Opinion: NZ economy a 'Zombie Nation' that seems happy to 'extend and pretend'

Opinion: NZ economy a 'Zombie Nation' that seems happy to 'extend and pretend'

By Bernard Hickey

The New Zealand economy feels a lot like a 'Zombie Nation' that wants to keep extending the loans and pretending that eventually everything will eventually go back to normal.

Parts of our financial system and many property owners have been in a zombie-like state for much of the last two years, hoping that the lending will start again and the deals will return. No one wants to sell for a loss. Some markets are not 'clearing' by matching lower demand and higher supply with a lower price. Instead, they are frozen in the headlights of the Global Financial Crisis.

The best and first examples of 'Zombie Nation' were in the finance company sector. All through the middle of 2008 and into 2009 finance companies stopped paying their bills and asked for more time.

They pleaded with Mums and Dads that all they needed was more time and everything would be OK. The government helped those still alive in September 2008 by giving them a guarantee to 'extend and pretend' for a bit longer. Moratoriums for Strategic Finance, Hanover Finance, St Laurence, Dorchester Pacific, MFS Pacific, Geneva Finance, Dominion Finance were agreed through late 2008 as debenture investors agreed that

The government offered an extended guarantee late last year for the likes of Equitable Mortgages, South Canterbury Finance, Fisher and Paykel Finance and Marac Finance.

The major banks meanwhile were in a much stronger position, although were happy in late 2008 to accept a government guarantee. Australian shareholders pumped more than A$20 billion into these banks and they remain strong enough to keep lending. However, they have yet to 'mark to market' any significant fall in residential property prices or rural land prices. Even the big banks have been satisfied to sit on the sidelines to wait for the activity to return...

But the sorts of sales volumes and valuations we saw through 2005, 2006 and 2007 haven't returned and won't, potentially for decades.

Something changed permanently in the wake of the Global Financial Crisis. The easy, cheap foreign loans have stopped. The seemingly unstoppable and ever-accelerating rise in property prices is over.

Things aren't returning to normal. There is a new normal.

Some parts of the economy have finally worked this out and are dealing with it in the obvious way. They are lettting the market clear by setting prices that match lower demand with higher supply.

The retail sector is the most obvious. Anyone walking down any main street in New Zealand in recent weeks will have noticed that every second shop has big 30% to 40% to 50% off signs.

Retail sales volumes (but not values) rose sharply in the June quarter to their highest levels in more than three years as discounting pulled buyers out of their shells.

But that isn't happening in a widespread way in rural and residential property...yet.

It is happening where sales are being forced through by banks and receivers.

It is now happening in earnest for any assets controlled by receivers, particularly development properties overseen by finance companies.

Terralink figures show mortgagee sales now make up around 5% of total sales, up from 1% two years ago.

The major banks have yet to move en-masse to either revalue their loans or to call in those loans that are under water. 

Distressed dairy sales

However, there are some early signs of loans being called from some very extended dairy farming and rural properties, but it is unlikely in the conventional residential loan books, unless there is some sort of global financial crisis that causes banks more funding grief.

The question then is how long will New Zealand's residential and rural property markets stagger on in this zombie state hoping to extend and pretend until the money-go-round starts again.

It's been more than two years now and the game is ending now for finance companies.

How much longer before buyers and sellers meet together in the middle to clear the market?

It is unlikely to happen any time soon without being forced.

Meanwhile, the economy continues to stumble on.

Japan had a similar problem through the 1990s and 2000s as banks and companies were supported by government or investors afraid to crystallise losses built up in the 1980s real estate boom that they thought would turn around.

Stock and property prices in Japan eventually fell 60% over the ensuing 20 years.

Sometimes it is better to let the market clear and move on.

Only time will tell if extending and pretending is a sustainable long term solution.

It certainly hasn't worked for finance company investors who agreed to extensions in late 2008. Around 200,000 New Zealand savers have NZ$6.3 billion frozen in 59 dead or dying 'Zombie' finance companies and investment trusts, our Deep Freeze list shows.

Your views?

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BOTH! inflation with your dollar value taking a dive with new taxes and costs and deflation as property and other 'on paper assets' take a dive in price as capital and credit on such former scales becomes a former dream (nightmare even)

If that comes true, farming will become profitabile again.

Exactly, which is why there's all the interest from China in buying up our farms....  They have foresight and lots of cash.  Sadly, here in NZ we seem to have neither.

Deflation first, inflation later.

Yes : There is a point where we wish that governments and central banks would get the Fred out of the way , and let the market mechanism work out it's excesses , de-leverage , and gradually recover .............. but .............( whoop whoop whoop .............)......... oh dearie me ,  " Helicopter Ben " is back on the QE path of recovery & prosperity . ............. Bugger !.................

They don't allow any such thing! Who do you think is paying for all those US bank bailouts? Sure, walkaway and post your keys too the bank, but EVEN those loopholes have been closing over there. They can even take your home (if you still have one) JUST for not paying your $300 dollar overdue powerbill.

Allow failure? for the US elite YES!

Ever heard of 'scapegoats"? The only one ignorant is YOU! You totally fail to acknowledge the other HUGE banks that got nearly 1 trillion from the US taxpayer to survive! What a f..king clown you are

They will soon have no choice but too sell as they continue to lose their jobs and their wages go no where over the coming months as taxes and costs of living increase. Just keep saving buyers! Let these f..kers drown in their own debt and negative equity.  In the meantime ignore ALL real estate agents and their marketing cons like 'car giveaways'. They are getting desperate. With savings and NO debt you have nothing to 'fear or lose'

I have no debt and mortgage free house and lots of savings which I live off.

I still have much to fear. 

Financial ystems collapsing and capital loss at banks is a real possibility.

I don't care if my house value drops.  I need it to live in.  The value is just a paper thing to me. Whatever it is worth I will still need it to live in.

What worries me is inflation and financial system and possible future bank and govt failures.

No, worry big time! Last time the world economies got so bad resulted in WW2. US got out because they let Europe and the UK (former empire) almost die via staying out of it while continuing to sell Steel(for weapons manufacturing) and Fanta(coca-cola was sanctioned) too the Germans, not to mention IBMs earliest computers to count and co-ordinate the killing of  Jews, Polish, Russians ,old, young, sick, mentally ill, etc

Woohoo... BRING ON THE PAIN!

I'm so excited about the next 5-10 years... For the last five years I've been preparing for these days of 'pain'... where I will benefit from the greed of speculators... I'm highly liquid and business is going great so I'm gearing up for a few years capitalising on the greedy speculators!

Well, it happens and will continue to happen because people vote for it every election! John Key didn't get wealthy running a charity! You get the government you deserve suckers! Take control NZ via Citizen Binding Referendums. DEMAND IT! DEMAND TRUE DEMOCRACY!

Citizen Binding Referendums have many forces working against them, and while I like in principle the idea (being quite liberal myself), I'm not sure it would work for two main reasons;

1. The public at large are not sufficiently educated to be able to determine the best course of action for society.  Also the process of public discussion is open to manipulation and propaganda.

2. Turkeys don't vote for Christmas.  People (with few exceptions) will always put themselves ahead of society as a whole, and vote for whichever policy best serves themselves.

And then there is socialism .. where 1.6 million heavily taxed private sector workers (PAYE/GST/ACC levies/Rates/Fuel surcharges etc)  are carrying a voting block that outnumbers them.

Both the two main political parties are socialist. I think ACT is the only liberal party but (of course) doesn't get much support.    The National government (like Labour before them) put commercial interests ahead of citizens everytime. Just look at the crackdown on the drink culture as a recent example. The alcohol lobby groups interests were clearly put ahead of everything else.

I am hopeful for meaningful change one day, but realistically without some revolution its going to be much of the same.

Seems to work fine in Switzerland Matt. Having such a system FORCES the non political savy public into a learning curve via common 'peer pressure' in society. Most have 'valid' opinions on the All Blacks yet do we all play rugby?

Also, has our current system of paying so-called MP 'experts'  worked out well? I think not! . Look around, is society in general getting better via their enlightened decision making for us? I think not 

Yes, I too have noticed this Matt but believe me there's plenty of price sinking room to go IF you can wait say..... another 2 years. It will be very dire by then. You MUST of course keep your own job if requiring a mortgage in that time. Problem in NZ is the economy is so small and unproductive that only a few greedy apples can ruin it for all

LOL. what ever 'no name'. People like you tell me ive hit a nerve and i like that very much.

The critical player in this "game" as Mr Spencer at the RBNZ calls it, is the govt or to be precise the Cabinet. The name of the game from day one has been protect the bubble save the banks and stuff the families. So we have this sick, going nowhere economy, which has not a chance in hell of the pipe dream "recovery" ever taking place....but...the govt knows the population will swallow what ever spin they churn out and so we will continue to get the rubbish strategies.

Now we see the govt is up to its neck in flogging property to anyone with any sort of munny in Beijing. Again, it is obvious the plan is to pump the bubble...to keep it going..! The rage across the country over a sellout to foreigners will likely cost Key and his bunch the next election. On such things govts are lost. It was a dumb thing to do.

The core funding rate has been nout but a giant puff of smoke...fodder for a dumb media. The hot munny is rushing past Bollard as though he were standing in a tidal race. All that is being achieved is to make certain Kiwi families remain forever in rental accomodation or up to their necks in debt for a mortgage on a property the best part of 40% over priced.

There will be NO recovery and NO real growth until your Kiwi families have something left over from their incomes after paying rent or the mortgage....some 'leftover' that can be saved or spent.

Don't forget the RBNZ played a major role in the making of that 'bubble' Wolly. Bollard followed the IMF's and US FED's plan to the letter like mug he is. He now protects it better than a Antarctic King Penguin protects their egg/chick. The reality is the OCR should right now be 5%

Who allows the NZD to be traded? There's where your question should be aimed. Educated now?

In the current worldwide severe recession with fast changes, western economies need more structure more planning – a “Mixed Economy Model”.

I agree without changes in behaviour we are increasingly moving towards a Zombie Nation.

 

Well frankly Iain...... I think he is everything you say he is........... the greasy little snot has got more moves than a pimp on broadway.

As I've said before.........I gave him my vote.......because I soooo desperately need to be rid of Helengrad.........

And just look at what I've done..............this guy could tell you what a Goldman Alumni's colon looks like first hand.

He sooo wants to be one of the power brokers he would sell us to the Devil and tell us we had it coming.

wibble wibble, what the hell are you talking bout man.

the new normal takes time..those that understand and adjust to it quickly will survive and reinvent the new normal of the future in  buying and selling, trading etc and will consequently thrive and live well.

unfortunately it's the silent majority who lag behind, as always, who will have to suffer..that's the price you pay for blind ignorance and financial illiteracy.

the true villains of the piece are the bastards like watson and co, the barfoot and thompsons etc of this world who spun bullshit and still do to the proles.....and the vulturish media of which i used to be a part!!

but as sure as mother nature periodically shakes the world like a dog flicking fleas off it's back and we call it global warming then so will this financial global crash prove to be a blessing...cathartic, cleansing, refreshing, global defragging and dumping of the temporary files?

they don't fight wars with bullets anymore; they use money!

as leonard cohen says" i've seen the future and it is murder"

but kiwis are survivors and adapters...so pass me the number 8 wire ,trev, and lets get down to it!!

Rob.........your quoting Cohen....? have you got all the blinds drawn...? you know he's responsible or has at least been present (albeit on vinyl) at a lot of suicides.

Mary..uh remember Mary.......somehow it seems  he would make good background music for the site. 

Anon "Mortgage brokers, bankers and the like manipulate affordability"

 "The financial system and financiers have considerable influence if not absolute control over the value of any asset class"

Fascinating stuff Anon, how does that work?

I  can't see how the bursting of a multi decade credit bubble can be manipulated or controlled so that things can just sort of carry on as before.

Near zero interest rates , QE and God knows what don't seem to be having the desired effect so very interested to hear you answer.

Hey Anon, Bernard's not making outlandish/unsubstantiated/ranting statements/predictions.

If you follow the thread you will find his a reasoned argument. Yours; not so much.

You might (not) enjoy this article from the New York Times . Or are they leading their followers to the slaughter as well?

The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

More than likely, that era is gone for good.

http://www.nytimes.com/2010/08/23/business/economy/23decline.html?_r=1&ref=business

It is a case of staying away from debt and moving to protect what wealth you have. That means keeping capital offshore and not investing it here. To bring it back invites wealth destruction...your wealth !

Look to the latest S&P downgrade of Ireland...that is a signal change in attitude at the ratings agency...from that we can be certain S&P will turn up down here in a bad mood pretty dam soon. Their statements are likely to be negative...likely to be wrapped in a downgrade for NZ...that will be the start of the real recession as rates rise.

The effort in Beijing to flog property here, to anyone over there, is desperation for all to see and the Chinese will understand they are being seen as chumps. If any are stupid enough to pay insane prices for property, it will likely be hot munny on the run from the law.

There will be no beginning to any recovery until your average Kiwi family can afford a home or afford the rent.

Elliot young sprout...place your bet on inflation ok....your debts will be halved as soon as the dollar has fallen 50% in value...currently it's heading south about 3 to 4% per year. Ten years and kiss off at least 35% of your debts. That is if the debt is interest free and not subject to any cpi adjustment! Read the small print. Meanwhile save like buggery but only into something that returns more than inflation and tax on any gain combined.

For your information:   5.4 acres in Pencarrow Road, Tamahere, Waikato. Desirable life style area. Land run down and untidy, Mid 70s brick house, 3 bedroom, untidy state. $750,000, underbidder, $ 730,000.  Sold!

Okay, so if you own a house now, are you are going to sell it today for 25% of what you paid for it just to help the economy correct itself???!!!

How about a bag of gummy bears instead

cheers

Bernard

Ferk..my post above has slotted me in with those anonymous twats...yep, i posted it...i cannt tell a lie!

Section prices in Featherston have dropped from about $110,000 , 3 years ago, to around $60,000 today.

 

No takers at those prices however, so they will have to lower asking prices again. Vendors may get some takers at 25-30k pricing.

 

Just my thoughts

Well I just watched it again...Bernard... and I think it lacked a little theatre.....some finger pointing would be good......a dismissive hand-wave.... a background  picture of a prominent Real Estate person looking like a possum in the headlights ....would also have added to the drama of the piece...... but  very well reasoned anyway......... work on those highs and lows.... Richard Burton had a great impending menace tone you could borrow from.

Ta.

I'm thinking of adding a few props. Maybe a stuffed possum to wave around.

Or a Zombie mask.

Or maybe one of those big ticking clocks.

cheers

Bernard

Really like the clock idea........ how bout in the shape of an unexploded Nuclear  missile with a big.....$$$...... on it and a sub caption ...IN GOD WE TRUST.

Oh boy oh boy....I'd  watch every video just to see the clock ticking down...!

 

This is gold baby..! Gold I tell ya.

i'm getting in the car right now.....to live in featherston?...dats my childhood dream..featherston , o featherston, wherefore ever art thou?

Don't forget to pack your Cohen collection..............you'll need it.

.............how come everyone whitters on about the  RWC................... they do sterling work , of course , the Rodger Wright Centre .....

.... And human immunodificency virus (HIV) is no laughing matter ................ But the lads at " interest..co.nz " keep referring to it ....RWC.......... Queer......!...

See mortgage details at The RBNZ

http://www.rbnz.govt.nz/statistics/monfin/RegBanksNBLIs/3822930.html

see C5: historic series

forsooth brother Christov...methinks thou needs to be tied to a chair and made to listen to Leonard singing Chelsea Hotel and Tower of Song until you behave yourself!

otherwise, keep taking the thrills

Well I wasn't tied to it in a manner of speaking but she was one of those ......er ..gloomy types you know.......and I think I just passed out in the chair.

Dear, Matt in Auck, Muzz, wow, steven-orig, kin, Anonymouss, Ludwig, Nathan, Dean Left-us (broke), RDee, Fungus, rayzzor, 28 (now 29) year old, Steve-o, Elliot, Greg G, Colin, IanC

The various Anonymouses

And definitely Waymad 

And anyone else

We'd love you to register to comment because from September 12 only registered commenters can comment. There's benefits: You can more easily include hyperlinks out and edit your comments. The registration box is in the right hand column. You don't have to use your real. Just a real email address.

http://www.interest.co.nz/opinion/heres-why-wed-you-register-be-commente...

 

cheers

Bernard

why hell that's a great name!! damn.....how bout a second name Kopff.

Leider nicht, Christov, denn ich kann auf deutsch richtig buchstabieren, nicht wie Du!

Wie geht's Dir, unter dem Jacaranda-Baum?

You Spell just Dandy........ and I don't  got no Jacaranda trees...... I've.... er..... got a peach.

Yep I gotta say that's a real good'n..!!

this from tony alexanders weekly update received 30 minutes ago..and if Big " ba-da-boom" Tony says this then we're really in trouble..perm or no perm!

"But we retain the same warning we have had for many many months now. No-one on the planet has a reliable model which tells us what is likely to happen with business and consumer willingness to spend,borrow, hire etc. and their tolerance of interest rates and desire to get debt down coming out of a near depression scenario. We are two years down the track from the Lehman Brothers and nothings changed "

do you get that all you flakes out there that keep talking about cycles and wheels and good times..it ain't comin' back.

cheers

Rob Zombie

Love this other quote from Big Tony's latest rave..aimed at our faithful leader and sage, BH..

"Just a quick comment here regarding commentary on the housing market in particular, but pretty much anything else. If you go on the internet you will find exactly the same type of commentary as you would find on a slow Friday night in the local pub. People who know a little bit about something attempting to develop a view on what is happening overall based upon what they see around them. Their information is very limited, their understanding of the broad forces which drive marekts over the medium to the long term "

etc etc...love it!

For all of two years now     Tony Alexander's property predictions have been much more accurate than Bernard Hickey's ................................... Go TA !!!

Can't resist this one from Big Tony:

 

"The job of an economist is to look through all the information and see the trends underneath using knowledge of broad relationships between key factors gained through study at university and experience"...

so that's what they do..i often wondered!

Thanks Rob, well we may as well just STFU and leave all comment to that font of all knowledge; Tony the great.

Sounds like he has finally lost it with this latest drivel. Where do we go to read the whole thing, I could use a good laugh.

10 years!  more like 6 months.....and who really knows him now?

Hey there are some names you don't take license with.......Corporal. 

too much credibility............. try something like Winston Peters.

 

What's the use of worrying, it never was worthwhile... So pack up your troubles in your old kit bag and SMILE, SMILE, SMILE..."

 

- $ingapore's National Anthem.

So, with the home owner market fighting for its life, what does the rental market look like after the bubble bursts?

too much in-tent-city.. that's what ...Dean Left-us?!

well the banks are still dishing out loans - this i can verify.... little top ups too if you are into that kind of thing, or need the Charlie Ash with no questions asked...