The total value of New Zealand's housing stock is now rising at a faster pace than it was when the Reserve Bank (RBNZ) introduced restrictions on banks' high loan-to-value ratio (LVR) residential mortgage lending, while the growth in mortgage debt levels isn't too far behind.
The RBNZ's housing value and mortgage debt figures show that both the growth in the total value of this country's housing stock and the growth in the total amount of mortgage debt, slowed after the restrictions were introduced, but have since bounced back up.
In the September quarter of 2013, just before the LVR restrictions were introduced on October 1, the increase in the total value of this country's housing stock was $66 billion versus the September quarter of 2012, the ninth consecutive quarterly rise.
But once the LVR restrictions took effect in the December quarter, the annual increase in housing values dropped back to $63.3 billion and continued to decline over the following three quarters, hitting $36.8 billion a year in the September quarter of last year.
But since then they have started going back up again, with annual increases of $49.3 billion in the December quarter of last year and $66.5 billion in the first quarter of this year.
This means the total value of housing stock has started increasing at a greater rate than it was in the December quarter of 2013 when the LVR restrictions were introduced.
The increase in total mortgage debt has followed a similar trajectory, although with a quarterly lag compared to total housing value.
Brief speed bump then normal service resumed
The annual increase in total mortgage debt was $10.4 billion in the December 2013 quarter, which was the eighth consecutive quarter to post a rise.
But in the March 2014 quarter, the annual increase in total mortgage debt dropped back to $10.1 billion and continued declining until it hit $8.6 billion in the December quarter of last year.
Effectively working in tandem with the LVR restrictions, the RBNZ increased the Official Cash Rate four times between March and July 2014 before a rising interest rate environment dramatically turned into expectations of cuts from late 2014. Many economists now expect last year's 100 basis points increase to the OCR to be completely unwound by the end of 2015, taking the OCR back to 2.5%. It's currently at 3.25%.
Against this backdrop total mortgage debt shot up sharply in the first quarter of this year to $9.4 billion, which is heading back towards the $10.4 billion annual increase that was occurring when the LVR restrictions were introduced.
The figures suggest the housing market slowed down by a few kilometers an hour in the 12 months after the so-called LVR speed bumps were introduced, bit since then the market's foot has been back on the accelerator.
And with house prices continuing to rise and mortgage interest rates falling, it's likely that the market is now charging along at a faster clip than it was before the LVR restrictions were introduced.
However while rising property values and increasing mortgage debt are a concern, the news isn't all bad.
The figures also show that total housing value has been rising at almost twice the pace of total mortgage debt.
The total value of New Zealand's housing stock was $791.2 billion in the March quarter, according to the RBNZ.
That's an increase of $66.5 billion (9.2%) compared to the March quarter of 2014.
Over the same period, residential mortgage debt has risen from $190.3 billion in the March quarter of last year to $199.7 billion in the March quarter of this year, an increase of $9.4 billion, (4.9%).
The figures also show that total mortgage debt has been rising at slower pace than it was a year earlier.
Total mortgage debt was rising at an annual rate of $10.1 billion a year in the March quarter of 2014 and had also risen at an annual rate of more than $10 billion for the previous two quarters.
NZ Inc LVR declines
But the annual increase in mortgage debt dropped back to under $10 billion a year in the June quarter of last year and has remained there ever since.
That means that total mortgage debt as a percentage of total housing value - effectively the national LVR - has declined for the last four consecutive quarters.
In the March 2014 quarter, the total value of housing stock was $724.665 billion, while the total mortgage debt was $190.293 billion, giving a national LVR of 26.3%.
In the March quarter of this year, the total value of housing stock was $791.166 billion while total mortgage debt was $199.693 billion, giving a national LVR of 25.2%, which is the lowest it's been since the December 2007 quarter when it was 25.1%.
Since the RBNZ began publishing total mortgage debt figures in 1998, the national LVR has ranged from a low of 23.8% in December 2005 to a high of 28.4% in September 2001.
The figures also show that total housing values and mortgage debt levels are both rising at a slower rate than they were in the last housing boom in the early 2000s.
The annual growth in the value of this country's housing stock peaked at $89 billion a year in the March quarter of 2004, while the growth in mortgage debt peaked at $18.4 billion a year in the June quarter of 2007.
Which suggests that the current housing boom may have some way to run before it hits the levels achieved in the last one.
The figures also dispel the myth that is perpetuated by property spruikers and others with a vested interest in talking up the market, that property values only ever go up, not down.
The figures show that the annual change in total housing value declined over five consecutive quarters from the June 2008 quarter to the June 2009 quarter and then again over the three quarters from December 2010 to June 2011.
However it might be correct to say that mortgage debt only ever goes up, because while total housing values have have gone through periods of decline since 1998, total mortgage debt has steadily increased without a single quarterly decline.
Since the growth in total housing value hit its peak in the March 2004 quarter, the value of the country's houses has increased by 104%, while the total mortgage debt has increased by 115%.
Unfortunately the figures may be of limited value, because they only provide the nationwide numbers, while the reality is that we have a two speed housing market, with Auckland running flat out and the rest of the country coasting along in neutral and some provincial centres shifting into reverse.
Two fingered salute?
The next big test for the market will be the introduction of new measures such as a tightening of the tax rules around capital gains, 30% deposit requirements for Auckland property investors, and new reporting requirements (IRD numbers and NZ bank accounts) for overseas buyers, which are due to come into effect on October 1.
But based on the effectiveness of the last round of LVR restrictions, they may have as much effect as a traffic cop yelling at a car load of drunken youths to slow down.
There's a reasonable chance the market could respond with a two fingered salute as it hurtles towards the next blind bend.
27 Comments
From the RBNZ:
Increase in value of housing stock in the last 4 years = 31%
Increase in M3 Money supply for the same time = 22%
Increase in Mortgage debt = 24%
Since I first calculated it the percentage of mortgage debt to money supply has decreased from 75% to 68%. Non mortgage debt has reduced from 8% to 1.3% (both about 3 years)
Where is the money expansion coming from?
Scarfie.... keep in mind that the new mortgage debt only has to bid up a few properties....AND, because it sets the new market price..... most other properties will go up in value..
A more meaningful measure of the effects of mortgage increase would be to measure it against the value of properties SOLD in that period..
ie.. If mortgages increased by $10 billion ... what is the ratio of that to the value of all properties sold in that one yr....
I would find that metric far more meaningful .... than using the Total value of all housing stock... in regards to seeing the impact of new debt on the mkt...
Don't you think...???
The more data you have the better informed you can be, so yes that would be a great one to know. But mortgage debt at 68% of the money supply gives some context. Mr Hulme makes also a good point below.
Here is another interesting stat in regard to the article. M3 Money supply has increased 107% since March 2004.
scarfie, I reckon the money is mostly coming from landlords.
When hard-working landlords earn their money, they save it and later use it to purchase their next property with reduced borrowings from a bank. Reduced borrowings but more money invested is the outcome.
Tenants benefit too so it's good all-round.
Scarfie bait eh? Landlords will have an impact for sure, but right now they have been superceded and made largely irrelevant by the money coming in from offshore. Just remember YL that criminal like behaviour is all good and well when the good times are here, but you might have to account for yourself when things are not so rosy. It has started for New Zealand, this isn't a cyclical downturn but the start of a permanent decay.
Sorry scarfie, don't understand... I have not engaged in any criminal behaviour. Why do I have to account for anything?
By-the-way, notice that the price of gold is falling. A sure sign that interest rates are rising 'cause economies are improving. There won't be any "permanent decay" for the doom, gloom and despondency mob to salivate over. In fact... tenants will value my properties so much that they will pay me more money to live in them.
Hear, hear! Well said YL. A lot of the landlord bashing clown brigade don't appreciate the effort required to run a successful property business. They think we all sit back and grow fat off capital gains but we could easily be successful at any other business with our skills.
I will add that my prediction is that non resident buyers paying cash for New Zealand property retire a local mortgage, and contract the money supply. This contraction will eventually crash the economy. However the contraction at this stage has been relative, not absolute. So I am still digesting this information.
Hmmm - doesn't debt have to increase enough to fund the collective outstanding registered bank asset interest service bill?
The author noted: However it might be correct to say that mortgage debt only ever goes up, because while total housing values have have gone through periods of decline since 1998, total mortgage debt has steadily increased without a single quarterly decline.
Actually scarfie, foreign investers contract their own economy by withdrawing liquidity from their own financial system and buying $NZD so that they can pay cash. It actually increases the local money supply, because by paying cash they won't have to make debt repayments, which would withdraw money from the banking system. Nor do they pay compound interest on the debt which only rewards rentiers and the banks and robs the wider economy of discretionary spending and the ability of others to repay their debts. Further concentrating wealth in fewer hands.
Money has to keep being created to pay the interest on previously created money, so any non credit activity withdraws liquidity. But in reality it only transfers the problem of creating the money somewhere else. Remember the only alternative to continued money creation is default.
Edit: this is an effect of purchasing precious metals that gets ignored.
I'm talking in the local context, not the global. Its elementary that transfers of wealth, liquidity, money whatever you call it have just shifts the problem around, but if you want to diagnose the problem one must be careful to identify where problems are being caused and where the effects will be most felt.
Yes precious metals is just a scam, peddled by crooks who want to rob the credulous. Why would someone who lauds the "soundness" of precious metals be willing to surrender it for the supposedly "worthless" fiat money?
" total value of housing stock was $724.665 billion, while the total mortgage debt was $190.293 billion"
But, that debt of $190 billion remains fixed, yet the value can change very quickly to any figure. To relegate the $190 billion of debt we have to a variable ratio based on any number of volatile factors, is to stick our collective heads in the sand. (What happens, for instance, to the LVR ratio if properties are worth, say, $190 billion, for whatever reason?!)
For me, the question I am interested in is: what does this data tell us about what percentage of our total housing stock was/is funded by direct foreign investment.
In other words, what has been the trend over various periods and what is the likely state of play now - as this goes toward understanding the notion of whether we are becoming 'residential tenants in our own land'.
Does it say or can we surmise anything about that from it?
If the US is a benchmark, it tells us we are, at best, poorly paid tenants in a central bank created real estate asset bubble, without which the nation would endure the symptoms of depression?
As has been also clear from Japan’s descent into QQE, the real evidence of monetary policy effects are in the damage they leave behind. Greenspan’s efforts, and the attendant eurodollar rise, occurred in the late 1990’s leading to both serial asset bubbles (globally) and an employment problem that without those asset bubbles begins to represent a full depression. No healthy economy would, on its own, act in that way for more than a few years (at most). The only manner by which such a gangrenous infection might linger for more than a decade and a half (like Japan) is when the only “solution” offered is the same as feeds the cancer in the first place. Read more
Yes, no doubt its a "central bank created" asset bubble, but my question is to what degree are the actions of the offshore central bank majors who are undertaking QE impacting directly (meaning outside any controls our central bank might have) on our housing market.
PS. Will read the linked article shortly!
Because his work isnt 100% correct, especially like Keynes before by the left his work was bent and corrupted to the political dogma of the right.
Biggest thing is look for any theory's explanation on its successes and failures if it doesnt adequately explain both then its dogma and luck and not theory.
So the Q is do you want to place a bet on based sound logic, results, experience and models that have proved themselves? or blind faith/dogma in the long run? "are you feeling lucky punk?"
;]
When the OCR is slashed again tomorrow mortgage rates will drop further and house prices will escalate as a consequence. With the OCR on track towards 2% we are likely to see the largest Auckland house price increase ever for a 6 month period over the second half of 2015.
Where outside of certain suburbs of Auckland have prices escalated?
Just as an aside when people think they can make 20% per annum for no work / good produced tax free is it really true that a mortgage at 5% or 4.75% really matters that much for one instant? It wouldn't for me not at a 15% or 15.25% margin I mean who would really care about the "0.25%"? Interesting to watch.
Also consider "all else being equal". ie if you were buying NZ houses from offshore right now you get a lot more NZD for your USD roughly 15% more with the prospect that a recovery in the NZD (from 0.6 to 0.7 say) in say 3 years will yield you a 15% profit, tax free on top of any capital gains here. How do you separate this one effect from the 0.25% drop?
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