David Hargreaves hopes the banks won't be too guarded with their lending because of preconceived expectations of what will happen with the economy - rather than just seeing what does happen

David Hargreaves hopes the banks won't be too guarded with their lending because of preconceived expectations of what will happen with the economy - rather than just seeing what does happen

Reserve Bank Governor Adrian Orr wanted "courageous", but it looks like he's getting 'cautious' from the banks as they tackle the Covid-19, post-lockdown environment.

Really, I wouldn't have expected anything different and I don't think that's too bad. Just as long as we continue to get 'cautious' rather than moving on to 'fearful', I would say. That's important.

Don't second guess.

I thought it was a really good idea for the RBNZ to conduct a special 'interim' edition of its usually six-monthly Credit Conditions Survey.

From the beginning of this crisis the RBNZ has been at pains to keep the money flowing. Hence the exhortations of the Governor to the banks, asking them to be 'forgiving' as well as courageous.

And clearly the RBNZ wants a clear handle on just what the banks are seeing from their customers and how the banks themselves are feeling about lending.

In its summary of the survey results the RBNZ stressed that the banks were telling it that domestic credit developments post-lockdown "have been predominantly demand-driven".

That's what you would hope - IE that if lending is down it's because customers are not seeking loans, rather than because the banks are turning people away.

We want banks reacting to the market as it is, rather than perhaps over-anticipating what might happen.

I might be over-reading things into it, but it rather seemed to me that on mortgages, for example, the banks ARE overly anticipating bad news in the market a little, based on the widespread perception (and bank economists' views) that house prices will sink quite appreciably.

The survey was conducted at the back end of June, so, is already (arguably) slightly out of date in an environment moving very quickly. But clearly there's still a strong school of thought among the banks that there will be increasing numbers of "distressed housing sales".

Could forecasts be wrong?

This is based on the now quite longstanding (since March - that's longstanding for this year!) view of very large numbers of ongoing redundancies feeding into people struggling to pay mortgages - and resultant falling house prices. 

Are things going to be as bad as has been forecast though?

What is becoming clear is that economists are to date being surprised on the upside by how well economic activity is bouncing back from the lockdown. People ARE spending. Some economists have already tweaked down a bit their unemployment forecasts and raised their (still very much in the minuses) GDP estimated changes. And I get the impression it would not take many more weeks of better than expected spending data for further positive changes to economic forecasts being made.

Now, yes, the huge caveat on that at the moment is the belief that the spending seen to date represents some letting off of steam after being locked up and simply not allowed to spend. And the further expectation is that with the wage subsidy having now ended for most people, well, there will be a further surge in redundancies.

Could be. Could well be. 

I do wonder though whether one impact that might have been underestimated is the fact that we aren't allowed to go overseas to spend up large at the moment. It seems at least some of this overseas trip money is being spent on things around the house, or for just going out. Maybe there is more spending power there than we think.

If people DO keep spending then of course that reduces the likelihood of new waves of redundancies down the track. The fear was that a lot of businesses would reopen after the lockdown only to find they weren't doing any business and would have to close. Based on that kind of scenario there could be second, third, fourth waves of redundancies.

Deal with what is in front

So, anyway, to get back to the housing market, this has to date been rather more buoyant than might have been expected. 

That being the case, I would hope the banks keep dealing with what's in front of them and if there are people who want to borrow for a house, well deal with them - don't turn them away because of an indelible perception that house prices WILL fall x percent.

If banks were to tighten their lending criteria too much because they perceive perhaps higher risks with the lending than are at the moment 'real' then of course this could become a self-fulfilling prophesy.

Confidence begats confidence. Therefore, if everybody as much as possible, tries to carry on as 'normal' till things are proven to be really not normal, then this will keep things bubbling along.

As I say, it does seem to me that based on the survey results the banks are second guessing the housing market a little and assuming the worst. And it would be a shame if by being overly downbeat they actually helped to pull the rug from under the market.

The one thing nobody can do at the moment is accurately predict what will happen more than about five minutes into the future. 

So we all, banks included, need to keep clear and open minds. Play with the cards we are dealt.

Commercial property conundrum

Having said all that, a clear problem area as far as I could see if from the RBNZ survey was the commercial property sector. And I guess nobody should be surprised about that.

Banks have been downbeat on this sector for the past three years and you can only see the perception getting worse from here.

If there's one sector of the economy that's come out the other side of the lockdown period with its prospects looking far worse than beforehand then I would say commercial property has.

That's because lockdown did seem to show something to people, specifically bosses, that they didn't expect. A lot of businesses do seem to have been genuinely surprised by how well their staff have worked from home. And clearly that's gone both ways - with staff enjoying not having to make the commute into the office or whatever.

It doesn't mean that everybody is now just going to work from home full-time. But I know quite a few people who are now very happily mixing up home and office work during the week. And want to carry on doing so. 

It seems clear therefore a lot of CBD businesses are not going to need or want as much space as they had previously. That doesn't mean they will close their offices. A business will always want a corporate presence of some description. But what if a big business that previously had five floors in a building now decides it only needs two, with staff engaging in flexible working arrangements? That has bad ramifications for commercial property ownership and development generally.

Banks will be concerned, and rightly so. It's one thing to deal with a commercial property downturn stemming from a closure of businesses, quite another to deal with a complete shift in thinking that says big centralised offices are no longer required or desirable. The latter of course represents a possible permanent shift in how businesses look and operate.

Limit the degree of concern

I would hope though that any particular concerns the banks have regarding the commercial property sector would not feed over into other parts of their business.

What might be happening with commercial property could be more about the shifting sands of how businesses operate and people work than it is about the economy per se. Times change and some businesses and industries fade not through a sinking economy but because life just moved on and left them behind.

The RBNZ of course didn't state any opinions as such on the results of its survey and the thinking display by the banks. But the results will have been very much noted and borne in mind for the future. 

I doubt the RBNZ will have been unduly concerned by the results, but I would have thought the survey has demonstrated that some pressure, however subtle, will need to be kept on the banks to make sure they keep doing the right thing.

Nobody expects the banks to be lending money they don't have every reasonable expectation of getting back.

But they do need to keep lending. And no lending is without risk.

As it says at the top of this article, I hope the banks don't over-anticipate bad economic news. Stay open minded and open to the idea of lending. Don't tighten up because of fear of what might happen. That could produce the very kinds of problems we hope to avoid.

*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

145 Comments

Things are not going to be the same normal because the productive people will have to pay for all the money tree shaking. Just to keep them motivated is going to be the struggle.

37
up

Yeah, productive and responsible people who have not overstreched and borrow will end up paying for the reckless borrowers / speculators and people who preferred to play safe and deposited in bank for very less or no return will end up with the mess created by adventorous borrowers.

What is happening reckless - borrowing is encouraged to sustain the bubble and to avoid the inevitable.

Bad times ahead one way or the other and someone will have to pay the price, mostly innocent tax payers.

13
up

Great comment

10
up

On point, exactally what we expect from Labour.

You're kidding right? What does Labour have to do with the global economic crisis?

10
up

A history of not being a able deliver and we are facing hard times. That makes the money people very nervous. The tax payer sitting their holding the baby while the handouts roll out the door.
I don't see a plan that is strong enough to deliver us out of the global mess either. A few roads in however many years isn't going to cut it.

You obviously prefer the 31T National will spend, they obviously want to incrsase the population substantially ......the way (ahead) to travel and get freight to its destination is by rail. Might cost more but the returns are enormous. Western Australia is a great example. Its a common situation is as soon as you complete a road it becomes redundant as the traffic flow is enormous. Gee, Collins couldn't remember Jack's name on Q & A yesterday morning. She must have the Muller disease. Hope she doesn't call Cindy, Bindy or Windy when she gets wound up. It could be slightly embarrassing.

The current mentality of central banks and politicians exhibited over the last decade plus has been this beneficiary mentality - pushing money into inflating their portfolios. If you had lived in New Zealand over the last decade you would have seen that happening. Witness now the propping up of the market by transferring wealth from productive working folk to asset holders.

No point ranting against peripheral policy delivery without confronting the fundamental issues.

Found Rumpelstiltskin

19
up

Hummy not if you realize that NZ is still trying to recover from almost a decade long "False Economy" that was created by National built on lots of dodgy money pouring in from China in to NZ property. Since Labours Foreign Buyers Ban and China clamping down on their Capital Flight things have significantly slowed down since then. And they're about to slow down even further due to China's latest moves. So banks need to be a lot careful with their lending.

10
up

The elephant in the room is the current Labour managemnet and their inability to deliver. The uncertainty of that, creates stifled cash flow.
The my team narrative doesn't help. They are both shockers that are very bad at management and look after their own and mates butts first.

11
up

They are both shockers that are very bad at management and look after their own and mates butts first.

Unfortunately that's the nature of politics the world over. Crony capitalism reigns supreme. NZ is no different.

Also, why do you think the govt invests so much in NZTE? It's because the govt believes (and not wholly incorrectly) that schmoozing at offical / semi-official levels is really the be and and end all of developing successful export markets.

Can Labour deliver that effectively is the big question.

Without being handicapped by NZ First, I think so.

44
up

Very happy that banks are assuming a worst case scenario in the housing market, that means they will no all go bust and take my hard earned savings with them. What is wrong with people these days ? if you take on debt you have to repay it and if you have no job then do you seriously think the banks are going to lend you money ? The governments around the world are still trying to prop up their ponzi economies and its all about to end over the next month or two. Even if they choose to keep pumping cash into the system it cannot continue for much longer.

21
up

I agree 100%. Brilliant comment - finally I can see some common sense for a change. It seems that it has been lost by several commentators, many of them with vested interest in the housing Ponzi scheme.

12
up

Carlos67 100% agree with you.

Everyone must be carefull with their spending, specially boorowed spending. Speculators whi have made heaps till now can take the punt (Though doubtfull that they will now, if intillegent) but FHB have to extra vigillent as will bombared with fake news / Manipulated data by various vested experts and agencies playing to their fear of FOMO.

Carlos, Fortunr, Tamaikki,
I agree that things are not just and fair but this does not mean that they will end soon. Be careful not to let your wishes for justice cloud your commonsense

I don't think any of us was referring to concepts of fairness or justice. Most definitely not in my case anyway.
My concern is that the fundamental economic pillar of financial stability of the main banks is being potentially jeopardized because of the ever-increasingly desperate, and ever increasingly market-distortive, attempts to sustain the housing Ponzi scheme. A managed and orderly re-balancing away from parasitic housing speculation and into productive real economic activities is well overdue. The problem is not to kill the patient with an overly aggressive cure.

"the ponzi (QE?) economies are all about to end over the next month or two"

I wish it was so - I don't share that view - Central Banks will keep pumping and holding
It's the only thing they know. US Federal Reserve is still holding USD $4 trillion from 2008 GFC

Carlos67, "The governments around the world are still trying to prop up their ponzi economies and its all about to end over the next month or two"

Wow, one epic prediction there. We shall find out in September but I believe that governments will keep things up for much, much, much longer than this

"What is becoming clear is that economists are to date being surprised on the upside by how well economic activity is bouncing back from the lockdown."

I really dont think they are that surprised, as economists and company directors took an overly conservative public view at the outset. Doing so leaves room on the upside and negative news is now seen as positive. Which leads to everyone's general relief and then some more positive responses. Blindingly obvious.

11
up

Obvious in hindsight because things turned out better.

If they'd turned out the same as predicted, would you have written a comment saying "things shouldn't have been this bad"? I doubt it.

17
up

I look at the US where they have lost 1/3 of their GDP and the virus is spreading even faster. Throughout the whole shutdown I kept an eye on local news in Texas as a benchmark. They shutdown for as long as people could cope (which wasn't long). They got the number of infections down but not elimination. Now they have hit peak infection rate and now the deaths are starting to follow.

In terms of their local economy businesses reopened because they couldn't stay closed any longer. Yet this hasn't really helped because the virus is still rapidly infecting people there are many who minimise going out, which means they aren't spending or earning. This could have been New Zealand and the economic impact would have been far worse. We are lucky that we haven't had any localised shutdowns yet.

Like with the effect on unemployment in Texas. These figures are going to spike up again as they are being overwhelmed with infections.
https://www.dallasnews.com/business/jobs/2020/07/17/texas-unemployment-f...

A lot of people calling that the NZ economy is better than expected but not taking into account the massive issues in the States and China. The States has very high infection numbers and with winter coming their numbers will sail through the 200,000 per day mark with ease and the money printers will spin away at an even greater pace. Some say that It isn't a big deal but logic says BS!

Kezza, I don't usually agree with your posts but I think you are spot on with this. Our economy does not operate in complete isolation from the rest of the world - if things turn to custard overseas that will have an effect here too.

An insane effect on our speck of dust. We sit here feeling safe as we are largely CV free but somehow ignor the impacts from overseas.
Funny that we read each others comments and we will totally disagree on just about everything then agree 100% on other things. It just shows we need to keep an open mind.

"If turned out the same as predicted" I would have had 10,000s of interest.co followers telling me off, so I wanted to be sure of my instincts. And I am not the only one here who could see that some predictions were a beatup and totally over the top. Theres no need to rehash that. I should also have included politicians above as they want to make political capital from the comeback. I staked my claim on my 'against the tide' predictions knowing there were downside risks. I guess I could boast but theres no need as I put my money down and got a return.

We are only 10 minutes into the game, as usual it starts with a hiss and a roar and both sides have spent their energy, spent up agreesion and pre game nerves and now they are both settling down into the long game.
The US power house team was carrying a hell of a lot of injuries before the kick off and steroid injections and bandages where needed in the first ten too keep them on the field. Team CV has taken a beating as well but is far from being defeated.
Can team US, supported by the globe shrug off it's injuries and take the beating that is sure to follow? Will team CV be counted down and out by science?
It's a game of two halves and to any efforts to call the second half 10 mins into the first half is premature.
It is a muddy field and the players are haveing issues gaining traction, the outcome is anyone's game but we all know every inch of dirt will be hard fought and the outcome is uncertain at best.

Good analogy and I will agree when we swap the footy field mud for the cowshed shit but that ain't happening. The monthly /weekly figures that interest is posting shows improvements mom and yoy. One exception is CV infections

"What is becoming clear is that economists are to date being surprised on the upside by how well economic activity is bouncing back from the lockdown."

I like Peter Schiff's definition of economic growth. That is.. how many goods ie cars, groceries lumbar etc can you buy with one years income. If this years income buys you more stuff that the last then the economy is growing. My grilfriend commented to me a few days ago how amazing it was that we could buy a large jar of mustard over here for about 30 euro cents.

If the banks are being over cautious because of a predicted house price fall (this has not happened yet nor does it seem as likely as economists are predicting) and because of a nervousness over customers future job stability, then yes the banks themselves may cause a downturn.
After all , people need to pay either rent or a mortgage in order to have a roof over their head.
Are the banks deliberately ignoring or choosing not to comply with the RBNZs instructions?
In 2009/2010 after the GFC NZ banks did the same and brought in a stringent checking regime for borrowers and a conservative house value outlook.

You seem to be ignoring the data about recent price falls, reported by REINZ, CoreLogic and recent auction results. It is starting to happen in those areas most affected by the pandemic such as Auckland CBD (no students) and Queenstown and Coromandel (tourist destinations). Banks have also their own data and the whole economy is interconnected. Being cautious just means that those that have some savings won't loose them because of others which loans won't be repaid in the future due to both bank and borrower's reckless behaviour so in my opinion here banks are right and it is the RBNZ which is giving some ill advice.

17
up

As a bank shareholder I WANT them to be conservative. I’m not a fan of banks writing reckless FHB mortgages for $800k houses on a $100k combined income.

It's so affordable to buy a house with interest at less than 3%. Although the effect appears to be putting pressure on for higher house prices.

The interest payments might be manageable.

The principal repayments not so much.

Yep $800,000 over 30 years is aittle of $500 a week or $25,000 a year. I suspect a lot of people will turn into renters for a decade and never pay off any principal. Just extending the term a time or two.

Will the banks just extend interest only for a decade? 25 years? Why are people taking out Principal and Interest mortgages? Everyone should just go Interest Only for infinity and save money doing so. House prices always go up so inflation will eat away at the debt burden.

I believe most banks allow up to five years interest only?

As a bank depositor I also want them to be conservative. There'll be no warning of an OBR event. Your money in the bank today, 10-80% less tomorrow

If there is an OBR event - EVERYTHING will be 10%-80% less.

What's the first thing the liquidators will be looking at calling in if a bank 'goes down'? The assets - ie: THE LOANS outstanding. ( That's' just what any business failure does. Calls in its outstanding debts)
I wonder what will happen to interest rates if say, ANZ, triggers an OBR and all of its borrowers suddenly have to either restructure with a new owner or find another lender to replace the bookings that aren't rolled over?

An OBR event won't be symptomatic of just a bank getting into strife (any smaller lender will have been dealt with way before it gets to be public. Witness the recent restructure of our Credit Unions as an example). It will be from a Systemic Failure, and in that event, prices collapse. (because what lender is going to lend to any borrower to buy anything if it may not be repaid? What debtor will borrow to buy anything if the loan might be called in at the drop of an OBR?)

Banks don’t want your property assets. They prefer your repayments.

Quite true.
And if there is an OBR what will those repayments be at, Oh I don't know say, 15%+?
In an OBR event all the Magic Money in the World won't avoid a Systemic collapse - and 'they' know it! That's' why we have the desperate attempt at 'saving the System' with artificially low % rates. A healthy, functioning, vibrant, 'safe' System has the cost of money set by The Market - lenders and borrowers - not artificially controlled by the who think they know better.

No point in worrying about any future systemic crash.
Best to focus on being productive and invest in and produce goods and services that the world wants.
So borrow for productive uses, and borrow for a house to live in.

An OBR will not result in rising interest rates because it would exacerbate bad loans and definitely bankrupt the lender

That assumes that the govt steps in and provides funds to lend. If the govt doesn't, nobody is going to give that bank money to invest without a handsome interest rate to compensate for the risk.

Greece would probably disagree with this

There will never be a bail-in. Never! The real purpose of the bail-in legislation is to hold a gun to the politicians heads. In the heat of the moment the prime minister will always bail out the banks rather than forfeit Nana's savings and inuring the wrath of public.

Completely agree.
And as a New Zealander, I'd rather see banks lending to real NZ businesses with decent prospects, rather than seeing this money employed to prop up further parasitic speculation in the NZ Ponzi housing scheme.
It is time to support the real economy and re-balance the NZ system away from unproductive and parasitic housing speculation.

Yesterday I caught up with a friend I have not seen since before lockdown. What a breath of fresh air he is too, although he firmly supports everything the govt has done (which I do not). He has a good positive future outlook which I really like, isnt there a saying that 90 percent of what we worry about will not happen.
But then the politicians get me worried.. and show time is beginning with the politicians, making claims how they will lift the economy out of the perceived mire.

Did you make sure he's not on Proxac?
Cheeky bugga...

Tony Alexander is also now more upbeat on the economy & less downbeat in house prices.
https://www.stuff.co.nz/business/opinion-analysis/300057582/heres-why-th...
.
“Too often people choose to focus on the negatives and forget that often the groups affected by new factors are small, and their actions are not replicated across the entire economy or population”.

27
up

Charlatan property spruiker is upbeat about house prices.

More news at 6.

11
up

I agree there. He does not ring true. Sounds like spin.

It's not spin, Tonys analysis is based on the fact of increasing migration flows of kiwis returning to the nest. This was happening in 2019 with net inflows to December and this trend has continued in fact increased. IMO we had better get approving new builds and getting them up pronto or there WILL be another housing crisis. I have already highlighted the falling numbers of available rental properties overall. And those which are available in Auckland are increasingly of the smaller 2 and 1 bedroom types.
A revealing story (since removed?) in the herald today told of a family of 8 crammed in a 2 bedroom hotel in central Auckland. Heres the headline ... "Covid's 'heartbreak' hotel: family of eight living in two bedroom apartment - NZ Herald
4 hours ago · Boredom has beset the Rongokea family as they are essentially stuck in their Auckland hotel room in a city they are unfamiliar with."
Failing govt yes... will be completely failed soon at this rate

24
up

But more Kiwis are leaving remember.

Keep up.

Chalk and cheese... keep up

Don't present the inconvenient truth - it makes them angry that you are not believing their bullsh*t. In the article Tony say's

"In fact, for the 43 per cent of homeowners who have no mortgage there is no debt servicing problem anyway, and for the one-third of people renting, again there is no servicing problem. "

While true, many renters are paying someones mortgage - their landlords and if they are unable to pay I'm not sure how the landlord is going to pay the mortgage.

While the economy is responding positively at the moment - how will it be responding in 6 months time , 12 months time - that is the more interesting question and the answer is unknown

There are far less stressed home loan borrowers and mortgage sales than initially envisioned at the start of the lockdown. Most borrowers have not needed mortgage relief, have saved heaps over April & May, have thousands saved from their cancelled Overseas trips, so we are moving into a stimulus period now.

How do you explain the amount of people who switched to interest only or took out mortgage holidays? They still haven’t converted back to P&I

Many actually have, earlier than the set period.

But many haven't........

House. I drove past a house this afternoon, it had a sign in the fence, 'Available for rent next year'. I have never seen a sign like that before. Nice house in a good spot, jump the back fence and be on the beach.
Maybe rentals ARE in that short supply.

If it's all roses then let's take away mortgage holidays and wage subsidies today - everything is fine right.

Not sure how that relates to rentals in short supply.

It's pretty easy.

If holiday homes, AirBnBs, and properties earmarked for development need to be thrown into the market then that would impact the rental market.

And you've only noted one anecdotal example.
Location unknown. Price point unknown.
(Other than near a beach which really narrows it down).
Not sure how that proves anything about the wider rental market being in short supply.

Have you ever seen a 'for rent next year' sign before?
I doubt that anyone on here has..
Maybe it is due to low demand and I dont really care, it just struck me as something that I have never seen before.
House needed a win, his calls haven't been reciprocated in the Interest.co.nz articials lately. Just trying to build him up. Poor bugga.
Personally I think we are in for the shock of all shocks amd it's going to hurt like hell but I am ready for that, bored and frustrated waiting for it though.

Thanks for thinking about me mate but dont worry I will be here long after the others have disappeared :) btw I think you would love a lifestyle block (with existg house) they're not much dearer than a suburban home. All the meat fruit and veges you will ever want, space for the kids and healthy. Downside if there is one, you'll be more busy ... you won't be bored

I always wanted a lifestyle property but they are so much work, they become a labour of love and the returns aren't that good against residential dwelling.
I've got heaps of space to play arround in that I dont need to cut the grass. Just found a place out from Gore, a farmer with hut out the back and a heap of deer for a small fee.

https://www.trademe.co.nz/property/residential/lifestyle-property/auctio...

3 hectares with great house close to oamaru. Subdivide and conquer?

I have seen 'for rent' signs put up by real estate agencies. But 'for rent next year' does seem unusual. I can't think why anyone renting would want to commit in June to a property that won't be available til January - unless you are a first year student somewhere like Dunedin I suppose. Even then it seems strange.

Definitely not studentville.
Strange maybe a bank stipulation on a deal.
Maybe short supply and that is how far out you need to lock them down..
A owner worried and wants the it locked down.

If I remember I'll call the number and ask.
Found it on TM. Ready on the 25th of January.
https://www.trademe.co.nz/property/residential-property-to-rent/auction-...

Happens every year in Dunedin around this time.

So yes.

Did you consider maybe they are worried about securing a tenant and want to advertise early?

Maybe. Still never seen one that far out before.

14
up

Wait, when has Tony ever been downbeat on property prices?

The guy is paid to be upbeat.

He hasn't been downbeat on property prices for the last 30 years… and he's been dead right

Lol so true. Gold...

He also forecasted a milk solid price of 2.50$ years back and we ended with a 5 dollar payout. Hard to trust what he is saying.

Call me negative, Tony's a spin doctor.

Banks should not be courageous with share holders money and at the cost of business (As banks are doing business like others) but can be courageous with the reserve bank / government money as also is their advise.

Banks like any other business should take risk but within their means just like any other businesses.

Is government not doing enough printing and distribution of money to inflate the already inflated asset class or may be now fear that even that is not enough for ponzi to sustain so lobbying.

Also if RBNZ is expecting banks to forgive defaulted - what are they encouraging. Could go to Harvey Normal and buy all that one wants and if fall on difficult time can go back to Harvey Norman to ask them forgive their outstanding - Is this the new norm being encouraged for borrowing.

Banks should not be courageous with share holders money and at the cost of business (As banks are doing business like others) but can be courageous with the reserve bank / government money as also is their advise.

I think most NZers don't really understand that commercial banks themselves are able to create their own funding for lending out of thin air. Deposit holders and shareholders are only really provide some kind of semblance of a typical business. Commercial banking is like no other. It's one of the reasons why most people don't have say ample cash savings (say 12 months salary) for times like this. They've been nudged into taking on more debt in a financialized world.

I think banks are very aware that if they stop lending (and can't keep reducing rates) property prices crash and they loose everything. Where is the incentive to be more optimistic? They wont get to keep any profits they make as they can't pay dividends and the RBNZ will most likely make them keep what have at end as reserves. I think we can trust the banks to take the path that is most likely to leave them solvent at the end of this, they are private company I don't think we can ask any more of them.
As for the for the forcasting, it's not the lockdown that's going to bite the public borrowed enough to cover that, it's the border closure and the global recession that don't look to be ending anytime soon. Jobs dependant on exports have yet to be lost. The 50 percent effective vaccine the US is promising will help with heard immunity but its not going to magically restart tourism or end overseas lock-downs overnight.

10
up

'Banks showing more cautious tha courage'

Is it Wrong?

What sort of criticism is this. Is that not the responsible thing to do specially in current situation where more pribability of getting far worse than better.

12
up

Use to be 'Save for a rainy day'

Now 'Borrow and Spend on a rainy day to get more from government and bank with no liability to pay'

Use to be 'Save for a rainy day'

Well this is the whole thing. The banks and system in general still push the virtues of savings, but on the other hand the system relies on the great unwashed taking on greater levels and loads of debt.

The average weighted residential mortgage yield for the main banks was 3.84 percent May 2020. When considered against their own borrowing costs, banks had plenty of scope to be 'courageous' in both their lending and mortgage settings.
My favorite table https://www.rbnz.govt.nz/statistics/b25-new-interest-bearing-call-saving..., clearly the accrued interest will add little to future spending .

Most people hoping for a property price collapse so that they can pick up cheap land don't realise that it would be exceedingly difficult to get a mortgage if the property market were to fall into turmoil. Not going to happen, but still.

DD
If there is a property fall I agree banks will become even far more cautious than they already have become (e.g. low equity premium, tighter assessment of job and income security etc),
If prices do fall, the losers in their ability to buy at lower prices and meet increased bank requirements will be those with low equity - read FHB.
The winners will be those with higher equity - read investors and investor speculators.
Sad.

Sad indeed. Prospective FHB should think twice about what they wish for. When there is blood in the streets, it’s cashed up investors that tend to pick up the bargains.

What would or could be the longer term implication/s of the hidden narrative that you're implying with these comments?

"Cashed up investors".

All those 'cashed-up' investors who rely upon using equity in their portfolio to make subsequent purchases.
'Cashed up'.
Sure.

"Cashed up investors".

The idea of CUB (for which there is no clear definition) pouring money into NZ residential houses is a furphy. It doesn't actually make sense.

When the GFC hit, the % share of NZ properties purchased by cash investors increased by about 50%, the most significant increase of any buyer group. Conversely, first home buyer share fell by about 20%. Mortgaged investors stayed comparatively flat.

https://ibb.co/4FR7R9H

No data paints a perfect picture, but this in interesting nevertheless.

On the other hand, reversion to affordable house prices would benefit them after a year or two of hardship / inaccessibility. They might decide that on balance it is better to have a couple of years of harder times followed by more affordable and appropriately managed economic models than massive debt and 30 year mortgages.

Speculator crocodile tears notwithstanding.

A friend of mine who works heavily in the development sector told me a few days ago that one of his clients, who is a large, successful and quite well capitalised developer, is really struggling to get finance for development right now.

Int.co appears to have for the meantime suspended its previous campaign of lambasting banks for over rewarding their shareholders, with 'excessive' dividends. Perhaps our two Daves have paused to consider the possibility that those dividend levels did in fact reflect the actual risks carried by shareholders and which are now being realised.

12
up

We are selling our investment property in Onehunga. 3 beddie cross lease 1930s bungalow on a decent street. We’ve had 3 agents to appraise and they’ve all been preparing us to accept 5-10% less than what similar houses sold for before March. They are also urgently getting us to list before September due to the election, wage subsidy ending and prospect of a Lab- Greens govt coinciding with the spring house selling season. Interesting times!

If you were a 25 year old FHB would you be looking to buy right now?
Youngsters in the 20-30 age group have to be the most insecure job-wise demographic
Unless their Bank of Mum-n-Dad are their bankers I can't see retail banks touching them

Go back to this site in 2009 articles and look at the comments - same message from the doom merchants. Those who followed that advice then got left behind and are hundreds of thousands behind the home owner.

you are saying "good-to-go"

NZ: The unemployment rate peaked at 10.7 percent in 1992, at 7.7 percent in 1998, and fell to a low of 3.7 percent in 2007. As economic growth declined throughout 2008 and the first half of 2009, unemployment rose. The annual unemployment rate in 2008 was 4.2 percent, rising to 6.9 percent in 2012 and again falling to 5.8 percent in 2015.

Oddly enough, the much older folk I know who don't hold investment property describe this global situation as the worst they have ever seen. Far worse than the (in reality) Atlantic Financial Crisis. No one really knows and no one knows 100% if the reserve bank will risk societal stability and destroy savers to protect speculators...but it's sure we live in interesting times indeed.

They are correct though will not admit openly and for same reason more activity in Auction room.

I am not saying the agents are lying to you but I wouldn't believe a word they say. Make your own assessment. Freestanding houses in good order are in demand, the only question is about the cross-lease aspect. Go auction?

Houseworks that’s exactly what I said! Their feedback is that houses above 1.3m selling like hotcakes and FHB houses selling under $800k. Tougher market from 1m to 1.2m. I compared it with similar xlease houses sold Jan & Feb and typical agent speak- “it’s a different market, less buyers and deals falling through with finance”. Have great tenants so now thinking of keeping it until next Feb.

Am still working on my old house which we're doing reno and redec. Doing it slowly. Plumbers last week, plasterer tomorrow. I shouldn't have started though it's good leaving a house better than when you bought it IMO. In this case 10 times better. May make 100k over 3 years it's an ok profit and anything is good. Heading to my driving job shortly. Good luck

Good on ya.
Oh to find a property like the one that posted as a 25 y/o.
BBQ boys, bring your tool belts.

Cast your eye over this one House. 30 mins from Dunedin CBD and a very chilled spot.
Think I'll take a look, not much down side for me as I can add value easy as I'm a chippy and have outside of the square view in adding value. Great little hang out spot for the family while I'm kicking back with a brew analyzing what the best options forward are.
Defintally have to get a jetski or boat so I've got something to put on that BBQ.
https://www.trademe.co.nz/property/residential-property-for-sale/auction...

Could be a dangerous one, if I've got plenty of venison and fish I may just kick back and do squat for quite a while watching my veggies grow.

I had a 2 second glance. First impression is I would get in on the double.... you can do DD when you get a conditional contract. If there is work then probably a landlord wont touch it so a bit less competition for you.
Edit, had a slightly closer look, I thought this had water views but sadly not. A bit to spend on driveway and fencing (fencing is free for you if you work with the neigbour and do the labour yourself). Its amazing what a few repairs and some cheap paint can do to improve a place. Unbeatable at the price possibly. As you say there are qualitative factors and great outdoor entertainment area.

Thinking of a two pronged approach.
Build a small cabin to use on site sitting on skids to use as extra sleeping space and prototype project. Smack up another on the section as something sellable as I see the need for small removable rooms being in hot demand when the kids come home if they loose their jobs in the current economy.. The property would become a place of business, I would have to run that by the accountant and set it up accordingly.
Second stage would be to build a two story and hopefully gain a sea view. Hit the landscaping and keep an open mind to either keeping or flicking over a 5 year period.
DD ALWAYS over the top.

I heard a comment years ago that someone had an honest accountant and they hated it :) good luck.

From my experiences they are all honest. Maybe I don't ask the right questions or present it correctly.
The dwelling won't have a consent, so it's is basically a smoke room / tool shed in my book.

Have asked for a viewing tomorrow.
Showed my wife, 'bloody hell, not this sh*t again, what the hell are we going to do with that?' Me, 'hangout for summer just chilling and a bit if a tidy up'.
I think she's keen as she didn't burst into tears as she has done on our first two properties. A very good omen.

I do my own books, actually it's not that hard these days. I do it to save money, not dodge taxes, have been IRD audited and passed :)
Rather dangerous not having the wife on board, only you know if it is worth the risk? My wife and kids refused to get out of the car when we went to see a place in Sth Auckland, that was in 2010. We did buy it and we still own it.

I've got inheritance that I think would be best spent on a family activity and combining it into a learning experience for the kids with a open book maths / business lessons with a payout to them for reinforcement for their input.

Do you watch country calendar, bloody awesome tonight, good family working together.

Not tonight but I do enjoy it.
I think that the best thing you can do for kids is to educate them financially. It dosen't really matter what they do after that they will do well.
I like AJ's approach the other day asking his kids for ideas about the farm. That takes a strong and open minded person to do that.

Depends on the site - having looked seriously into building many developments don't let you have secondary buildings on site during construction, so I wasn't able ot do the whole live in the garage thing and would have had to rent.

Go on - you could try living the way your grandparents did - and I bet they didn't have a shower like that!

I would jump at the chance and love it. My wife?? no friggen way, she would be in my grill 'no bloody way you are going to put me through that crap again'
As a chippy I've done more than my fair share of time living in houses with walls and floors missing while I had a baby or two in there as well. Now I live in what I would have thought was a mansion not long ago and I would rather be in crap house and be working towards the big goal. I'm no stanger to doing the hard yards by any means and would rather be doing the hard yards than taking it easy.
I was going to say that I received no help from the Govt but I did get parental leave. I was entitled to get a handouts along the way but there was no way I would have taken them, strange to a lot of peoples way of thinking now days sadly.
I hunted most of our meat, cut my own firewood and grew veggies.
How's that reply to your dig that I couldn't handle it OB1?

I've done a bit of that too - and I'm not even a builder...

Tell them Mr Alaxander says it's all going to be fine. Don't sorry. No downturn here.

Can't think of any reason I would want banks to be courageous.

Don't think banks need to be too worried.
Net increase in population of more than 30,000 with influx of ex-pats and little numbers leaving mean increased demand for housing.
The lower interest rates mean more affordable loan repayments.
Lower construction or at least inability for construction to meet demand.
Less access to overseas skilled workers means a likely increase in wages for the next year as skills shortages put upward pressure on wages.
All these point to a very safe increasing house market.
Only very slightly mitigated by the fact some lower paid roles in tourism and travel are now gone.

Interest has posted several articles stating we losing more than we are gaining in expats. So you're theory is flawed.

From the "coalface", I can testify that banks are getting much stricter with lending criteria, especially with scrutiny over the income used for servicing the loans. This news is from the current month.

Yes, Yvil agreed
Looking at Auckland hope price brackets, the FHB (650-850) is down 42% in sales last 4 months, whereas the brackets over 1.5m are up 42% - 52%
So, pretty clear who is getting more scrutiny and also facing most economic headwinds

The issue is that banks take economists opinions seriously. For the most part economists are no more likely to be right that the man down the pub (though they articulate their argument better, at times.)

People are trying to manage their careers instead of producing good forecasts.

All depends what you're talking about. Economists should understand trade-offs in economies better than the man at the pub. Unfortunately, most 'professional economists' only get their jobs because they've been trained in the prevailing school of thought and are quite dogmatic about it. Very few professional economists in the banks and central banks are well versed in behavioral economics. The guy at the pub might intuitively understand behavioral economics better then the professional.

Though news for subscriber only but Headlines sums it all :

https://www.businessinsider.com/stock-market-crash-expert-warns-of-great...

Unlocked.
https://outline.com/jvbYTV

"Perhaps it's needless to observe that current valuations on all of these measures match those of 1929 and 2000. I'll observe it anyway."

Spent a knackering weekend replacing the common fence with a neighbour who remarked "I gave the kids $500 each and told them to go and find out about the markets with Sharesies! They've tripled their money".
There's a more painful lesson on the way for them, but it's not my place to annoy the neighbours with a bit of reality......Fellow commentators? That's different!

So the economic bounce back is much better than expected huh? I guess that means the RB will be reversing some of the desperation interest rate drops it did, when it thought things were going to get really bad?

Ha, pull the other one... interest rates only ever go one way, don't ya know.

The largest borrowers in the entire World, rely on 'borrowing to infinity", they call it Fiat so using electronic pulses, they can jump start debt and put you in your place. And flog you a car, that will never last a lifetime, like most fiats...Their debt is never ending, you will pay in the long run. Well, that is until a few billion people wake up and smell the fumes. And realise that they have been sold a pup, already pregnant and needing a kennel, commonly called a House, a pad, a condo...(That is short for Con-do...and they did), a flat, ironically usually sky high and multiple layers of debt, that will keep the tenants flat-out working to find the dough as needed to keep paying the rising rents, rising costs, commonly called inflation.....Oh! and the rates rise to pay for the idle layabouts to the end of time...Some are called Public Servitude, some are given Seats in Parliar-ment to ease their mind, their conscience and to have Multiple houses to flit about in and to and keep some Slaves in Work and income. A shit load of waste is also catered for and is called a drain on Society. Smog emanates so no one can see the Light....You have been conned. Fiats are unreliable, hence falling interest rates in them.....and in the Debt, they expand on.
A WareHouse of junk is being touted and unfortunately for some, ended....Tomorrow....due to breakdowns in Fiat spreading A...mugs game, yes....Please look in the Mirror. All work and no play......is needed to keep your Balls in the Air.

Ditto.

Sell up and grab real money PM's.

3 factors driving housing market. Domestic credit, population growth, and foreign speculators. All three factors are negative at the moment. Combine that with job losses, and 17 billion less tourism dollars and it's hard to see how house prices could be increasing, not countrywide anyway.

The implication that banks aren't lending because of 7% house price forecast drops makes no sense. Pretty sure they're looking at serviceability - in this case the outlook for future incomes is still highly uncertain.

Like....
"Job losses at The Warehouse? Stores to close tomorrow morning for big announcement"

So, can commercial properties be quickly refitted to be house dwellings ?
That may solve two problems at once.

By retro fitting office and commercial buildings into dwellings espically in the CBD's would be a great answer. It can keep space productive and keep other businesses afloat.

The planners will say no without some form of duress, like, say, repealing parts of the RMA that give them the power to zone

My real sharemarket indicator share the Port of Tauranga share price today is $7.85. That is only 3% or so off the 52 week high of 8.14. Investors of whatever variety don't seem too worried about losing their shirts right now. For good reason I would say, in spite of the majority thinking in this comments section.

If you take a 50 Billlion dollar hole in the economy caused by Covid-19 - the govt has put in $12 Billion in Wage subsidies, and getting up to $6 Billion in IRD loans, lets say $20 Billion of actual money with the other bits and pieces.

Of the $12 Billion missed in overseas tourist revenue at least a half to two thirds of that seems to be being replaced by internal tourists unable to spend their money overseas and quarantine guests filling up the larger hotels. The foreign student money is still missing. Dairy farmers have received news of an increased milk payment that according to the tv reporter should add an extra 12 Billion to the economy. Forestry is better than it was in the last half of 2019 and the kiwifruit was very good. The drought in Hawke's Bay is now breaking if I am not mistaken.

We are not too far from closing the financial gap. If the govt had a brain and shut their ears to all the debt harpies and kept the taps open for a couple more months then we'd be home and hosed.

My hope is that even if the govt loses it's nerve there will be enough trickle down from the wealthy 7% of New Zealanders who are now rushing around scouting out the property landscape to put us over the top.

There are a lot of seriously annoyed people out there who expected this to be a repeat of the early 1990's and have realised that their expectations of a treasure trove of distressed assets has not come to pass. They now realise that they will have to make do with the price rises to be generated from firstly our own increased local money market liquidity and following that the world-wide increase in liquidity generated by the US Federal Reserve. It is this wave of money looking for a home that will push the banks to lend before they lose customers to the Fin-Tech competitors.

QE

You would have thought that banks would want to lend to people in an time where house prices are predicted to go down - when houses become more affordable their total book balance for new mortgages goes down.

Last 4m sales in Auckland, by price bracket, compared to 2019

650 - 850: - 42%
850-1.2m: - 26%
1.5m-2m: - 15%
2m - 3m: - 7%
4m +: -5.7%

Shows pretty clearly that FHB are first to suffer and that this is to likely connected to banks risk aversion and tighter lending criteria. Sales in that lowest bracket fell from 1730 to 1000 in those 4 months.

June 2020 v 2019:

lowest bracket: - 7.3%
next up: +19%
next up: +54%
next up: +48%
top: + 42%

Your access to our unique content is free - always has been. But ad revenues are under pressure so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.