Latest credit data points to a renewed splurge in housing, fueled by low rates; borrowing by farmers rises fast too on strong growth in dairy conversions

Home owners are piling back into fixed rate mortgages.

According to data released by the Reserve Bank of New Zealand today, housing credit rose by $6.3 billion during 2012 to end at a record $177.7 billion.

This is a 3.7% increase and the highest rate of growth since January 2009.

This easily trumped the increase in 2011 of just $2.0 billion. 

The 2012 rise was last bested in 2008 when the increase was $6.9 billion.

A remarkable $1.362 billion leaked out of floating rate mortgages in December from the previous month, and the value of floating rate mortgages declined by a whopping $7.9 billion over all of 2012.

Most of that went into one year of less fixed rate mortgages, chasing lower rates.

Other fixed terms were less popular, although there was some support for the five year term.

The value of mortgages for all fixed terms rose by $13.6 billion in the year, and they were up $2.5 billion in the one month from November to December.

These are very big moves, with the rush back to fixed as fast as the rush into floating in 2009/10.

Meanwhile, rural credit is growing again. Loans to agribusiness rose $2.4 billion in 2012, at 5.1% p.a. an even faster rise than for housing.

The recent new surge in dairy conversions will see this growth continue, and the future track is strong now that big investments in irrigation are coming.

Lending to businesses grew $1.9 billion in 2012, the slowest clip of the three major sectors covered by the RBNZ data. More than $78.8 billion has been borrowed from banks, but this is no record. The high was in $84 billion in December 2008. Many corporate treasurers felt banks were only fair-weather friends during the GFC and have sought to diversify their funding sources away from banks.

The one section of the economy that has clearly deleveraged are consumers with their non-housing debt (personal loans, credit cards, etc.). At $13.3 billion, this is still 6% below its pre GFC peak, and only now just starting to show any recovery - and only in the past three months.

Across all sectors, bank lending reached $319.6 billion at the end of December 2012, up $10.9 billion from 2011.

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hmmmm.. -  ~$71,761.00  owed by every man, women and child to NZ recognised banking institutions.
And household NZ$ deposits are? ~ $25,166.00 for every man, women and child.

A mortgage on a house might cost 5% through 2013 but return capital gain of 10% to 30% on the value - amplified further with leverage whereas a term deposit might return 4% before tax.
No wonder every man and his dog is turning to bricks and mortar.
Bit foolish to fix though, but note most fixing for one year - a clear sign they expect lower rates in 12 months.
Prediction - 4.5% floating mortgages common within 9 months and probably 2 years fixed available at 3.99% by year end - watch this space!

A lot these new 'fixes' are for only 6 months  -  intending to go back to floating (since the so-called floating rates refuse to 'float' downwards anymore).
Floating rates will be 5% or less shortly as more bad news hits Australia & NZ. The USA is still on a downwards spiral.
Fixing only makes sense longer term at 4.5% or less as things grind downwards.....
If you can secure a loan from HongKong - you can pickup home loans at 1%.

Banks have decided to 'Fix' their 'Floating' rates.
But they will 'float' their fixed rates around to tempt borrowers to lock-in.
Plus their constant PR men ('economists') are always beating the "Rates will soon rise" drum which some believe.
If OCR rises were effective in containing house price rises  -   what happened in 2007/2008 when the OCR was 8%?  12% gains in prices persisted through that period.