What has changed in eight years? Nothing. And everything.
That's one instant conclusion that can be drawn from a perusal of Reserve Bank-compiled new mortgage data.
The RBNZ has been publishing the current set of mortgage data since mid-2014, which means we now have eight complete years to have a look at.
With the January monthly new mortgage data hitting a record low (since the data started) - that's with the exception of the locked-down April 2020 month - it's probably timely to see where we've come from and maybe where we are heading. And so, in we go with a bit of a dive into the detail.
Certainly the January figures suggest that this year's new mortgage lending is going to be a hard grind for the banks.
Sure, we can say that January's the month in which nothing happens and the figures for that month can maybe be disregarded. But the reality is that the $2.775 billion of new mortgage money in January 2023 was more than $750 million (over 20%) below the previous lowest January figure ($3.533 billion) in 2017. And if we want to talk about the top figure for a January, that was a whopping $6.36 billion in the raging bull days of 2021.
So, this year is going to be a very interesting one to watch develop. The added wrinkle is that it's an election year, which by the nature of it could see some potential house buyers (and sellers) want to sit on the sidelines till they see what the composition of the next Government will be.
But to go back to the beginning and those eight complete years of mortgage data, we can see that for the whole of 2022 new mortgage lending totalled $68.945 billion. Separately, in terms of outstanding mortgages, the mortgage debt 'pile' grew by $14.551 billion (to $345.535 billion). Coincidentally, this is almost identical to 2015's figures, where the new mortgage lending totalled $68.790 billion and the mortgage pile grew $14.536 billion (to $211.028 billion).
Big similarities then - except, not similar at all. Not once you get under the hood.
In 2015, according to the RBNZ figures, there were 355,798 new mortgages issued. That's still the highest annual tally of mortgages within the eight year period.
In 2022 there were just 181,016 advanced. So, just over half the number compared with 2015. And that 2022 figure is around 100,000 mortgages fewer than any of the other previous years, in which the numbers have tended to bounce around in a 260,000 to 280,000 range. Yep, it was a quiet year for mortgages, all right. Must have been a pretty unpleasant change of temperature for the banks.
That the overall figure in dollar terms in 2022 was slightly higher than for 2015 was due to the massively bigger mortgage sizes prevailing. The average-sized mortgage through 2022 was $381,000 (the dollar figure averages are rounded), compared with just $193,000 in 2015. So, over 97% higher.
This is understandable when we look at the REINZ median prices. Nationwide the median was $465,000 in 2015. In December 2022 it was $790,000.
So, as I say at the top of the article, 'nothing' has changed in the past eight years given that the numerical totals for mortgages were virtually identical, but 'everything' has changed when you look at the inputs into those figures. The upshot is a lot fewer people on an annual basis giving themselves much bigger individual financial burdens.
Of course the 2022 figures represented a housing market on the decline, with medians and mortgage sizes falling during the year. In January 2023 the average-sized mortgage was down to $320,000. And it will be very interesting to see what happens to this average figure as the year progresses and as higher interest rates keep biting and as house prices have for now seemingly still further to fall.
Here's a more visual representation of some of what I've just been discussing.
| Measuring our mortgage market - the ups and downs | |||
|---|---|---|---|
|
New mortgages $ |
New mortgages number |
Average size (rounded $) |
|
| 2015 | $68.790 bln | 355,798 | $193,000 |
| 2016 | $72.256 bln | 351,327 | $206,000 |
| 2017 | $59.053 bln | 279,692 | $211,000 |
| 2018 | $64.312 bln | 279,660 | $230,000 |
| 2019 | $68.205 bln | 277,311 | $246,000 |
| 2020 | $76,322 bln | 267,500 | $285,000 |
| 2021 | $99.072 bln | 287,140 | $345,000 |
| 2022 | $68.948 bln | 181,016 | $381,000 |
What immediately stands out to me in looking at the figures all laid out like that is, just what happened after 2019? Well, okay, we know the answer don't we?
Up till the end of 2019 the figures were pretty, well, orderly, I guess apart from 2016, which was a hot one. And if we cast our minds back a little we can remember that 2016 was SO hot it was the year the Reserve Bank lost its temper and smacked the landlords with a 40% deposit rule, effectively from around the middle of the year.
The lasting impact of that measure can be seen from the big drop off in mortgages the following year, from which a slow recovery was being experienced, till, bam! Pandemic Time.
Note also the average mortgage size, which moved up gradually from $193,000 to $246,000 from 2015 to 2019, only to then explode to $381,000 as of 2022. Yes, that's a nearly 55% increase in average mortgage size, for new mortgages, during the pandemic as would be buyers tried to keep up with sky-rocketing house prices.
I think to study those pandemic year figures is to realise, fully, just how out of whack our housing and mortgage markets got. And I still wonder whether it may do us lasting damage.
At the moment as mortgage rates roll over to much, much higher ones, and house prices falter, we seem to be getting away with it. But arguably it is still early days for measuring the true impact, and yes damage, that pandemic buying bender might have caused us.
Anyway, as I say, it will be interesting to see what materialises over the rest of this year. All the signs are that the mortgage figures for 2023 are going to show a big step back from where we've been, helping to highlight even further what an anomaly NZ's pandemic housing market appears to have been.
We managed to keep Covid out for a long time, but arguably caught something rather worse in the bargain! Hopefully it is something we will be able to shake off.
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45 Comments
We managed to keep Covid out for a long time, but arguably caught something rather worse in the bargain!
Mid-2024 our royal commission of inquiry into our COVID-19 response is supposed to be completed. It will be interesting to hear the findings.
For me, there was far too much focus on playing meaningless numbers games, and far too little consideration given to the long-term consequences of our actions.
I'm pretty sure any real lessons that could have been learnt were excluded from the scope, if my memory is correct.
I would think we will just get the answers we should commit even harder to what we did last time, maybe do it better and that what we did was fundamentally correct event the execution was a little flawed. It's an exercise in shutting down criticism of the response as the consequences start to show up.
https://www.beehive.govt.nz/sites/default/files/2022-12/Summary%20of%20…
It's an investigation into how to lock down better and coerce more people into the desired medical response next time. Most real criticisms are explicitly excluded from the scope. By the time this plays out, I think the housing bubble and poor education outcomes could outweigh the benefits of lock-down by themselves.
Sure, however, if we had the same mortality rates per capita as the US then 16,360 people would have died rather than the 2,550. There were many countries with worse stats than that too. Lockdowns didn't cause the housing bubble, low rates, and interest deductibility did. As for education outcomes, we have shifted to a competent/not yet competent system, awards for participation, and equity policies.
You'll find with humans not having much in the way of contact with each other, and continuing the natural spread of bacteria and viruses that is always present in the community, the natural death rate will have decreased frightfully. Many elderly die in rest homes from things picked up by visitors well before the pandemic, however the death rate unnaturally low during the pandemic due to lockdowns, and hence skewed the publics understanding of what the normal death figures would be. Post lockdowns everyone had less adapted immune systems from not being constantly bombarded with different bacteria, viruses etc in the community, leaving us more susceptible to contract infections viruses and causing a large upswing in the death rate, seemingly huge by mass media standards, however this was due to the lockdowns, not due to covid. Ultimately we can see that scandinavian countries have shown that lockdowns were unnecessary and have caused our economy years of woes, sugar coated only by QE to delay the inevitable downturn that would have happened in 2020 otherwise.
Interestingly RBNZ hasn't been in a rush to unwind LSAP. Doing so would be very helpful to managing inflation better because using interest rates alone is punishing to people and businesses utilising a lot of leverage.
The CEO of ASB said that LSAP was "an investment in NZ" not a source of cheap funding for banks.
Nobody raised an eyelid.
House prices are probably not going to drop 50%. Two reasons: A) it would cause such a massive unwinding of our financial system that prior intervention is almost certain before things reached that point, and 2) We have shown we're quite happy to import population pressure when it suited us and there's no reason to think we won't reach into those bags of tricks again to keep the party going. I mean... we already vapourised $50b - what's another $50b?
Everyone wants to assume house prices falling an enormous amount would be great for them but it comes with the huge assumption that they also wouldn't lose their jobs or their livelihoods in the ensuing fallout.
You seem to be putting a high value on people understanding the consequences of these decisions they make when we're literally in this position because they either didn't know or didn't care about the decisions they did or didn't make over a much longer period of time.
I would also caution against thinking 'intervention' is limited by whatever the Fed does with interest rates. There are all sorts of stupid tax settings we could adopt or change to try and keep things turning over, and those are most certainly a partisan matter, as I would argue, the continued tenure of the RBNZ governor who presided over this mess is as well.
Think more of interventions like winter energy payments and child care subsidies. They are already trying their best. If you believe there is support for an overt long-term landlord/mortgage subsidy or tax break, well good luck.
We did/could not fight international rates on the way down we can't on the way up either. You just have to hope that rates go back down before the country as whole panics.
House prices are probably not going to drop 50%. Two reasons: A) it would cause such a massive unwinding of our financial system that prior intervention is almost certain before things reached that point, and 2) We have shown we're quite happy to import population pressure when it suited us and there's no reason to think we won't reach into those bags of tricks again to keep the party going. I mean... we already vapourised $50b - what's another $50b?
Do you have any evidence of epic bubbles being prevented from imploding through money printing and immigration? NZ, Aust, Canada do not count because there is no belief that their respective bubbles would ever pop. Expanding the money supply and immigration were used to promote the bubbles, not prevent them from caving in on themsleves.
Portugal had a Golden Visa programme giving residence and later citizenship to foreigers investing in its still overpriced real estate post 2008 (at least 500k EUR). It seems to have worked. There were apparently many shady types that gained residence this way but the real estate prices skyrocketed. It was so successful that the govt decided it's no longer needed. https://www.dw.com/en/under-eu-urging-portugal-will-no-longer-issue-gol….
I would hate to see this implemented in NZ but the importance of housing for financial stability seems to be so big that I wouldn't be surprised if it is (in one form or another).
No, other than the bubble we have now wasn't anywhere near this big back then and we still ended up here.
I mean all I'm saying is people thought it would all grind to a halt well, well before now and yet here we are. That's not to say it won't pop, but there's little on current form to suggest that all the stops won't be pulled out of it starts having political implications.
That's not to say a smart or controlled landing isn't in our best interests - it's just suddenly expecting people who were meant to be acting in our best interests the whole time to do the thing they haven't done until now is... ambitious.
I mean all I'm saying is people thought it would all grind to a halt well, well before now and yet here we are. That's not to say it won't pop, but there's little on current form to suggest that all the stops won't be pulled out of it starts having political implications.
You seem to be of the belief that all it takes from preventing bubbles from popping is the willpower and lever pulling of the ruling elite.
Scenario: House prices have fallen 25%. It's general public knowledge. The Government brings out 3% State Advances Corp loans again. Drops the LVRs. All to save the property market.
Will people sign up to these 3% loans and start buying houses? Some might but the majority probably won't until they see everyone else doing the same and prices starting to rise. Herding behavior.
I mean... that's how we ended up here in the first place. I feel like not enough focus is put on this *wildly gestures at everything* and the fact we got here through entrenched interests and through a system that is very much still in place and has shown total disregard for logic or restructuring away from what we have now.
I mean yes, it will work until one day it suddenly doesn't work. But I wouldn't expect much more than staying the course and trying to preserve the status quo for as long as possible, even after it's been proven to no longer be working.
Our aggregate housing value to GDP topped out around 5x. Japan during its epic bubble topped out around 3.5x. Do the math. It's not complicated.
Is it a bubble? Or are our market dynamics special? There is no definitive yes or no.
If this is actually a bubble of epic proportions that is unwinding, it will take time for the sheeple to realize that it's over. Similarly with the ruling elite who I think actually believe in their BS.
"the mortgage debt 'pile' grew by $14.551 billion (to $345.535 billion)"
This is all new money created by the banks and held as customers deposits and it is money that people now have available to spend and so why are we surprised when we have inflation and booming house prices but our bank economists prefer to blame the governments spending rather than their own industry.
Once a bubble has popped as is the case with housing market the prices will continue to fall until true value is found this would be when average wage earners can purchase a home so long way to fall yet. banks could become under pressure if customers have borrowed more than they can afford to pay this will play out over next couple of years.
A major issue for Banks is the withdrawal of credit globally so forced sales will determine price if Banks cannot/will not lend the only buyer is that with cash, hope in this situation Banks have enough reserves ot cover defaults. A bigger issue if this occurs is that Basel III requires Banks to mark to market all asset were the value is seen to have dropped, residential mortgages are tier 1 lending so marking to market will further constrain Banks lending ability - that's enough gloom for this post I'm off to bed with a whisky.
Milk price payout revising down. Interest rates going up. Underlying land price falling. Rabobank has the exposure. There is a reason they need to offer that premium over the trading banks. Crafer Farms wasn't that long ago. 6 year receivership and banks were still left 140 million short in the end.
'The upshot is a lot fewer people on an annual basis giving themselves much bigger individual financial burdens'.
That is better than a whole lot of people borrowing and putting their futures at risk, in the falling, unstable, interest increasing regime.
These people who have taken higher mortgages may be landlords with a portfolio of returns getting assets, and may be able to ride out the uncertain environment better.
I am sure the Banks had done their due diligence on the individual borrowers.
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