What happened Friday

A review of things you need to know before you go home on Friday; TSB drops two key rates, Auckland consents rise, confidence steady, Super Fund stars, non-bank lending jumps, swaps soft, NZD unchanged

28th Sep 18, 3:59pm by David Chaston

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
TSB has dropped both its one and two year fixed 'specials' to 4.19%, matching other rivals.

TERM DEPOSIT RATE CHANGES
No changes here today.

FEWER BUILDING PERMITS
Auckland's house building boom continues to ramp up reaching a record high in year to August. But nationally the picture is not so positive. The 3,075 total dwelling permits issued were -2.9% lower than the same month a year ago. In the year to August, national consent levels are up +6.9% on the same period in 2016/17, but that is a fallback from +8.4% in July. Both house and townhouse consents were lower. Infometrics reports serious capacity constraints for large-scale residential construction which they suggest is capping how much this can rise.

WEAK ISSUANCE
Non-residential building consent issuance was weak in August, and that came on top of a weak July. Tourism building is the only bright spot. For most other types of building is is either flat-lining, or dropping. Tail-offs in activity in Canterbury are capping the picture.

HOLDING
Consumer confidence is steady, according to the ANZ-Roy Morgan Consumer Confidence Index, which was unchanged in September at 118, close to the historical average. The Current Conditions Index fell 4 points to 120, while the Future Conditions Index lifted 2 points to 116.

CHEAP MONEY
$722 mln was bid for today's $150 mln NZGB tender of seven year bonds. The yield achieved was 2.24%, the second lowest we have seen it since August 2016 for this maturity.

CAVALIER OFFICIALS
Federated Farmers report that Northland local council officers found wandering cows and placed them in a nearby paddock without telling the farmer who owned the property. They are concerned that cavalier attitudes by Council staff creates a huge biosecurity risk for farmers, magnified by mycoplasma exposure and related responsibilities.

WESTPAC GROUP HIT WITH CUSTOMER PAYMENTS PROVISION
Westpac Banking Corporation, Aussie parent of Westpac NZ, says its annual cash earnings will be hit by an estimated A$235 mln of provisions for "customer payments and related costs." This includes increased provisions for customer refunds associated with advice fees charged by Westpac financial planners dating back to 2008. Included in this is where advice services were not provided, as well as where Westpac has not been able to verify that advice services were provided.

BUSINESSMEN JAILED FOR LYING TO ANZ TO OBTAIN $41M LOAN
Two businessmen have been jailed on charges brought by the Serious Fraud Office of fraudulently obtaining a bank loan to build an Auckland inner-city apartment block. They are property developer Leonard John Ross, and company director Michael James Wehipeihana. Ross was sentenced to four years and four months’ imprisonment, and Wehipeihana got four years and three months. The SFO says Ross and Wehipeihana lied to ANZ in order to obtain a $41 mln development loan for their company, Emily Projects Limited, to construct the Waldorf Celestion Apartment Hotel. The pair lied to the bank about the number of genuine presales they had made. They used forged documents, including sale and purchase agreements, to support the loan application. Later, they used additional forged documents when the apartments were on-sold to genuine purchasers, the SFO says.

GOOD PERFORMER
The NZ Super Fund finished the 2017/18 financial year at $39 bln, up +$4 bln during a year which was notable for the resumption of contributions to the Fund in December 2017, adding $500 mln, after an eight year suspension. In this last year it returned 12.43% (after costs, before NZ tax), beating its passive Reference Portfolio market benchmark by +2.02% (+$700 mln).

DEJA VU
Non-bank lenders are starting to grow quite quickly, according to RBNZ data released today. The are very small in the housing debt sector, but growth is running at more than +27% pa and has been running hot since the beginning of 2017, and at rates that we last saw in 2007 and earlier. Personal lending by non-bank companies is also growing fast and in this sector they have about a one third market share. Growth rates exceed +7.5% pa and have also done so since the beginning of 2017.

SWAP RATES SOFT
Swap rates are down slightly today at the long end. The UST 10yr is softer also at 3.05%, with the UST 2-10 curve down at +22 bps. The Aussie Govt 10yr is at 2.68% (down -3 bps), the China Govt 10yr is at 3.66% (down -1 bp), while the NZ Govt 10 yr is at 2.67%, and down -1 bp as well. The 90 day bank bill rate is up +1 bp at 1.91%.

BITCOIN JUMPS
The bitcoin price is a sharply higher at US$6,714, a gain of +3.4% on the day. Almost all of that gain happened at once about eight hours ago.

NZD LITTLE CHANGED
The NZD is marginally softer at 66.2 USc. On the cross rates we are little changed at 91.7 AUc, and 56.7 euro cents. That leaves the TWI-5 at 70.1.

This chart is animated here. For previous users, the animation process has been updated and works better now.

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

17 Comments

by Nic Johnson | 28th Sep 18, 4:44pm 1538109873

Banking Royal Commission Delivering its report live now.

https://www.theguardian.com/australia-news/live/2018/sep/28/banking-roy…

by waymad | 28th Sep 18, 5:03pm 1538110980

The regular Friday look at Gubmint budget assumptions...

TWI - 72.08, Treasury BEFU assumption 'The trade-weighted exchange rate is assumed to remain broadly stable around 75 over the forecast period'
WTI - 72.23 Treasury BEFU assumption 'West Texas Intermediate (WTI) oil prices fall from US$62.9 per barrel in the March 2018 quarter to US$60.0 by mid-2018 and remain stable thereafter'

by Nic Johnson | 28th Sep 18, 5:01pm 1538110895

Since Trademe broke at 32,000 listings the other day, as recommended by a fellow commentator we will switch to the realestate.co.nz site for future updates on the burgeoning supply of unsold properties around the Country.

Total NZ has risen from 33,448 (realestate.co.nz figures) on Wednesday to 33,728 this evening (A rise of 0.83% in 2 days). Before Trade broke, there had already been a 5.2% increase in the overhang of stock since 21st August.

Auckland has also seen a rise and now stands at 12,681 unsold homes (There were 2860 sales in August REINZ figures apparently with an average selling time of 42 days - see below) However by my calculations there is already stock in the market for 4.43 months of sales supply (132 days supply ) which would leave me to question the accuracy of the days to sell stats, which won't be near 132 but are likely to be a lot longer than 42.

https://www.reinz.co.nz/Media/Default/Statistic%20Documents/2018/Reside…

Bizarrely, there are quite a number of New Listings with Auctions scheduled for the 17th, 18th, 19th of October)

by Optimal setting | 28th Sep 18, 8:49pm 1538124543

Foreign buyers ban coming in on October 22nd apparently, Whispers are that several banks will stop all lending to non-residents on that date.

by Jock Silver | 28th Sep 18, 10:25pm 1538130345

Nice use of interest.co.nz's authoritative reporting style, keep it up.

by Hardly | 28th Sep 18, 7:27pm 1538119623

What we need to know is, what was last years peak. I recall David saying he would get excited if realestate.co.nz got over 15000.

by Nic Johnson | 28th Sep 18, 9:14pm 1538126041

David Chaston mentioned earlier that 60% of New Zealand mortgages come off their fixed rate terms over the next 12 months. I find this quite remarkable that the banks should want to have so much debt re-cycling at the same time but I guess it is what it is. With bank lending for new mortgages tightening criteria I thought that I would share an example of how this is managed by the UK banks to protect their position, on the assumption that house prices will continue to trend lower and how they might manage their loan books.

Bill buys a house in 2016 for $1,000,000. He puts $250k down and borrows $750k from Westpac (My favourite bank) and takes a loan rate out with them at 4,59% say which he fixes for 3 years.

between 2016 and 2019 interest rates go down, but so do house prices (Just a meagre 15%) to start.

In 2019 Bill wants to re-finance with Westpac and capture their new market leading rate of 3.75%, he's been paying his mortgage regularly and all should be fine you would think.

His new mortgage balance is $712,000 but the house is now valued at $850,000 (that's the security the banks are loaning against. His equity is now just $138,000 and the banks are worried that in a soft market they may have to take a further hit if Bill got in trouble. His equity stands at 16% of the value now and therefore he doesn't have the requirement to fit the 25% standard required to get the super 3.75% rate. he shops around, but all the banks tell him the same thing. He can't re-price the mortgage now so gets shifted onto the variable rate at 6.25% which is the price that Westpac require to absorb the extra risk of Bill's diminished equity.

In the UK the better rates were for borrowers with over 40% equity and still applies today. Those with plenty of equity can re-finance at around 1.75% and fix (Bank of England Rate is still 0.75%) those that have greater than 25% will be able to fix at 2.25-3% and those that don't have 25% could be looking at fixes nearer 4% or similar floating rates.

There are other options, sell the Aston Martin, dispose of the boat and use the funds to top up the equity to qualify for the better rates. Anyway I hope that explains how the banks will work through this to protect themselves.'

by Ludwig | 28th Sep 18, 9:51pm 1538128291

I’d suggest that Bill should sell the house and take some equity before the next correction sees his house worth $700k or less. At least the banks will have the option of skinning their depositors when a lot of their real estate collateral goes up in smoke. I’m guessing that Bill doesn’t have any rainy day reserves...

by Jock Silver | 28th Sep 18, 10:45pm 1538131530

Here's a theory: Bill carries all the risk of reduction in equity. His loan stays the same, only the bricks cost less. That's the trick. The market is not going to drop like a rock - that's not how it works. Instead prices will gradually slide down over the course of 10 or so years. It'll be like the frogs in water with the temperature slowly increasing - yes people will pay off their loans, but over the same time, values will have halved. It could take a very long time.
Bill won't notice until he thinks of selling, and he realizes he paid four or five times what his house is worth. (He paid double cause of the interest while values halved).

Disclaimer: this might not happen, so if you rent and are thinking of buying, you shouldn't base your purchase / no-purchase decision based on the above, because values could still rise.

by Nic Johnson | 28th Sep 18, 11:20pm 1538133603

Hi Jock

Agree with a lot of what you say but I think it will be much faster this time.

Housing market corrections in the pre-information age where no one had access to prices and information took a while because only the agents knew what was happening and buyers had to look at the newspaper every week to asses the market, those corrections took 10 years. Housing market corrections in the information age occur much faster, if you were a buyer today you'd do some work (which is easier) and probably know more about the market than 90% of the agents, who are part time predominantly and have only seen 5 of the 40 houses that have seen in your price range (they've only seen their own companies listings, not the whole market)

The UK house price correction from 87-95 saw 25-40% off over a prolonged period (where interest rates went up for those that think interest rates don't go up when house prices are falling and a country enters recession). Again recessions are caused by the end of housing bubbles (Lawson boom to 87)

The UK house price correction 2007-2010 saw 25% come off (a smaller crash in % terms than the 90's, despite the GFC) but in a much shorter time frame.

Ireland
Iceland
Spain
Portugal
Cyprus
US
Singapore
Perth

Sydney and Melbourne now, all happened and are now happening much faster because buyers can see it on their phones, get the re-price alerts, can see how long things are stuck on the market, can see when houses disappear and then get re-listed. Everything happens faster now because it's so much more visible. Transparency has been lacking in NZ, in fact it was only November 2017 that trademe added a sales history to their listing info (estimated market value)... Prior to that NZers had to do a lot of work themselves to find and assess the market and were essentially bidding the market up in the darkness of an information void.

Things have changed a lot in the last 10 years (I-phones came out in June 2007 (northern rock collapsed in august that year) few people had handheld technology until 2010. This time the iinitial correction may be dramatic and then it will be a slow drag afterwards for 4-5 years. Markets today spread data so much faster than ever before.

by Pragmatist | 28th Sep 18, 11:45pm 1538135148

... if you were a buyer today you'd do some work (which is easier) and probably know more about the market than 90% of the agents, who are part time predominantly and have only seen 5 of the 40 houses that have seen in your price range (they've only seen their own companies listings, not the whole market)

If you want to be taken seriously you'll need to stop making shit up that is so obviously not true. Your credibility drops by the day.

by Jock Silver | 29th Sep 18, 7:06am 1538161598

The buyer's battle is always how to get the best price info. People conflate valuation with price, and agent's duty is to convince or confuse.
The best thing to do is to keep a list or spreadsheet of addresses, completed sale prices and sales dates of places in areas you like. Fill it in by ringing up RE agents or checking trademe, and get an idea of the sales price trend yourself.

I'm surprised at how much work it is to buy, you need to be numerate, literate, able to negotiate, keep your cool, do all the due diligence on the EQC and insurance front and know how to fight the banks for the best deal, and most of all, know your realistic debt servicing limits and stick to them. There is no proper education for this for most people, it's a helluva lot of money, and worst, there's no safety net.

That's was probably a bit more ranty than I would have liked, but there it is.

by Zachary Smith | 29th Sep 18, 7:36am 1538163375

Good comment Jock. You have to become more expert than the experts themselves. Whenever an agency calls me up wanting to do a free appraisal I am most amused as I know far more than them.

Price history is your best information. Don't buy a place that someone has only owned for three years or less. If you know how much it sold for ten or so years ago you will be able to work out if it is a good buy or not.

by Withay | 29th Sep 18, 7:07am 1538161638

The overall point is valid. We have never had so much access to information as we have now. My only counter point is governments are more invested than ever to stop a crash and they will be the thing to slow a downturn if anything.

by THE MAN 2 | 28th Sep 18, 11:11pm 1538133060

Nic, you really live on a false world of finance.
Get your head out of the space that the NZ housing market is Auckland alone!
Forget about what you want the housing market to do and hope that people lose plenty!
Get a life and go and invest in markets that will return you an income and capital gain!
The ChCh market will give this to you providing you seek the right advice

by Nic Johnson | 28th Sep 18, 11:26pm 1538133977

TM2

Thanks for the insightful, intelligent and evidence based recommendation, I'd never even considered putting my money into the Christchurch market.

Nic

by Nic Johnson | 28th Sep 18, 11:43pm 1538134986

Actually that's not an investment, decided to have a dabble in Vodafone shares today instead. They've fallen from 240p to 165p over the last 7 months and despite the debt they hold, which isn't insignificant they are still forecasting a healthy dividend of nearly 8% on free cash flow. I think the share price has been a bit of an over-reaction to their CEO deciding to leave this year.

If the price goes down further, reckon I'll probably have a few more, not with borrowed money though..