This press release has been received from Equifax.
A drop off in demand for home loans during the December 2021 quarter was predominantly fuelled by lockdowns, according to Equifax New Zealand Managing Director, Angus Luffman. The latest data from Equifax New Zealand shows a 35.2% reduction in overall consumer enquiries when compared to the same quarter in 2020. “Extended lockdowns in Auckland have impacted demand leading to big declines across all major retail credit products. The percentage falls are exacerbated by the huge volume of home loan enquiries recorded in the December 2020 quarter. Demand reached fever pitch during this period, so it’s important to factor into the equation,” says Luffman.
Overall credit demand for the December 2021 quarter dropped by 30.2% on the December 2020 quarter with Canterbury recording the smallest reduction in consumer enquiries of 21%, and a 4% reduction on quarter three of 2021. Despite recording a 23% year-on-year decrease in home lending demand, Canterbury out-performed the Auckland and Wellington markets, which had downward year-on-year December quarter movements of 35% and 36% respectively.
“What we could be seeing is more people looking to relocate to a region where property prices are more accessible, but job opportunities are still strong,” says Luffman. “The significant changes in the way we work over the past two years may also have opened up opportunities in regional areas. Based on housing demand, Canterbury is leading the charge. and in some cases, allowing people to retain their jobs in cities like Auckland and Wellington, whilst living in Canterbury.”
Consumer discretionary spending has been heavily impacted following the August 2021 lockdown in comparison to lockdowns in 2020, with a significant reduction in demand for unsecured credit, says Luffman. Marlborough was the most affected region with a 46% year-on-year drop in credit card enquiries. Personal loan demand in the December 2021 quarter also took a hit with the largest decreases recorded in Taranaki (- 40%) and Waikato (-38%). “Although it’s not yet evident what’s causing these decreases in the regions, what we borrow for and how we spend it is changing. When the pandemic first hit in 2020, many people were forced to cancel holidays and that money was being spent elsewhere – whether on domestic travel or home renovations. What we’re seeing now is that Kiwis are becoming more circumspect, paying down debt, being more guarded and focusing on purchases that increase quality of life at home, whether that’s a renovation, swimming pool, boat, or a new car. The demand for auto loans has also increased as the supply chain tightens up and vehicles appreciate.”
With the threat of an Omicron outbreak in New Zealand, Kiwis are expected to remain cautious around their discretionary purchases in 2022. It’s also expected that CCCFA and LVR requirements will have an impact on the availability of home loans and unsecured credit demand. “Credit enquiries are a lead indicator of housing turnover and price movement,” says Luffman, “and despite the increase in house prices across New Zealand in the December quarter, the recent reduction in mortgage demand may indicate cooling prices in the coming quarters.”
111 Comments
Because you can do it with leverage rather than cash. 2 -3 % is a bit silly, but if you can get 4-5 % then it makes sense.
Even if you have to put a bit in every week this is far less than your mortgage gets paid down.
Also inflation excelerates this as your debt gets inflated away over time.
Anyone ever wondering why someone would invest in property over a different higher returning asset somewhere else.
Answer: leverage!
Not exactly, the real investors are aiming for long term returns, got in the market when the price is not doing well and cashed out when price is still going up. It's extremely hard to time exactly peak and bottom of the market. They normally cash out before everyone starts selling.
Personally speaking I don't plan on selling any of my rental portfolio. I have acquired mainly based on yeild potential and the ability to take this for re investment. I factor in capital gains in terms of retirement planning (how much is needed to sustain a type of lifestyle) but the actual property prices could go up or down by 50% and I would not care.
Its like everyone assumes that rental property investment has to be all about capital gains.
RBNZ C32 December 2020 to November 2021:
FHB -> # of Borrowers = 36,428 with total lending = $19,617m (average $538k @ 80% LVR = $672k purchase price average)
Investor -> # of Borrowers = 45,313 with total lending = $22,138m (average $488k @ 60% LVR = $813k purchase price average)
I plan to be around for at least another 40... But even if they sank and never recovered and the world of fiat collapses. I'd still be able to rent them out at whatever the going currency is. And my kids can just take them and do the same. My point is that much of the conversation here assumes all investors are only in it for the capital gains, rather than a more long term/yield view.
I don't know. I'm a probability guy and all I could say is that it "could" happen. I don't know how any of the modeling of the banks, RBNZ, and govt would have prepared for the scenarios we're not facing (based on inflation expectations and need for the sheeple to start servicing inflation / debt through higher interest rates). Like many of my peer group, I believe that the they want to let inflation rip as far as possible to devalue nominal debt obligations before lifting interest rates in any meaningful sense.
If there is anything positive to say, most people don't have much cash savings to deflate away anyway. 50% of bank accounts have <1K in savings and 70%<10K. ASB defines living paycheck to paycheck as those spending more than they earn. Personally, I think $10K in cash savings is still paycheck to paycheck living.
The banks know they have now "tapped" the market for one of the highest price housing markets in the world vs. incomes .....they know these current prices are just too high for FHB's ....but they still have to make a profit for their shareholders.... they don't want to let the 'great property party' fade away .....can't put up interest rates too soon as that makes it that much harder for FHB's and existing mortgage holders......but what happens when all this current unfinished property comes on the market with developers and builders facing increased costs and delays .... they kinda have killed the goose that laid the golden egg by letting prices get to this level ...... I truly do not know where this market is going....???
Good post. I know I am a broken record on development, but it's the massive elephant in the room that hardly anyone is talking about.
Imagine if you a developer that sold off the plans 12-18 months ago, and your development is nearing completion. You sold 2 bedroom townhouses for 675k, but due to soaring costs that's not even break even now.
What do you do, just count your losses? (and possibly go out of business, you don't have your anticipated profit to reinvest in the next project).
Or do you try and delay the project and invoke the sunset clause? Hope that the buyers can or are able to pay another 150k? If not, will there be people out there willing / able to buy to replace those buyers?
VERY precarious times.
I thought about this today too. Developers might try and game the off-the-plans buyers, even without sunset clauses (and whose lawyer would in their right mind recommend to a purchaser to agree to a sunset clause at the option of the developer?) but if the generic purchasers can't afford to pay the difference, i.e the bank won't pony up more debt, then the whole thing falls over. Developers are therefore relying on another type of buyer coming along, which only works in a rising market with easy credit.
HM, it seems like you're not too familiar with developments, only a very inexperienced developer wouldn't have an "escalation clause" included in his contract. FYI, an escalation clause is a clause allowing the developer to pass on increasing build costs after the original fixed contract
The strict 20% deposit combined with the increase in prices has put the prospect of buying my first house out of reach for now. After talking with the bank late last year, they want me to come back in 3 years time once I have saved up a further 30 to 70k plus have 3 more years of KiwiSaver to add to it.
I was in a good mood yesterday and that's the only reason I wasn't replying to your failure to understand a simple table from RBNZ.
It appears to me that everyone who has a different view from you is defined and called a troll by you.
Perhaps with some introspection, you may just find the contrary.
Enjoy your weekend.
Nope.
Very open to different views. But you just put out provocative statements, without justification, to rile people up. Don't you?
That's the definition of trolling.
As you know I have acknowledged that there's a chance that prices *might* slightly increase. I made that very clear in my scenarios late last year.
I am calling you out again as a troll.
Public forums on property and crypto are crawling with trolls. Particularly on the latter, the anti-crypto movement is really growing and uses troll tactics like drawing associations between Bitcoin and the far right. I call them the peanut gallery. Trolls don't bother me personally and I think they can serve a good role in exchange of ideas. Clever and entertaining trolls are rare though.
I'm happy to say why I think crypto is a terrible idea... I'm not sure this makes me a troll.
Isn't that when you deliberately set out to annoy people?
People suggesting something you don't want /like is just that?
Whislt I'd hate to see it. And think it unlikely, For all we know we'll keep pumping these prices to the stratosphere.
Yvil,
Ouch! It's a bad habit of mine to make similar remarks when I see apostrophes being used wrongly, but I am trying to break the habit. However, I will never understand why people use it at all when they clearly don't understand it.
I was one of those tragics who rushed to buy the book Eats, Shoot and Leaves by Lynn Truss and have a book, The Times Guide to English Style and Usage beside my computer. A sad case indeed.
People on here make me laugh when all they can fault me on is spelling. Far bigger things in life to worry about people. English was my worst ever subject in school, technically I failed it so badly I was not allowed to progress from the 5th form to the 6th form however as I was the top student in science and math they gave me a pass.
I sincerely believe that we need a "crash" back to levels that would see wage/salary earning Kiwis able to afford a home (DTI~3-4?), as devastating as that would be for the current 'economy'.
With an Election due end 2023 though, I fully expect the Govt to desperately pull every conceivable lever to avoid a lowering of property prices.
Jacinda Ardern Dec 2020: “What we’ve simply expressed here is that the growth that we’ve seen is unsustainable. So, if anything, it is much more sustainable to have those much smaller increases. I think people expect that you see that in the market.....What we also accept is that for most New Zealanders, their house is their most significant asset… A significant crash in the housing market - that impacts people’s most significant asset.”
Jacinda Ardern December 2021...
Speaking to RNZ for an extended end-of-year interview, Ardern said she hoped 2022 would halt the recent "runaway increases in house price growth [inflation]".
Asked directly whether she wanted prices to come back, Ardern said: "Yes".
"We need [the market] to stop heading in the direction it is," she said. "Even if you saw [prices] come away, in many cases it would be bringing [them] back to levels that we were at only a year or two ago."
I sincerely believe that we need a "crash" back to levels that would see wage/salary earning Kiwis able to afford a home (DTI~3-4?
Slapheid, annual average NZ wage is $56'000, if we assume a DTI of 4 that means servicing a mortgage of no more than $224'000, at a typical 80% borrowing it means average house prices would come back to $280'000. Good luck with that!
Lies, damned lies and statistics. Out of that average, you've got to pay tax, loans, feed, clothe, insure and transport yourself plus your dependents. Then you've got to cover the cost of the shelter you already have, which for most means rent. So after all of those exploding living costs, plus income tax that taxes any wage adjustments you might get in nominal terms as if it's in real income, that's the bit that's actually left over.
How reasonable is that? Far less than the misleading gross income figure for a household makes it out to be.
Notice what isn't in here? Discretionary anything. Think internet, phone, TV, movies, non-essential food such as eating out, socialising, holidays, school trips, pets... you get the idea. So in other words, live on the bones of your arse, forever.
And that's assuming you have a job that would survive in the event spending dropped, which it would in the event house prices walked back. The old saying of "A recession is where your neighbour loses their job, a depression is when you lose yours" springs to mind.
Interest rates going up inflation going up house price coming down this is only way the market is going. The banks have pulled in so many people , a huge amount of them over leverage. The banks don’t care as they have your deposit and will sit on houses maybe renting them out to old owners. The next year is going to be tuff for people with million mortgages this will happen quickly and hopefully fall to a place where average wage earners can afford a house and still be able to live. The people on here who think it’s still going up or even staying stable are clowns 🤡
DTI~3-4 - made sense 60 years ago. Now the stay at home wife is rare so household income is a better guide. Consider your 'tax, loans, feed, clothe, insure and transport' - feeding and clothing was a battle for a family 60 years ago but now they comprise a small fraction of a typical income. In real terms loans, food and clothing are far cheaper than in the past. Therefore there is more disposable income which is being used for second cars, foreign holidays, takeaway and restaurant food and of course houses. The other big difference to 60 years ago is having kids - when my mother had her third and fourth child the household budget hardly changed (I wore my brother's outgrown clothes) but today children can only be afforded by beneficiaries, the really wealthy and the prime minister (and will she have four?).
You know what's probably going to happen right...
Just when sh*t looks like it's going to hit the fan & should, covid pops up and provides the perfect excuse to get the money printer going & back track on laws to keep the party going... We don't even have Omicron in the community yet. Once that hits we'll be back in the same position as last year.
I agree. Full retard stimulus is going to be slightly eased back to try to take the edge off inflation, but the first sign of asset price deflation will produce plenty of jutifications to amp up the juice again.
This will end in currency collapse - it always does.
Seems to be 3 factors.
1) FHB's who might have had a 20% deposit for early 2021 prices now find it's only a 10% deposit for current prices, and banks are cutting back on high LVR loans.
2) Investors who have already leveraged the capital gains of their existing stock to buy more in 2021 while interest rates were low are not so keen to take on more debt, especially as the interest payments will eventually no longer be tax deductible.
3) Interest rates are already almost double what they were in early 2021 and are only going to climb higher, given the talk on what the RB is expected to be doing with the OCR.
Your first point happened to me; after talking with the bank late last year, because of the now strict 20% deposit rule and the increase in prices over the last couple of years, I now need to save double what I am at the moment each month for the next 3 years to be in with a chance. A couple of years ago buying a house was looking very close - now the dream seems to be getting further away.
Yeah, cause if there were ever a nation of people with a positive easygoing disposition, it's Australia.
It's bigger, so lands cheaper and there's economies of scale to be had. But of the dozens of people I've known over the last 10-15 years to set sail for the lucky country, only few have cracked it, the rest have realised changing location won't necessarily have you sorting your act out.
If someone can remote work, move somewhere seriously cheaper, like Mexico or South East Asia.
These stats are still looking backwards (if only just) but they're interesting. The problem with humanity is that it thinks it can solve its own problems. It can tweak things, alter things, re-arrange things, move countries, change families etc. but it can never seem to solve it's own problems. It used to go to work to make money, but these days it just spends created money (and associated debt) to create the illusion that things are alright, but, sigh, they aren't. As the article eludes to.
In fact, the people do not trust their govt, or their lackies in the mainstream media. The same people have grave concerns about the poor state of their education systems & the generally gross negligence of the govt's state services at an obscene cost. Politicians do not look after the people. The people look after the people. The politicians look after the politicians. We have created a huge gap of missing integrity, containing mis-trust & deliberate misapprehension, to be followed this year by missed mortgage payments & more misdeeds from our mis-politicians.
I think we might need a military coup.
You can tell the policy is working a treat.
All the skin-in-the-gamers coming out to protest. Usual suspects, the likes of mortgage broker, property spruiker John Bolton.
John, here's a novel idea - how about property prices correcting, back to fundamentals. Then you'll be back in business. This is the drum you should be beating.
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