Kiwibank CEO Steve Jurkovich says December's changes to the Credit Contracts and Consumer Finance Act (CCCFA) appear to be the straw that broke the camel's back in the sense of finally slowing down a red hot housing market.
Speaking to interest.co.nz on Thursday after Kiwibank posted a 16% rise in interim net profit after tax to $64 million, Jurkovich said Kiwibank is seeing the housing market slow.
"Absolutely we are. How quickly the CCCFA changes [following a government review of December's changes] can happen, if they do happen, will have an impact, how long people have to isolate for [because of Omicron], and what that means for businesses that need to shutter up for a while, all of those factors."
"But I would say the kitchen sink has been thrown at the housing market. You've had LVRs, rising interest rates, building supply constraints and cost of building supplies going up, and all of those things. Then CCCFA just before Christmas seems to have been the thing that is tipping a market that had been running really strongly for a long time," Jurkovich says.
"But even if you do think about it slowing, I was looking at annual growth figures and they're dropping from 30 [%] to 20 to 15 and then 10, historically that's still very strong growth compared to the long run. But ultimately it is slowing. So I think you might see some consolidation in prices, but I'm not a big believer that it's going to be really bearish."
On Wednesday the Reserve Bank said its central forecast is for house prices to fall about 9% from the end of 2021 to mid-2024. Jurkovich doesn't see that happening.
"No I don't. I think we can all have different views on these things, but I think their job is to really talk about the possibilities and how it could be tough going. I don't see that sort of number," he says.
December's CCCFA changes were designed to crack-down on predatory lending but critics argue the new rules are too prescriptive, and hit types of lending, such as residential mortgages, where there was no problem to fix. In January Commerce and Consumer Affairs Minister David Clark said the Ministry of Business, Innovation & Employment is reviewing the December changes, and scheduled to report back in April.
Jurkovich says Kiwibank is seeing an impact from December's CCCFA changes.
"We know what the overall gross impact of what's been happening is. Applications some taking 3x longer, but on average at least twice as long. What's really hard to put a finger on is how many people didn't apply because they felt like they were going to have to jump through more hoops than they had to previously," says Jurkovich.
"I did feel like we got listened to by the Minister [Clark] and the officials. And hopefully we'll see a pretty prompt response to make adjustments that I think can keep the intent of the regulation... I think that can be tackled and hopefully some changes can happen pretty quickly. And then we'd be in for another settling in period as those changes work their way through."
Banks argue there’s now a one-size fits all approach for all lenders and all loan types and values, from home loans to overdrafts and extensions to credit card limits, meaning banks don’t have the same discretion or flexibility they used to. This means some loans that were approved prior to December 1 would be declined post December 1, banks say.
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44 Comments
Hello Retired-Poppy,
A few years ago you disappeared from this forum - after all your comments & predictions concerning the housing market back-fired on you.
Ironically, the housing market proved to be far more resilient than you.
To say the least, you're a remarkable under-achiever when it comes to housing market analysis. Your track-record is appallingly bad. 👿
TTP
Tim can't answer the question... I never disappeared from this forum. I just stood back for 13 or so months and watched you party hard. Now my 4.25% term deposit has another 9 months to run while house prices decline. Have you noticed term deposit rates are on the rise again? Thought not. Inflation is heading higher, houses are not. Interest rates heading higher. Interest on debt is dead money on a depreciating asset. You should pray (edit) for those that were preyed upon by Property Brokers and alike.
Come on RP pretty poor form from you. You go silent while house prices are rising and then you suddenly reappear the second there are signs of a decline. The whole world suddenly has all sorts of things to worry about other than houses. Its going to be a very volatile time out there now for potentially the rest of the year.
So is there some type of rule that says you can only comment when house prices are rising. I havnt been on much myself got other things to do, but I am interested in seeing if NZers care about other NZers or even other people. People like RP give me hope when I read these comments. Some people not so much. So I hope RP is back for a bit longer.
The market was being driven by people spending up to the limit of what they could borrow. Now borrowing has been restricted things will revert to a level closer to true value. My criticism of CCCFA would be that it should have been the first tool used, not the last. The pain for those that bought late in the party will now be far worse.
RE agencies and banks have to carefully balance their narratives at this point. If they want CCCFA eased, they'll have to say the housing market is about to crash. If they want to convince people to keep borrowing and buying, they'll have to say the housing market is booming.
Running two opposing narratives at the same time is just an average day for politicians though, they should hire some.
https://en.wikipedia.org/wiki/Japanese_asset_price_bubble
The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion.[2] More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time.[3]
Early research found that the rapid increase in Japanese asset prices was largely due to the delayed action by the BOJ to address the issue. At the end of August 1987, the BOJ signaled the possibility of tightening the monetary policy, but decided to delay the decision in view of economic uncertainty related to Black Monday of 1987 in the United States.[7]
Later, BOJ hinted at the possibility of tightening the policy due to inflationary pressures within the domestic economy. Despite leaving the official discount rate unchanged during the summer of 1987, the BOJ expressed concern over excessive monetary easing, particularly after the money supply and asset prices rose sharply.[9] Nonetheless, Black Monday in the US triggered a delay for the BOJ to switch to a monetary tightening policy. The BOJ officially increased the discount rate on March 31, 1989.[3]
More Wiki:
The Plaza Accord was a joint–agreement signed on September 22, 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United Kingdom, and the United States, to depreciate the U.S. dollar in relation to the French franc, the German Deutsche Mark, the Japanese yen and the British Pound sterling by intervening in currency markets. The U.S. dollar depreciated significantly from the time of the agreement until it was replaced by the Louvre Accord in 1987.[1][2][3] Some commentators believe the Plaza Accord contributed to the Japanese asset price bubble of the late 1980s.[4][5][6]
Yes, and there's this one. While the RBNZ's plans to hike interest rates are not necessarily to cool down a real estate market, it's the action not the intent which decides the outcome.
https://www.investopedia.com/articles/economics/08/japan-1990s-credit-c…
KEY TAKEAWAYS
- Japan's "Lost Decade" was a period that lasted from about 1991 to 2001 that saw a significant slowdown in Japan's previously bustling economy.
- The economic slowdown was caused, in part by the Bank of Japan (BOJ) hiking interest rates to cool down the real estate market.
- The BOJ's policies created a liquidity trap while a credit crunch was unfolding.
- Lessons from Japan's "Lost Decade" include using public funds to restructure bank balance sheets and preventing deflation and inflation from causing stagnation.
I'm flattered you're thinking of me Yvil...
It looks like Kiwibank is doing pretty damn good to me with total lending growth of $1.9 bln for the half-year, up 20%? By the looks of it, they're just having to work harder to do what they were always meant to be doing...bohooo let me give Jurkovich a tissue...
"Applications some taking 3x longer, but on average at least twice as long. What's really hard to put a finger on is how many people didn't apply because they felt like they were going to have to jump through more hoops than they had to previously,"
We live in extreme times, right? Extreme house price rises will be followed by extreme house falls. That's the way extreme works. It may not go all the way back down to Dec 2019 levels, but it might. That's how an incompetent govt with its central bank on a string (dis) functions. I'm getting dizzy.
"But even if you do think about it slowing, I was looking at annual growth figures and they're dropping from 30 [%] to 20 to 15 and then 10, historically that's still very strong growth compared to the long run. But ultimately it is slowing. So I think you might see some consolidation in prices, but I'm not a big believer that it's going to be really bearish."
That's the takeaway folks.
Slowing ≠ No growth or Crash
There's still room for upward valuation in residential real estates.
Be quick!
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