Westpac and ANZ have both released their final overviews of the housing market for the year, with ANZ comparing it to someone out on the town at midnight, who has to decide whether to keep boozing and risk a massive hangover, or take a more sensible approach and head home to bed.
"It's midnight at the bar. We've had a good time. Do we go home or stay out until 4am?" ANZ's economists say in their Property Focus newsletter.
"History says the NZ economy (housing market) market stays out and binges.
"The end result is an economic hangover as a bust follows boom."
However ANZ also noted that the likelihood of a bust was lessened by the fact that housing supply was still not keeping up with migration-driven demand.
"The housing market has slowed as the combination of extended valuations, movement in interest rates off lows, prudential policy changes (LVR restrictions) and tighter credit availability act as head winds," the newsletter said.
"But questions will surround how long the moderation will last given the fundamental shortage of dwellings across the market, which continues to get more pronounced with the impetus from surging migration."
'A more subdued outlook'
In a Home Truths newsletter, Westpac economist Michael Gordon said the bank's economists had "a more subdued outlook" for the housing market next year after two years of double digit house price growth, and expected it to fall back to around 5% in 2017.
He said the latest round of LVR restrictions introduced by the Reserve Bank had clearly had an impact on the number of homes being sold, but it was less clear if they had cooled prices.
"We would expect lending restrictions to limit the number of potential house buyers but to have little impact on the maximum that bidders are prepared to pay," he said.
"The latter is driven by factors such as rental yields, borrowing costs and the tax treatment of investment property - none of which are affected by the LVR restrictions."
Rises in mortgage interest rates could potentially have a bigger impact on prices, he said.
"Over the past couple of years, mortgage interest rates have been steadily declining on the back of cuts to the OCR.
"This has steadily underpinned the price that investors are willing to pay for properties.
"While we expect the OCR to remain unchanged over 2017, we suspect that longer term interest rates will face further upward pressure over the coming year.
"That will mark a clear break from what the housing market has experienced over the past couple of years and it's the key reason why we're forecasting a more subdued pace of house price growth next year.
"In our view, higher mortgage rates will have a more meaningful, and sustained impact on house prices than lending restrictions alone ever could," he said.
62 Comments
5% increases in 2017 on national level.
- 15 to 0% across auckland.
5% to 20% increases for regions outside auckland, the more stretched already (Hamilton tauranga) the lower the increases.
Growing regions where prices are greatly (40% plus) below replacement value will be closer to the 20% growth mark as Fhb's drive the market and drag a few trend following speculators along with them.
Had a quick look on trademe and looking at the sheer number of houses for sale by nego/asking price (both Auckland City and North Shore) it doesn't look like we'll have a soft landing. Soo many choices. Almost looks like we have an over-supply problem. Funny how the immigration numbers haven't changed much. Must mostly consist of students who are happy to bunk with 3 other people in a bedroom.
Very strange to read bank economists talking about banks and lending as though they don’t know how their own policies are creating the very problems they are discussing.
>“There is a strong correlation between house prices and debt accumulation. Where the former heads, the latter tends to follow, although the causation can also run the other way. Credit availability is also a key driver of asset prices.”
So banks know that credit drives housing prices but don’t question who drives the credit.
>“Investor housing lending has been growing rapidly. It rose from 29% to 38% of total new mortgage lending between August 2014 and mid-2016 (although it has eased most recently). Moreover, around 55% of new loans to investors are on interest-only terms (compared to 30% for other buyers).”
>“Rental yields continue to fall. They are at historic lows in Auckland (below 3% in a number of suburbs); people are obviously purchasing for capital gain.”
Banks are still lending recklessly to investors even though rental yields are dropping
> “Banks are now actively leaning against the supply of credit at the top of the business cycle.”
>” It makes economic sense to lighten up at the top of the cycle for risk reasons.
Banks don’t think it makes sense for banks to lend responsibly all the time.
> “There is a glaring gap between deposit growth and credit growth”.
Perhaps banks don’t understand that borrowing to cover the deposit credit gap actually increases the deposit credit gap.
> “offshore funding (borrowing) will lead to a wider current account deficit and reliance on offshore capital markets,”
>” something needs to be done about that (deposit credit) gap”.
Perhaps that something is that banks lend responsibly, limiting themselves to providing credit only from what deposits are available.
> “A reduced supply of credit, for instance, will hinder growth and constrain the ability of the market to meet housing supply needs.”
Perhaps banks could stop lending splodges of credit to “investors” for them to buy existing homes at the expense of FHBs, and instead fund builders and developers.
>“the average mortgage payment to income in Auckland around 50%. That is near the highs reached in 2007 despite mortgage rates being at historic lows currently. It highlights how sensitive some Auckland borrowers would be to even a small lift in interest rates.”
Perhaps banks could lend at DTI ratios that are prudent.
Peri: I like to take responsibility for my own actions and not blame others, not the banks, not the government. If I CHOOSE to take on debt to buy a house, I will reap the benefits if it turns out well or I will face the music if it turns out badly. I hate a nanny state that tries to control us or to "protect us". I'm a grown up man, I accept the consequences of my actions without blaming others
the problem becomes when (not some much yours) when the consequences affect others.
the days of prudent lending by banks are long over, they are all in a race to create debt and leverage in the search of profit.
if we have another downturn credit will squeeze , people will lose jobs, the government will borrow more, interest rates will go up
these things we know as they are part of the normal cycle.
the government and RB have both failed here
the government should have changed the tax regime so investing in existing housing is not attractive, only new builds which must be held for ten years, if as they say it was about supply supply supply
they should have banned non citizens from buying existing homes new builds only, and no tax advantage at all
the RB can do away with LVR and require banks to carry more capital for home loans and even more again for investors place that type of lending in the same bank risk category as business
will it happen no, what will happen not much, and when the economic cycle turns we will see your consequences
Sorry people, it's already 4AM and the bar has turned the lights way up.
Neither report mentions China - which is looking less like an known-unknown and more like a known-known by the day. PBOC just announced another rescue package.
But keep on drinking Auckland if you must. I'll be up for my jog at 6AM, so try not to puke on the footpath eh?
And your (attempt at making a) point was....
As has been pointed out the reason for the drop could be many - the listings has expired and was not renewed , lack of new listings due to Christmas , listings being removed as seller wasn't getting the price they wanted and (yes) a property was sold. Unfortunately we have no way of knowing.
realestate.co.nz shows 9,763 listings.
I guess my point was that the actual number isn't too relevant. If it was 7,600 or 6,600 the claim would still be made that there are plenty of properties available. Also just a bit of an ongoing joke in response to someone, now unknown, that gleefully said listings would exceed 10,000 by Christmas. No need to get all spergy about it.
There is an extreme tightening of credit conditions going on that is being ignored by commentators. Anyone trying to borrow for property development at the moment is experiencing this, as are those buying commercial properties, or in businesses where banks are straight into the detail of why your cash flow has dropped year on year.
John Bolton at Squirrel:
https://www.squirrel.co.nz/will-minsky-moment/?medium=discovery&key=Cou…
I just had my farm o/d canned, thank god I can get by without it with, just some short term discomfort but seriously pissed withmy bank.
If they are treating other clients the same, considering I have been at the same bank for 34 years then I would agree, must be Chaos out there.
must be some serious dysfunction out there. some snippets from a blog I subscribe to.
>>>
Chinese markets were a disaster this week.
Money rates exploded on that side of the Pacific
If I had to describe all of this with a single word, that word would be "dysfunction." If I was allowed a second word, it would be "global."
Regulator tells China bond market makers to keep trading despite liquidity crunch - sources
http://uk.reuters.com/article/uk-china-bonds-guidance-idUKKBN1450CP
Unprecedented rally for sovereign debt giving way to rout
https://www.bloomberg.com/news/articles/2016-12-15/china-s-record-bull-…
I was told yesterday by someone at BNZ,that Westpac and ANZ are having to repatriate capital to their parent companies. Why? because,they were lent/given cheap money after the GFC and now the Australian regulators are saying it has to be returned. can anyone comment on this?
We depositors would like them to get as much security as possible. Imagine the mess if an OBR event happened and they start calling in all the security, it would be the end of banking as we know it, end of what ever government in is power and the end of trust in anything to do with the system.
Global eurodollar credit has been tight for a while. That's why the Aussie banks are squealing about rising foreign wholesale funding costs, consequently they tighten the domestic lending spigot.
We don’t have a great many statistics to give us much insight into global “dollar” capacity in balance sheet terms, but TIC does provide an estimate for what it calls In Banks’ Own Net Dollar-Denominated Liabilities. As the label suggests, it is at best a crude proxy for what we are after, but a very good one nonetheless in terms of providing backward confirmation of all that has happened. Read more
Kate, I haven't used my overdraft for 6 months, but they do have a farm as security and I sometimes go 150k in the red buying cattle. Not an option any more for me, unless I change banks. Also fees were starting to make the real interest rate very different to the quoted one.
I have talked to several friends and they have all told me the same thing, the banks are saying , 'no new credit'.
I was getting pissed anyway with different farmers getting very different rates, those with less risk getting a hammering while those in the firing line get a reprieve.
Now with so many farms for sale the big question is, 'who's going to buy them'?
Profits for many farmers are a thing of the past, a friends wool cheque is back 110k on last year lamb prices are below production costs and everyone is piling into beef and making margins very slim. Thankfully the milk price should stay firm this season.
those with less risk getting a hammering while those in the firing line get a reprieve.
In general would you say there is little support for S&B in comparison to dairy? I wouldn't be at all surprised - the banks have to keep the inflated value ponzi going where the real debt is - otherwise,,,
Dairy has a lot of debt but thats not to say sheep and beef debt is not also a big issue. New nutrient limits and more regulation are making a lot of farmers consider their future and it's not just old farmers. Many young farmers took on debt to buy out family and have intensified operations that are now running foul of new limits, and any change will require belt tightening. Falling farm values will add more pressure.
Dairy costs have run away, cheap foreign labour helped for a bit but that now has been swallowed up by non-tradable inflation. This year production is down which is a double edged sword, while the drop in production is helping milk prices, you have less to sell and last winter was a tough one to get animals through.
The options are that we all pay more for food of we face our internal cost structures, paying more for food without wage increases just shifts the pain about. Long term solutions are politically unpalatable just like the housing crisis, and lets face it it is a housing crisis, and a debt crisis, one begat the other and they both are potentially catastrophic.
Dairy farms with Holsteins now going in to places in tropical SE Asia that would been thought climatically impossible before now. It has been proven it can be done economically, only a trickle now but could rattle traditional milk supply in the medium term. Why import milk power/UHT if can produce fresh locally with cheap labour and cheap forage?
Interested in your "so many farms for sale" comment. We track farms-for-sale listings and can't really see any movements other than regular seasonal changes. (We track by key farming areas too, to test for regional stresses. Nothing special there either.) Not claiming our monitoring is definitive - we have never published anything yet - but I am keen to get objective early-warning data. What we see is an easing, if anything. But the variations are v. small. We have been doing this for more that a year now, weekly.
I was expecting this work to give an interesting heads-up story. But nothing there yet.
Any objective clues?
David do you track if listings are the same farms or just the number? I know some farms that have been listed by the owners for a fixed term. If it isn't sold within the fixed time frame then it is taken off the market. But that is not to say it is no longer for sale. Are your number variations small on a percentage or actual number basis?
It would be interesting to know if your stats show much of a variation of increase/decrease of numbers between industry sectors.
CO, mates tell me a lot of depression out there in rural NZ. I get angry with the way NZ Ag has gone , demographics and eating habits change, so we just try and do more of the same get more efficient but no one wants to take a good look under the hood.
The wool industry is in collapse, in our own house 7 year old carpet is being chewed by moth and in the UK a new moth is laying what looks like maggots in the carpet and all the wool carpet where we stay is getting destroyed, will they buy wool again? even we are thinking twice.
You can see the results everywhere of production efficiencies, but are farmers any better off after increasing production?
>>
The area sown to wheat in Western Australia (WA) over the past 20 years has remained relatively stable at between four to five million hectares but over this same period production has increased strongly with improved yields. As a result we are seeing production of 8-10 million tonnes per annum.
How Russia became first
http://www.world-grain.com/articles/news_home/Commentary/2016/10/Opinio…{D2FEA610-09D3-400C-ACB0-B045DB3AD243}
Aussie
http://www.agrimoney.com/news/increased-competition-to-curtail-australi…
http://www.agrimoney.com/news/australian-milk-production-to-hit-20-year…
>>
We have to sell what people want, not what we want to sell or even just what we have lots of and expect premium prices. I was reading in our local rag a meat marketer talking about how hard it is to sell shoulders from 20kg lambs, yet farmers are trying to improve genetics to get a 30kg lamb.
The link between the farmer and the consumer is so fractured that it is hard to get any market signal and even if you do is it a false flag?
The financialisation of our economy leads to huge wealth transferal, farmers spend locally banks profits don't get spent locally, are mostly shipped offshore. Savings in food costs get spent on interest and rent. The rise of the financial sector from around %10 of the economy to over %40 has come at a huge cost.
We lack the political will to implement real change that would make us all better off, except a few well paid bankers.
http://www.agrimoney.com/news/australian-government-unveils-huge-upgrad…
I really appreciate your comments from the coal face. To me relevant specific experience is so much more informative than the silly overall averages so beloved of the bureaucratic classes.
On a policy level, the only conclusion I can come to is that we have been giving too much privilege to banking in the delusion that this will make us all better off. This has been going on every single year since 1973. It shows up in the current account deficit which has us spending more than we earn every year since then.
This policy means it has been a little too easy for us to borrow and a little too hard for us to save. So, collectively we get steadily poorer. Our productive capacity is kneecapped by a slightly too high exchange rate which means the prices our produce can command is a little too low year on year. So everything productive gets run down and more indebted. Eventually whole sectors shut down. We make the best of it, but the decline is slow and steady, currently being masked by the inflow of new money coming in with the latest flow of new residents.
The answer, whiich seems faintly ridiculous without the background for it, is to slightly favour saving over borrowing for the next fifty years or so. This looks silly because it appears to increase the flow of money to non productive persons. In fact, it encourages better decision making across all transactions and results in less indebtedness as time goes by.
why is it "faintly ridiculous" Roger ? Saving is the only way out. Better though to use the word "ownership" because it's much the same thing and the result of saving.
Without ownership of "our stuff" no amount of efficiency will get us anywhere. Thats just a treadmill.
I'm just feeling that I'm not doing a very good job of articulating my argument. "Balance of payments" and "Current account balance" are such bland phrases designed by bureaucrats to make simple things look complicated. Someone in business understands that cash flow come first, and on this basis we are collectively on a downward path despite both parties making radical changes over the years.
I need simple powerful Nordic words and simple, clear analogies not these effete and useless fancy phrases. Thanks for the help, I need it.
Even worse when you take into account I was only in overdraft for a few months. I think I paid the highest interest rate in the country. The orchardist and I were both thinking we should use our credit cards to save money.
Those zero interest at Harvey Norman were funded by GE but I think GE sold the NZ and Australian operations,
http://www.interest.co.nz/business/78567/ge-capital-agrees-sale-austral…
good to see that a well known German bank is standing behind your cheap Toaster, which makes me think of an apt metaphor.
AJ... thks... well said and I tend to agree with u...
Throw on top of that the growth of.."Govt"... which has also grown to 40% + of GDP... ( with all its rules and regulations as much as its taxes..)... and we, the ordinary people truly are between a rock and a hard place..
http://junkee.com/housing-crisis-housing-crisis-governments-latest-mess…
Same attitude as the National Government across the ditch
Back in 2007 it was a crisis ... some how 2016 it's not
Focus on supply ignoring the elephant in the room ie non citizen and investor demand
A banker's Xmas cheer
"Happy relaxed Christmas to all those who have read our analysis here and avoided putting off purchasing a property since mid-2009 through fear of the crash scenario put forward by so many emotion-driven people. As for those who have believed the crash scenario since 2007 and bought nothing – you’ve missed out.
And as for the young people who have freshly entered the housing market in recent years – sorry, but buying a house will always be more difficult for you than it was for any of us in the past because the housing stock has been permanently repriced higher. You will have greater problems getting credit and the entry level prices you pay relative to income are and will remain higher than what we were faced with in the 1970s, 1980s, 1990s, and most of the 2000s. "
Yes and to help NZ citizens to realistically purchase a home especially for large cities like Auckland three things have to give:-
1) Property prices need to drop to realistically match wage income ratios. Ideally this should be borrowing up to 3 to 4 times their annual income. Currently Auckland's average property prices are around 10 to 12 times the average salary - that's just nuts!
2) Reducing foreign investor activity (Especially Parent dumping, that will drain health and care resources in the near future). http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11635692
3) Greedy Real Estate Agents! As prices drop, they're going to have to drop their rates and get more competitive. Even in wealthy cities like London the average Estate Agent fee is 1% to 1.3% and that includes marketing and everything else! NZ 4%+ Estate Agent fees is just outrageous and has certainly been one of the main reasons for pushing up house prices.
There was never a time I can remember in the last 30 years you could buy a house on 3 to 4 times your income. When I first started looking at a house all you could borrow was 33% of your income and it would not buy an apartment. Real estate agents are not greedy, they charge what they can get away with, vendors are LAZY sell your own house if you don't like the fees.
Thirty years ago my wife and I set aside one salary to pay for the house. It took about six years to pay off a house in Glendene West Auckland. I think the idea is that it should take 3 to 4 years household income to pay off a modest house. Not sure if that would be gross or net. If a couple, both working, could buy a house in 6 to 8 years of devoting one entire income to the project it would be similar to thirty years ago. In today's terms that would be a house worth 330K to 440K. So I would say it is 50-100% harder today in Auckland but possibly not in the other centres.
Some of the answer is in the presentation of the data
In the USA, every month they publish two lots of "home sales" data
(a) Existing Home Sales
(b) New Home Sales
We don't get that here in NZ and it is suspected that many "new home sales" are transactions conducted between the builder and the customer and thus bypass the RE's and are not included as sales
Use of the word inventory can be misleading
Inventory of Houses in Auckland is used to mean the total number of existing houses, both for sale and those not for sale
Houses listed for sale should not be described as "inventory"
Although they might be described as inventory in the hands of Real Estate Agents
Even though they don't own them
Suggest you choose another descriptor
financial reviews are always backward looking,like the oozelum bird that flies backwards,they dont know where they are going but they like to know where they have been.also they are for public consumption or to lie around the reception in accountants offices.never anything in them to scare the horses or make you rush round to your broker.better to act on your instinct like john key and then you could be laughing too!the overview of 5% drop could be optimistic,the euphoria is long gone,anxiety and denial will prevail as there is a slow slide of value accompanied by interest rate rises over the next year.
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