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Latest Reserve Bank monthly figures show $8.8 billion of mortgages were advanced last month, easily a record for a July; $100 billon borrowed in last 12 months

Latest Reserve Bank monthly figures show $8.8 billion of mortgages were advanced last month, easily a record for a July; $100 billon borrowed in last 12 months

So much for nobody buying houses in winter. Our market has actually heated up during the winter - and we've now borrowed $100 billion to splurge on houses in the past 12 months.

Yes, that's right, the market actually heated up a little in July when compared with June, with banks continuing to hand out mortgage money in record totals.

And the notable thing about the latest figures coming out is that it is now the owner-occupiers doing the heavy lifting.

They are the big movers in the market, increasing their share of the monthly mortgage pot.

Latest Reserve Bank figures show that in July there was $8.818 billion advanced in mortgages. That's very easily a record for July, and was higher than the June figure (which was a record for a June) of $8.526 billion.

Kiwis have now borrowed close to $60 billion in the first seven months of this year and have just topped the $100 billion mark for the past 12 months. (As an aside, based on Statistics New Zealand's NZ population estimate of 5.12 million people, the $100 billion works out to the equivalent of $19,500 being borrowed by every man, woman and child in the country.)

We collectively borrowed $76 billion in the whole of last year (2020) - which was a hot one, even with a lockdown thrown in. For example, in the whole of 2019 there was just $68 billion borrowed.

In terms of the very latest figures, first home buyers saw their share of the spoils, at $1.605 billion in July, fall again, with the percentage of the total dropping to 18.2% from 19.3% in June.

Investors now seem to have hit a level patch after falling off following the Government's March housing package moves and the RBNZ's reimposition of 40% deposit requirements for investors.

In July the investors borrowed $1.472 billion, which was 16.7% of the total advanced, down from 16.8% a month earlier.

But it is the owner-occupiers that are now firmly driving the market's renewed momentum.

They borrowed $5.655 billion in July, giving them a share of the market of 64.1% up from 62.9% in June.

Even though the whole country is now in lockdown there's still anecdotally plenty of house buying interest being expressed.

With spring coming up quite soon it makes any imminent slowdown in the market look unlikely.

It's worth going back a bit to put this current market in some perspective.

In May 2016 there was an all-time record amount of mortgage money advanced, with just under $7.3 billion worth of mortgages.

That record stood till September 2020, when it was narrowly beaten. Since then, every month barring January of this year (and January is usually the market's graveyard shift) has beaten the old May 2016 record. This included the new all-time high of $10.487 billion in March 2021. Even January was a record January with $6.36 billion worth of mortgages.

The RBNZ, having seen its forecasts of the market levelling off in the September quarter being very far wide of the mark, has had another go and is now actually forecasting house price falls from next year.

I don't think the New Zealand house buying public believes the RBNZ will be right. Not judging by the current actions of Kiwis. FOMO rules.

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40 Comments

An extra $100 Billion! Would it be fair to say that is also across less sales?
if this is not a signal to get the hell out of leveraged property i don't now what is.
Auck Airport will be the new Afghanistan.

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Interesting.
If anyone bought in the last month or two, or knows some one who did, what was your/their thinking regarding risk?

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I'm pretty sure their thinking will be along the lines of "Well prices aren't ever going to come down, may as well buy now before they go up again."

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They desperately needed a home for their young family, had concerns about being booted from their rental as they were expecting investors to move their stock as a result of tax changes, and the rental market where we are is straight up terrifying.
So they got a massive mortgage and are a million times happier having that security.

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OK thanks, we have a young family too, but your example is different to us. I would say our risk of being biffed out is still low, so the urgency isn't there for us.
We are crammed in to our rental but it would be too scary for us to indulge ourselves in a better life style, given the debt required.

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I think if you can afford to wait then it's the prudent approach. I'm worried about their property reducing in value, but saying that they had a pretty big deposit and are both late 40s white collar so have the salary's to support big repayments. So they should be ok. They don't have any plans of world domination or becoming a multimillionaire from this investment. They just want somewhere stable and to be happy so the right decision for them I think. They have been trying to buy for over a year and a half very actively, so they were also just totally at the end of their string with it all which played a factor in them going for the big mortgage to finally get a vendor to day yes to them.

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We've bought very recently and are a "desperate" young family.

Our reasoning was, $3000 rent per month vs $3,900 in repayments at 2.5%, our property being home & income.

The rental income (below market rent) pushes the effective monthly cost to about $2,900 so a saving of $100 monthly.

By moving into our own place we'd had to sacrifice the higher standard and more space the rental provides. It will cost quite a bit of money to bring it up to standard but it's ours and we're happy to upgrade (over time).

Looking at the risks, our DTI is at a moderate 4 and we just missed out on the lowest interest rates but consider them still 'affordable'. We can certainly sustain higher interest rates but it will mean we have to maintain a frugal lifestyle for longer.

I am convinced that any sane govt will keep the property market afloat at all costs as too many livelihoods and retirements depend on property prices remaining stable and ideally trending upwards in line with inflation.

This is especially true after we have poured tons of petrol on the dumpster fire the market has already been in the last 5-10 years. The QE has created a massive dependency that cannot be broken with bold drastic measures.

Yes, there may be corrections and I think higher interest rates will have impact BUT looking at the historic trend overseas, it appears that it's getting harder and harder to stimulate economies to real growth and interest rates globally trend downwards in the long term.

Considering that covid will impact us for at least 12-24 months, I think that RBNZs tough talk on interest rate hikes was nothing more than posturing.

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OK, thanks. Yes, the numbers stack up much better for you than us (we are in a smaller cheaper rental, so our mortgage payments would be well over our current rent).
I agree with your take on rates probably staying low now the dumpster fire is well ablaze, but with my luck in life I can't bank on it.

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Banking solely on luck is certainly no good advice but any decision you make (even if staying where you are) is taking chances. The question is what is the best situation to be in given some reasonable assumptions (that is the really hard/impossible part).

I am still having sleepless nights with that feeling that we have overpaid (the house needs LOTS of work) but on the other hand, if interest rates go up I am anticipating that rents will also go up, unless the rental market is super competitive with lots of available rentals.

Due to the lack of immigration and international travel, this seems to be somewhat the case and rent prices have stablised but this should/will change and rents will go up. Especially, if the cost base for landlords increases due to increasing interest rates.

Other factors that went into my consideration is the imputed income tax advantage, inflation making mortgages generally more affordable over time (assuming a constant interest rate) and paying a mortgage will build our equity:

1st year:
50k annual repayment - 17.8k principal = $32,200 of non-recoverable loss. The rental income of 12k after tax will improve my equity building ratio further.

This simplified calculation doesn't take into account opportunity costs but since rent is a loss at 100%, there's only a difference of $2,200 per year that I could invest elsewhere.

The other thing we had to sacrifice on was location. We were looking hard at places in the Northern fringes of Auckland but quickly realised that FHBs need really deep pockets to be able to get in there.

We decided to go further North (Rodney), which extends the commuting distance significantly but paradoxically not so much the time. Due to covid and the increased time spent working from home, that factor becomes less relevant.

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I think this is good. Open the taps and let it flow. Party like there's no tomorrow. Sometimes self destruction is the only way to cleanse the system.

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Yeah. Maybe a doubling of the emergency housing wait list by Christmas would be an extra finger down the throat.
https://www.stuff.co.nz/national/politics/300363280/public-housing-wait…

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Wouldn't be surprised if the spike in "Owner Occupier" borrowers are just investors are just fudging things to get around 40% LVR and make investment purchases look like they are Owner Occupier purchases.

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There's likely some truth in this (except it is 60% LVR you mean... 40% is the deposit needed)

DC should use the RBNZ c-30 for analysis on investors, as this is better data and used for speed limits (banking license!). This shows 34% of new loans included investment as collateral, so picks up people with OO and Investment properties. The other report (c-31) has some potential classification issues -- for example, to be counted as a FHB, all borrowers need to be FHB. So if one person has ever owned a property, it goes to the Other OO bucket, even though, arguably, it is really still FHB.

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Miguel - I think there are 2 reasons, with the Brightline test pushed out to 10 years investors are incentivized to park more money into the family home gain the tax free Capital gains and downside later ,secondly on any measure Auckland is looking cheap to the rest of the country so there is some catch up in play !

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This. One of the unintended side effects of the 10 year Brightline Tax rule is that people are now heavily incentivized to pour their savings into their family home, rather than deal with the onerous tax and tenancy rules that the rental market is now subject to. Getting exactly the same capital gains tax free on your own home is a far better return on your money than paying 30%-39% of gains to the Govt on an investment property (not to mention not having to pay income tax on "rental income" that you don't actually receive because it all goes straight to the bank in mortgage payments).

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This. One of the unintended side effects of the 10 year Brightline Tax rule is that people are now heavily incentivized to pour their savings into their family home, rather than deal with the onerous tax and tenancy rules that the rental market is now subject to. Getting exactly the same capital gains tax free on your own home is a far better return on your money than paying 30%-39% of gains to the Govt on an investment property (not to mention not having to pay income tax on "rental income" that you don't actually receive because it all goes straight to the bank in mortgage payments).

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This. One of the unintended side effects of the 10 year Brightline Tax rule is that people are now heavily incentivized to pour their savings into their family home, rather than deal with the onerous tax and tenancy rules that the rental market is now subject to. Getting exactly the same capital gains tax free on your own home is a far better return on your money than paying 30%-39% of gains to the Govt on an investment property (not to mention not having to pay income tax on "rental income" that you don't actually receive because it all goes straight to the bank in mortgage payments).

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"But it is the owner-occupiers that are now firmly driving the market's renewed momentum."

This is the answer we get when the question is asked about price from govt., which means until it's FHB or owner occupier it doesn't matter whether the price doubled or tripled.

Market have to correct itself there is no hope with any leadership.
Till people opinion, that property will never go south is changed it will go up & up. No matter how much they have to pay, desperation will always supersede logic.

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Till people opinion, that property will never go south is changed it will go up & up.

Personally I think it was nuts for Ms Ardern to suggest that she's in charge of market prices. OTOH, you have Jeremy Grantham telling us that NZ is in a massive property bubble and these don't end well. The sheeple would side with Ardern over Grantham.

It's completely nuts.

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As an aside, based on Statistics New Zealand's NZ population estimate of 5.12 million people, the $100 billion works out to the equivalent of $19,500 being borrowed by every man, woman and child in the country.)

But everyone does not have debt to extinguish - hence no liability - we need to ascertain the $value of concentration risk for those that do.

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All I can see Audaxes is the continuous degradation of the currency. Now we know that is happening now because young people's incomes don't match the prices necessary for housing much more than a rat's nest. But I guess the ruling elite don't give a rats anyway. They're too tied to the dogma.

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They are too busy bikeshedding.

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The dumb and dumber parody of our leadership in our democracy will no doubt sooner or later be pricked by an offshore black swan event that will bring some realities to our financial markets including housing . The banks are laughing all the way to massive profits year after year .

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This is what Jeremy Grantham expects. But he also believes that the so-called Black Swan is already here.

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If only there was a life raft to save us from this tsunami of debt that grows by the day.....

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Just then, HMS Hyperinflation steams into sight. People blow the whistles on their life jackets and wave encouragement.
To the sounds of cheering the ship slowly turns, but too late they realise, it's heading straight for them...

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This latest lockdown will only do one thing - increase the FOMO and eagerness to get out there and buy when alert level allows.

10% increase this summer is my humble opinion, especially so in Auckland.

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Not exactly humble! Maybe just your opinion would be more appropriate.

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There is a storm a brewin

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So what's this comment about FHB's not getting into the market? This story seems to contradict that misconception about limited FHB's from entering the market?

If anything, this entire situation we are in has helped FHB's enter the market at record rates (not investors). The FHB's are the cause of this rapid cause of house price inflation. So why are we now wishing the house prices to go down? I thought the idea was to help FHB's get into the market (in which they have successfully done so, and continue to do so)? So why are we all complaining?

Can't please everyone?

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7jai
Although it doesn't fit the narrative of many on this site, you are correct.
Looking at the actual numbers of FHB (that eliminates any distortion in comparisons due to house price inflation), July 2021 is the highest July numbers except last year (down 0.02%) since RBNZ first started publishing data in 2014.
The number of FHB mortgages in July 2021 (2,925) is up
+ 47% on July 2015
+ 60% on July 2016
+ 69% on July 2017
+ 23% on July 2018
+ 17% on July 2019,
and only down (0.02%) on July 2020 (a post lockdown catch-up high).
The 2,925 for July 2021 and for each month in the past year was not exceeded in any month since RBNZ first published data in August 2014.
Simply, the reality is that the number of FHB over the past year have been at the highest level for the past seven years of available data.
Yes; it is very tough for FHB with house prices at record highs, but then mortgage interest rates have been at record lows for at least 40 years.
Bottom line is that those on this site calling bubble burst for the past four plus years have simply been getting further behind, whereas increasing numbers of FHB have bought, and given the 30% increase in the past year, there is quite some buffer for some fall for any consideration of negative equity.
I now expect to hear all sorts of but, but, buts . . . . and parents helping out is nothing new.

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In Australia the proportion of home owners is now at a record high - around 74%. Its increased by 6% over the last year, as FHB pour into the market courtesy of super low interest rates. I wouldnt be surprised if NZ has similar statistics. However, any 6% lift in home ownership will come at the expense of renters. Also at what percentage do we run out of non home owners who can afford to buy a home, or want to?

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Denominate in bitcoin

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Those stats terrify me. The amount of debt we have taken on is staggering and will cause real pain over the next 2-3 years as we see interest rates rise. Inevitably the government will be taxing the hell out of us to cover their debt repayments and we will enter a long period of stagflation.

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We are been forced to debt ridden society. FHB, who manage to buy house under FOMO by streching beyond particulary in Auckland, are they really lucky with 7 to 10 times loan to income.

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Yes it's a very bad situation. Even if you can afford to get into the market as a FHB, do you throw away all logic and jump in with FOMO? It's a government & RBNZ manipulated market so an understanding of normal markets is useless.
Down the line when there is a housing correction they will magically pull out boosts to first home owners grants in the name of "helping young people get into housing" which will only help a few before prices are higher again. It's a whole lot of BS.

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There's a great piece by Arthur Grimes in the latest edition of The Listener. Basically it places most of the blame for this housing boom on the government's actions to change the RBNZ's mandate
Well done Robbo, Jacinda and Co.! Living up to the great tradition of Labour for addressing inequality (sarc)

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This NZ housing Ponzi has gone well beyond bubble territory. It is pure financial madness, and current price levels make no sense whatsoever.
Unless the RBNZ start immediately to rein it under its financial stability mandate by urgently raising interest rates, the housing market will quickly approach the point of no return when an ordered and managed retreat of this housing Ponzi will simply become impossible.
This is a disaster waiting to happen, and the RBNZ cannot honestly pretend that it can't see it.

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They should punish investors more! Oh wait, it is owner occupiers... never mind. Please vote for us.

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