCIES
MBIE's online job vacancy report shows vacancy levels pushing on up to new record levels, with skilled vacancies also rising. Over the past year, online vacancies have increased by +9.4%. There remains elevated demand for unskilled positions.

CREDIT CARDS USE RESTRAINED
Credit card balances rose to $7.4 bln, up +5.3% which is the smallest rise in more than a year. The proportion that is interest bearing is now 61.2% and that is near a record low and growing at only +2.9% pa. Still, that is $4.2 bln with a weighted average interest rate of 17.9% - which incidentally only down from 19.7% in 2009 when the OCR was 8.25% and the 90 day bank bill rate was 8.7%. It's is currently 1.75% and 1.99%. There seems little justification, especially with the new availability of positive credit scoring. Domestic billings on credit cards are up only +5.2% pa, overseas billings are up just +2.1%. We seem to be pulling back on using our credit cards.

AGEING IS A DRAG
New research by analysts at the RBNZ suggests our high participation rate will stay high for at least another decade, even longer. Our population has been getting younger recently with the median age down from 37.6 years in 2013 to 36.9 years. But it is expected to turn up in the future. It may turn up faster if the current aversion to migration takes hold. Our current participation rate is a high 70.6% and these researchers find that monetary policy has a small influence on the participation rate, through an "encouraged worker effect". The participation rates of young people and people near retirement age appear the most sensitive to business cycle fluctuations. Until 2035 an ageing population won't hurt participation if women aged 24-54 and people aged 55 stay in the workforce longer, as projected. If these trends don't happen, then we are likely to face increased economic stresses that other countries are facing now.

COLONISING TRADE ME
British private equity firm Apax Partners is making a bid for TradeMe. They are bidding $6.40 per share. Prior to the bid the market price was $5.10 per share. What could possibly go wrong? End of an era I suspect when/if a bunch of foreign wide boy know-all investment bankers from London start managing it to get their money back.

MARKETS FALLING
After the S&P500 fell -1.6% last night, Shanghai is down -0.6% in late morning trade (on top of yesterday's -3.0% fall). The ASX200 is down -0.7%, which the NZX50 is down -0.6% even after the TradeMe spruik.

SWAP RATES HOLD
Wholesale swap rates are generally holding, with a slight softness at the short end, and minor firmness at the long end. The UST 10yr is still at 3.07% but it did come under pressure earlier when Wall Street was open. The 2-10 curve has fallen however to +24 bps. The Aussie Govt 10yr is at 2.71%, up +1 bp today, the China Govt 10yr is up +3 bps at 3.41%, while the NZ Govt 10 yr is at 2.75% and that is up +1 bp. The 90 day bank bill rate is down -1 bp to 1.99%.

BITCOIN DUMPED AGAIN
The bitcoin price is now at US$4,285, another -$500-plus drop and and down -11% in the past 24 hours.

NZD SLIPS
The NZD is -½c lower today at 67.9 USc. The negative dairy auction didn't help, and general market risk aversion counts against the Kiwi dollar. On the cross rates we at 94.1 AU which means the Aussie has been hit a little harder, and at 59.7 euro cents. That puts the TWI-5 at 72.4.

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23 Comments

The issue is not so much the mortgage payments, or even the incomes required. The big inhibitor is finding the initial deposit.

Right. And what happens if this segment suddenly stops buying iPhones and avocado on toast to save for a home? What are the impacts on the consumption components of the economy (which is far more important than Everest-scale house prices)? The mindlessness of credit-fueled bubbles will become more obvious to the wider public with time.

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Should the housing market crash, it’s the massive deposits that disappear in vanishing equity. The mortgage balance doesn’t shrink. The homeowner has all the risk. We’re talking 2 - 3 years salary for a deposit these days, not the 6 months required when house prices were “normal”.

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However the "asset" on the banks books now is a liability and with leverage means the bank faces an OBR event as its bankrupt in effect and the saved/savers get wiped out also NOT just the "massive" deposits of the FHB.

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If the home owner is still meeting their payment obligations then the bank still has liquidity. I suppose the reduction in asset values can fudge with the bank’s adequacy ratios though? As far as the borrower is concerned, the vanishing equity is just an indicator that they may have paid too much for the property, they should have “gone short” a bit longer......until the bank comes knocking for a margin call I guess.

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Not sure the assets are revalued after origination of the loan, so may have no effect of the banks adequacy ratio... until the customer can't pay the mortgage and they foreclose at least.

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Even when they go to re-fix? Surely a bank is going to want to know the current valuation/equity of an asset held against a loan on the books? Oh wait, silly me, we don't do non-recourse mortgages over here ha-ha-ha.

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But then they deny you the re-fix, so you are stuck on the original mortgage terms and there is no capital adequacy problem for the bank to report to the regulator/board/shareholders and everybody gets their bonus. Well, except the homeowner who gets shafted.

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See the rest of your mortgage out at the floating rate, that'll teach you for losing all your equity!

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steven,

I regard you as one of the more sensible people on this forum. I would like to ask just what you think the odds are of an OBR-presumably involving one of the big 4? Just how far would house prices have to fall to trigger this?

I am no Pollyanna and have been positioning myself for a significant stockmarket correction for some time and we may be in the early stages of one now. It would not surprise me to see house prices in Auckland fall by say 10%,but that would be nowhere near enough to trigger a bank default. The big 4 have current leverage ratios of around 12.
I rather doubt that the government-through the RB-would allow one of these banks to default,both for economic and political reasons,but of course,I could be wrong about that.

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"...foreign wide boy know-all investment bankers from London..."
That's gold! Love it!

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The word bunch was used. Reality is it only takes one.

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Things are just getting interesting. Aren't they?

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Yes. And that is an understatement.

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They have this system in North Korea I think, maybe they could send the people who advocate for this on a 'fact-finding' trip.

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No, I think in North Korea they let you starve, put you in a Gulag or shoot you.

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So there are a lot of ignorant ppl about that think (effectively) printing money is a good idea.

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(But this won't apply to leafy suburbs in inner Auckland. Then again, it never did.)

These might become quite affordable/less desirable suburbs over the next twenty years with our Unitary Plan. Auckland is on the spread, pumping development subsidies into every little town and village in the surrounding area. Population is racing off into the countryside and in doing so is reducing the relative value of a central location. And with so much sprawl occurring outside of the range of public transport this also means cars, lots of cars, congesting within the choke point of the central isthmus. Congested and with less access to jobs, what will happen to the leafy suburbs?

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When bread in Zimbabwe cost a billion dollars were there people there saying: "The bread market is booming"?

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The difference is in Zimbabwe a billion dollars couldn’t buy you much in general, the currency was heavily devalued. Bread wasn’t a booming commmodity.

That said, I’d like to praise Mugabe for his efforts. He’s helped more people become billionaires than Tony Robbins.

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Wow on the TradeMe play - been a member since 2003 and got banned from the Message Board less than a year later.

http://www.scambusters.co.nz/about.html

I'm the cat with the J Lennon glasses, Mings.

On the first day ScamBuster Marika3 posted 13 scams and was promptly disabled from posting on the message boards by TM management. The next day DigiDog posted four more scams and was disabled. Day 3 saw more ScamBusters killed off - Mings posted four warnings while Foggyone and ChinaQT hadn't posted any! Clivehill somehow managed to survive the inquisition for a couple of months until he received a personal and rather childish email from Sam Morgan saying "You piss me off" and he was promptly banned as well. TradeMe had made the ill-fated decision that the word "scam" would not feature anywhere on their site.

http://www.scambusters.co.nz/history.html

Thing was, I nearly lost thousands purchasing a scam big screen TV. Kept biddidng on them - and then - poof - the auctions were withdrawn. Must've done that on 4-5 auctions - being annoyed (I thought the traders must be doing private-direct deals and withdrawing their auctions so as to avoid paying the success fee). So I stopped into the Message Board and realised it was thanks to a couple of other traders that I hadn't been ripped off!

Joined up the save other folks from being ripped off effort immediately. Very proud to be a foundation Scambuster :-).

Big waves to any of you who also read interest.co.nz.

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Interesting thanks Kate. I think enough people are pissed off at trademe that with attempts to make it more profitable will see them exit. I am moving house soon so getting rid of some stuff I don't need. I am finding facebook more successful than trademe.

I had an interesting dispute that involved trademe about two years ago. There was a breach of my copyright in that someone was using my images to sell a used product of mine. When I pointed it out to trademe that still let the auction run its course! I kept all the links and screen shots so I could take them to court if I could ever bother wasting the energy.

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Never thought of you as kittenish.

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