Here's our summary of key economic events overnight that affect New Zealand with news the northern summer is ending with widely different situations in the world's major economies. The gold price is shining today.
First up today, in the US the University of Michigan consumer sentiment survey index rose more than expected with its first increase in five months. The expectations index improved (the highest in four months) while both the year-ahead and the five-year inflation expectations were unchanged at 2.9% and 3%, respectively.
But that rising sentiment doesn't include their housing market. Housing starts fell sharply in July to their lowest level since July 2019 (pandemic excepted). Residential building consents also fell and back to 2022 levels. The US economy is expanding at pace without the support of their housing markets.
But it is very much better north of the border where Canada reported a surge in housing starts, up +10% in July from the same month a year ago.
And tensions are rising in Canada over the railway/union bargaining that is going down to the wire. If there aren't strikes, they will likely be lockouts.
Across the Pacific, more evidence that foreign direct investment has stalled into China. We marveled at the stall in both May and June and it has extended into July although it was now a positive ¥40.6 bln (NZ$9.3 bln) in the month. The net inflows are still very small for a country the size of China. In July 2023 the inflow was ¥140 bln so in July 2024 it is down -70% from then. China has been masking the stall by only referring to the 'year-to-date' results rather than the monthly outcome. But even that approach will catch up with them soon. Now YTD 2024 is down -50% on YTD 2023. That is massive.
And the Middle Kingdom has had its weather/climate challenges this year, more so than other large countries. The impact of floods, while common in China in summer, has grown more pronounced this year, affecting over 7 million people nationwide in July, when Beijing was struck by the worst rains in 140 years after the capital's hottest June on record. The dramatic swings between extreme heat and intense rainfall have stressed China’s power grids and shut factories, while risking the country’s water security and causing widespread crop damage. Nationally, direct economic losses from natural disasters surged in July to almost NZ$10 bln in that one month, more than in January to June combined. There will be food security consequences.
Meanwhile, Taiwan reported its Q2-2024 GDP expansion at +5.1%. But that was down from +6.6% on Q1-2024 even if it was up from +1.4% in the same quarter a year ago. Beijing is probably looking on in jealousy.
In Japan, profits topped analyst forecasts for 70% of surveyed Japanese companies in the April-June quarter, led by the vehicle and artificial intelligence fields. Many are benefiting from the tailwind of the weak yen.
In India, 19 or their 38 states are running 3%-to-GDP deficits or more in their bids to shine economically. That is raising the national public debt sharply. Delhi is concerned and tightening up what is permissible. And the central government is having to restrain itself to cover aggressive state deficit spending. The catchup of their infrastructure deficit is essentially driving the pressure.
The EU said its trade surplus is rising. But that is because imports are falling faster (-8.6%) than their exports (-6.3%).
Elsewhere, on the back of record earnings, payments network Mastercard said it will lay off 3% of its 33,000 worldwide staff, most of whom are employed outside of the US.
The UST 10yr yield is now at just on 3.89% and down -4 bps from yesterday and down -4 bps from a week ago. The key 2-10 yield curve inversion is little-changed at -17 bps. Their 1-5 curve inversion is also little-changed at -74 bps. But their 3 mth-10yr curve inversion is now at -145 bps and slightly deeper. The Australian 10 year bond yield starts today at 3.97% and and down -4 bps. The China 10 year bond rate is still at 2.20% after concerted PBoC efforts to curb 'speculation'. The NZ Government 10 year bond rate is now just on 4.16% and down -1 bp from yesterday. A week ago it was at 4.30% so a net -14 bps fall from then.
Wall Street has a small daily gain with the S&P500 up +0.2% in Friday trade, and locking in a very good weekly gain of +3.8%. Overnight European markets were mixed with London down -0.4% and Frankfurt up +0.8% on the day. Yesterday Tokyo ended its Friday session up a very strong +3.6% to end its week up a rather startling +7.9% on the Nikkei225 for the week. But that is still -10% below its mid-July ATH. Hong Kong was up +1.9% yesterday, the same for the week. Shanghai however only gained an insignificant +0.1%, up +0.7% for the week. Singapore was up +1.1% yesterday. The ASX ended its Friday session up +1.3% on the day to cap a +2.5% weekly rise. The NZX50 only rose a modest +0.1% on Friday but was up a very creditable +4.0% for the week with much of it coming after the OCR signals.
The Fear & Greed Index ends the week in the 'fear' range, easing back from last week's 'extreme fear' range.
The price of gold will start today up +US$53 from yesterday at US$2507/oz and a new all-time record high. A week ago this price was US$2427 so a +3.3% rise since then.
Oil prices are almost -US$2 softer at just on US$75.50/bbl in the US while the international Brent price is now just on US$79/bbl. They are little-changed from week-ago levels of US$76 and US$79 respectively.
The Kiwi dollar starts today up +½c from this time yesterday, now at 60.5 USc. A week ago (pre the OCR cut) it was at 60 USc. Against the Aussie we are up +20 bps from yesterday at 90.8 AUc. Against the euro we are up +30 bps at 54.9 euro cents. That all means our TWI-5 starts today at 68.8 and up +30 bps from yesterday and up +20 bps from a week ago.
The bitcoin price starts today at US$59,443 and up a mere +0.2% from this time yesterday. However it is down -1.2% from this time last week. Volatility over the past 24 hours has been moderate at just under +/- 2.9%.
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78 Comments
Housing affordability: The income Kiwi families need to comfortably buy a new house
https://www.nzherald.co.nz/nz/housing-affordability-the-income-kiwi-fam…
Aucklanders would need to earn almost $300,000 a year - or twice the city’s typical household income - to comfortably afford to buy a median-priced home.
That’s according to a new Herald analysis finding home buyers typically paid $1.02m for houses in the three months to June this year.
If those home owners had a 20% deposit saved and secured a typical one-year fixed interest rate deal in June of 7.06%, they would then be facing $82,000 in mortgage payments over the coming year.
That’s equivalent to a typical city family handing 61% of their household income ($134,000) over to the banks.
to the moon, I guess if one of the family looses their job they could still afford it as long as they cut off the power, cancel kiwisaver, do not eat or have to pay any other bills.
Own? Last I saw, at 37 y.o being the age for the average FHBer - also, scalping their Kiwisaver balance to meet the deposit, they will be well into retirement themselves before they stop renting from the bank.
The days of the FHBer being 23 and paying off their bank Debt by the time Life Started at 40, is the stuff of ancient history books.
The days of the FHBer being 23 and paying off their bank Debt by the time Life Started at 40, is the stuff of ancient history books.
Lotta people don't even start a career by then.
Do we have any data for how common this was, and when?
My boomer parents both needed to work two jobs in the 70s to pay a mortgage.
Nothing wrong with owning an investment property, as long as you do own it.
It's anyone who has leverage mortgage Debt underpinning that property that needs to study history back beyond the last 40 year Debt-backed property cycle. Even as recently as the warning of ~15 years ago. Do we think Terry Serapisos etc saw what was coming? No.
What is the Value of a property that no one can afford to buy? $0 until someone has the financial capacity, and desire, to take it off the current owners hands. But the Debt is still there. Unchanged. Unpaid. And waiting for the lucky owner to retire it.
That is silly analysis. People who buy median-priced homes are not first-home buyers, but that is what is assumed in this 'study'. Using Auckland as an example, there are about 540,000 dwellings in the City. REINZ shows about 4% of those sell in a year (21,000) including to investors. Council data shows about +3% have been added in a year (+18,000) and easing lower. Most people buying are doing so after selling a home they already own. FHBs account for only a small portion of the market, and they are almost certainly not buying median-priced houses. The test for affordability should be for a first home, and that will most likely be an apartment, a townhouse, or a first-quartile house. The Herald and Corelogic do themselves no favours with unrealistic generalised assumptions that FHBs buy median-priced houses. Obviously they don't. What's next? How unaffordable Remuera is for struggling families? It's silly analysis dressed up with good looking (but irrelevant) tables.
Fair enough.
But for someone to buy that median priced home they still need to pay for it. That is they still need to have earned that asking price at some stage. That's more than $25k per year over 40 years of working life just to pay for the capital not interest. Is that really realistic/possible.
Or is there still an assumption of larged capital gains to purchase that next ladder step?
That's more than $25k per year over 40 years of working life just to pay for the capital not interest. Is that really realistic/possible.
If you aspire for more than minimum wage, then totally.
If you're 30 and only envisage earning the average wage by the time you're in your 40s, then probably not.
I'd be interested for someone to do the actual figures on the proportion of a lifetimes earnings needed to buy a median house. I'm of the opinion that for a very significant portion of the population it is not realistic and more importantly not sustainable. Not sustainable particularly in terms of the country not being able to afford such a large percentage of earnings dedicated to shelter.
It all depends on the earnings and the house. Complicated by the fact your earnings usually rise throughout a 40 year earning career.
Anecdotally my earnings have risen a lot more over the 20 years I've owned property on and off, than the properties. Even if I were still doing the same job as I was at 24, it'd be about even.
Sage comment, David.
"FHBs account for only a small portion of the market ..." Not sure I'd agree that > 20% (June 50%?) falls into the small portion category though.
One hopes they keep their powder dry, while negotiating hard, as the RBNZ normalizes. Hopefully the pain associated with the RBNZ inspired FOMO nonsense is kept front and center in their thinking. (One also hopes they follow my logic with regards supply and don't bank of there being big capital gains for 20-30 years.)
One flatmate doesn’t really make that big a difference. I guess it could help for some.
And before you say - get 2 or 3 - if we are talking about lowest quartile priced homes in Auckland, they will almost always be 2 beddies
And for those FHBs looking to have a child, it won’t be an option for very long
Depends on your age and inclination. Every other month I'm half motivated to close off half the house, rent it out and use the other half as a temporary base in between buggering off. And a flatmate scenario might make a larger house more viable.
You can have no flatmate and pay more yourself if it doesn't fit your lifestyle.
Its all about your personality and to what level you are prepared to compromise and what your priorities are. A single flatmate got me through, that extra made a massive difference to me, simply crazy to be living alone in a four bedroom house when a huge empty room was worth hundreds of dollars a week.
200-250 a week is about the going rate in a fairly standard house for a bedroom with one occupant. In some circumstances you might find it a bit more, in others less. Sometimes it includes utilities, sometimes it doesn't.
But 12 grand a year, is about what you'd expect. Hence the "or thereabouts". My recent experience suggests it could actually be higher again, but I went with a lower figure to avoid too much conjecture, yours notwithstanding.
Correct, $250 a week and that was years ago for a bedroom big enough to put an office desk in as well. Covered all expenses as well. Some people are prepared to pay more if they are the only flatmate and not 1 of 3. They get their own bathroom, more space in the pantry and fridge and no other drop kicks eating all their food. That's $12K a year.
One of my kids was trying to get a space a few months ago. A "sleep out" (no kitchen, no laundry) in someone's back yard, not a great area (semi industrial), poor access to public transport and no shops nearby, was $450 a week (although that was for two).
Also as a small observation, most of the rooms on offer were in the houses of older people (to add to Housemouse's views on age and desirability for flatmates).
The price of gold will start today up +US$53 from yesterday at US$2507/oz and a new all-time record high. A week ago this price was US$2427 so a +3.3% rise since then.
Well, you have for the last 2,000 years, nations all agreeing that gold is something you’re willing to take because gold isn’t purely an asset. It doesn’t have a debt associated with it. If you hold a dollar, you’ve made a loan to the United States Treasury that spends it on military. If you hold gold, there’s no liability to it.
Now, in 1973 or 74, Herman Kahn and I went to the Treasury Department in Washington, and Herman made a map of the world. And the map had two sets of countries. One where the countries that believed in gold, and they’re pretty much all of Eurasia today. They’re the global south countries. They’re the global majority countries.
Then who are the people that didn’t believe in gold, that believed in government money? Well, they were the NATO countries.
They were the Protestant countries of Western Europe and the English-speaking countries. These were the countries that had faith in government, and the rest of the world did not have the faith in government, especially NATO governments that were running the international monetary system.
My argument was that gold is a peaceful metal, because if you had to settle in payments in gold after 1971, when President Nixon took America off gold, then every year that you continued to fight in Southeast Asia, every year that you continued to spend militarily abroad, America would lose the gold cover for the dollar.
America would lose the gold, and the military spending would drain the country of gold, and it would have nothing left at all. I think that would have been a wonderful alternative. I would have preferred that the gold exchange standard was kept precisely because it would have limited America’s capacity to run up the debt and the Treasury Bill standard.
That’s what my book Superimperialism was all about, explaining just exactly that, how America had used gold to control the world when it had 75 percent of it by 1950. Once it began to lose gold, it perceived that it was losing its military power and its diplomatic power. So that is the great benefit of gold, to limit any country’s ability to run a military deficit that would force any country off gold, as has happened again and again in history.
So I certainly think gold is important as a constraint. That doesn’t mean that gold runs the world. That was the question. Did gold run the world? No. The way that governments treat gold is what runs the world.
When America treated gold as something that other countries shouldn’t buy, you should only make your loans to the U.S. Defense Department and the Treasury. That was one way of treating it.
Now we’re seeing a different way of treating it, as an alternative to the dollar, so that they can simply hold an asset that is not a loan to the United States. Link
Gold is up 49% since the WSJ suggested that the barbaric relic had lost its status as a 'safe haven' approx 2 years ago.
And the hoi polloi were being encouraged to buy everything but gold by the financial advisors; media; and the water cooler consensus.
https://www.wsj.com/articles/this-should-have-been-a-great-year-for-gol…
When the Mt Gox and US govt selling ends, Bitcoin should also moon accordingly.
It's backed by the fact that it's the world's premium currency and a stable govt.
Gold is a terrible bet, no dividend and extortionate margins. Why anyone would own it is beyond me.
If I was the least bit tempted, (which I'm not) I'd buy a listed fund like SPDR GLD.
Gold has outperformed USD over the past 14 years, despite US monetary hegemony.
This can be confirmed by comparing ARR of GLD vs BIL from 2011 - 4% pa vs 0% pa. If you don't know what BIL is, it is the SPDR 1-3 Month T-Bill ETF.
What you really need to focus on is the start of the new bull run, which has been identified as possibly starting in 2014. Gold price is now up 121% from its lowest price on 2014 or an annualized return of 8.3%.
SPDR is not a particularly good holding. Too much counterparty murkiness.
Perth Mint offerings - for ex, PMGOLD - are far better but you need to do your homework to understand why.
No one ever got rich owning a gold bar, but plenty have got rich gearing up property and speculating on the stock exchange.
Did you know that a sample of an asteroid has been recovered and brought back to Earth? One of them has quintillions of dollars worth of gold in it.
Enough to give everyone on Earth US$93 billion. How long will it be before mankind can mine other planets and asteroids for rare and unknown minerals? Not long.
I collect on that one and Will Jordan 2 tries... Caleb one (missed on him getting 2) then collected on Aussie vs Sa where I had SA the line at -11.5. This is good as I got the money back the TASB had kindly being looking after for me since the WGTN loss and a lot more.
About to spend the winnings on Ski boots for my daughter.
Oil prices are almost -US$2 softer at just on US$75.50/bbl in the US while the international Brent price is now just on US$79/bbl. They are little-changed from week-ago levels of US$76 and US$79 respectively.
What sanctions? It's hilarious: The world’s biggest oilfield services company is expanding in Russia following the exit of its main western rivals since Moscow’s full-scale invasion of Ukraine. SLB, the Houston-based company formerly known as Schlumberger, has signed new contracts and recruited hundreds of staff in the country even after its two largest US rivals Baker Hughes and Halliburton both sold their Russian businesses to local managers in 2022. Link
I think in every genre I enjoy the quality of new stuff is much lower than in the 90s. When was the last time we saw an album of the quality of, say, OK Computer? (Just to take the rock genre as an example). However, there has been some really good jazz in recent times
OK Computers are a bit more of an anomaly again, being a high concept effort, off the back of a fairly significant alt-rock era.
There's a study I read a while back showing that over time, music is trending towards being a lot less diverse, especially as production methods gravitate towards more samples, loops, autotune, etc. Even today's Rock genre has a lot more poppyness/dance beat aspects to it.
It's still around though. I don't mind Maneskin, they're a bit of a throwback act though, although that's possibly all music to an extent.
There is some pretty interesting jazz and world music around, and some interesting cross cultural and cross- genre stuff
But for rock, electronic - yeah, nah
The best / most interesting rock I have heard iver the past 5 years is the Radiohead side project’The Smile’
Here we go again ... Blaming the OCR for a NZD fall.
Let's get this straight ... The RBNZ, like almost all central banks, always holds the OCR too high, for too long. The economy tanks, with the RBNZ being the last to know that is happening. (And, nod to Jfoe, you voted for a new government who turned off the spending taps at the same time which made it doubly bad. How did the RBNZ's 'economists' not understand what would happen to NZ Inc. with this double whammy hitting us?)
Finally, and way after they should have, they start normalizing interest rates. Too late, the damage is done.
Now they've recognized the damage and have acknowledged we're facing an unprecedented triple dip RECESSION and they've finally updated their forecasts to reflect that.
The NZD is falling because NZ Inc's share price, also known as the Kiwi Dollar, just isn't worth as much as it was previously.
So...scrap the OCR then. We didn't have it until 1999 after all. Let The Market determine interest rates in a competitive process of matching Willing Lender to Willing Borrower. What's not to like?!
(Of course! The Lenders; The Banks wouldn't have unlimited access to their Lender of Last Resort facility at the RBNZ,at a known interest rates - the contrived OCR)
So how on earth did we run the New Zealand economy before 1999? Interest rates were basically set by supply and demand through the marketplace, as banks traded with each other to balance their books each day. The amount of debt in the system was controlled by a system of Government issued Money (Bonds) that were issued or redeemed as necessary. Within that framework, Borrowers and Lenders seem to have coped just fine.
(And yes. We did have a go at the Monetary Conditions Index, but not for long)
by Audaxes | 13th Nov 19, 8:42pm
The RBNZ wants banks to lower their interest rates so that people borrow more and spend more to stimulate the economy. If banks respond to the RBNZ’s decision to take a breather from cutting the OCR by increasing their rates, the RBNZ’s plan to stimulate the economy backfires.
If there is no empirical evidence for the interest rate narrative, it is reasonable to ask where it came from in the first place. In other words, what is the origin of the idea that interest rates are the most important economic policy variable? We have ascertained that it did not emerge from empirical facts. Looking into its origin, one finds that it is a claim deriving from theoretical economics. The theory proposing the special role of interest rates can be derived from the central – some say only – graph in economics that shows demand and supply: it consists of an upward-sloping supply curve and a downward-sloping demand curve in price-output space. Under a number of assumptions prices are said to move so that demand equals supply. This seems eminently reasonable at first glance: after all, if prices are too high, excess supply will be left unsold, resulting in price cuts and hence a fall in prices, until demand equals supply. Likewise, if prices are too low, excess demand will quickly drive up prices back to the “equilibrium” level – the point at which demand equals supply. This story is told about virtually any market: in the case of the labour market, the price is the wage. In the case of the money market, the price is the interest rate.
On our planet earth – as opposed to the very different planet that economists seem to be on – all markets are rationed. In rationed markets a simple rule applies: the short side principle. It says that whichever quantity of demand or supply is smaller (the ‘short side’) will be transacted (it is the only quantity that can be transacted). Meanwhile, the rest will remain unserved, and thus the short side wields power: the power to pick and choose with whom to do business.Thus the theoretical dream world of “market equilibrium” allows economists to avoid talking about the reality of pervasive rationing, and with it, power being exerted by the short side in every market.
Thus the entire power dimension in our economic reality – how the short side, such as the producer hiring starlets for Hollywood films, can exploit his power of being able to pick and choose with whom to do business, by extracting ‘non-market benefits’ of all kinds. The pretense of ‘equilibrium’ not only keeps this real power dimension hidden.
It also helps to deflect the public discourse onto the politically more convenient alleged role of ‘prices’, such as the price of money, the interest rate. The emphasis on prices then also helps to justify the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.
However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.
Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link - https://professorwerner.org/category/articles-essays/
Banks may take the RBNZ action of passing up on another panic interest rate cut (witness RBA) as a sign of a more stable economic environment into which it they can profitably lend.
Which is where we disagree. The problem is with the OCR mechanism itself. If for no other reason than that it tries to control the economy without the other primary driver being regulated as well - the exchange rate. Either float them both or fix them both. Not one without the other.
Not really.
Where we disagree is that far too many believe the OCR is the only tool the RBNZ has. They actually have many. But they are overly reliant on the OCR and they have used it extremely badly. I can not overstate just how badly. No other central bank has used their equivalents to the OCR as wildly as this RBNZ has.
According to Stats NZ, rents currently comprise about 9.9 per cent of the CPI, while the price of new housing makes up 9.1 per cent, so as it stands, housing costs comprise 19 per cent of the index.
A badly weighted CPI has allowed central banks to keep the OCR too low for too long.
According to Stats NZ, rents currently comprise about 9.9 per cent of the CPI, while the price of new housing makes up 9.1 per cent, so as it stands, housing costs comprise 19 per cent of the index.
The CPI doesn't really measure the 'real' impact of asset prices. It does in a very indirect, watered-down manner.
"The developer of the properties, Manpreet Singh said the $1 reserve auction was a way to help shift the last remaining homes in the development..... He had sold four, for between $845,000 and $895,000, but interest had dried up... However, he had noticed an upwards swing in buyer sentiment and wanted to capitalise on the good news. “We want to test the market, whatever the market tells us, we are happy to take that.”
Cool!
But what happens to the resale value of those that sold for $895k? Whatever price the new listings go for will be the value the lenders use as the basis for any future lending. Let's say they go for $725k. The lucky owner of the original purchase has probably just seen their deposit go up in revaluation flames.
"They can pick one and then the underbidder can buy the second one for a similar price". "That is up to the vendor to accept the price,” he said... ???? "That is up to the vendor to accept the price,” he said. .... Im not sure how to unpack it .. Actual listing says.. "Four of these quality townhouses have sold already and one more MUST go".....Article in 1rf says "The developer has two neighbouring townhouses up for grabs" I'm hoping a bunch of Lawyers end up bidding and 'novelty auctions' get a full airing before the judiciary. I dont like it because where will it stop ...Todays winner ladies and gents gets to choose from 1 of 10 townhouses ... its distorting the values of each individual property based on what a single bidder wishes to pay for their perceived gem. Granted the underbidder may not have to bite but it invites value distortion because who attending actually knows what is being bid on?....lol
https://www.oneroof.co.nz/news/developers-roll-out-the-deals-1-reserve-…
https://www.oneroof.co.nz/property/auckland/ranui/4-or-5-20-metcalfe-ro…
Mastercard laying off people while its at its most profitable ever is also happening currently in NZ. We have been working with a couple of verrrrryyy wealthy customers whose profits have recently boomed (core NZ infra and financial services) and they are laying off staff and stopping important projects for future proofing their systems. Corporate social responsibility thrown out the window?
I reckon there's a lot of disgruntled posters here who expected rates to stay the same, or even go up.
They got it 100% wrong when interest rates went down.
I'm certainly not a financial advisor, but I'm betting property's going to start moving up again, so if you're interested, now's the time to drive a hard bargain and stake your claim.
There's a proviso...as always, some areas are going to do better than others. Spring is just around the corner.
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