Sliding along the bottom - the housing market 'recovery' fails to launch

Personal Finance / analysis

David Hargreaves has a crunch of the mortgage figures for the first six months of 2024 and finds while the figures are overall slightly up on the very low figures a year ago, the recent trend doesn't bode well at all

28th Jul 24, 6:30am by David Hargreaves

The optimists would point to the first six months worth of mortgage figures for this year and say the figures show a recovering housing market.

After all, the $32.808 billion borrowed in the six months ending June 2024 is up a healthy 15% on the figures at the same time last year.

This is as calculated from the Reserve Bank (RBNZ) detailed monthly mortgage figures that have now been published since 2014. (The first full year of publication was 2015).

In addition, if we look at numbers of mortgages committed to, the figure for the first half of this year is 89,709, up 11.2% on the same time a year ago.

So, all well and good then. Except...the figures for the first half of last year were the lowest since the data series started.

And it gets worse.

In 2023 the figures towards the end of the first six months of the year were on the improve after a simply deadly start to the year. THIS year the figures are tending to go the other way.

In terms of numbers of mortgages taken out June 2024 saw the lowest number (14,590) for a June since this data series started - and down 6.2% on the figure for June 2023.

Looking at the various high frequency economic indicators bouncing around, June does appear to have been a truly horrible month for the New Zealand economy. And that has been reflected in those June mortgage figures.

Here are two tables that summarise the mortgage market activity for the first six months of this year, and compare the first half of this year with the previous years.

I've used a six-year timeframe to include 2019, the last 'normal' year before the Covid. Enjoy:

Share of new mortgage money - first six months of the year
	First home buyers (bln)	% of total	Investors (bln)	% of total	Other owner/occup (bln)	% of total	Total borrowed (bln)
2019	$5.549	17.4%	$5.860	18.3%	$20.224	63.2%	$31.981
2020	$5.339	18.5%	$5.855	20.3%	$17.403	60.2%	$28.905
2021	$8.966	17.8%	$10.370	20.6%	$30.571	60.7%	$50.381
2022	$5.339	17.8%	$6.376	17.6%	$22.993	63.4%	$36.240
2023	$6.454	23.0%	$4.767	16.7%	$16.777	58.8%	$28.522
2024	$7.226	22.4%	$6.077	18.5%	$19.009	57.9%	$32.808

*(Please note that neither this nor the other table further down the article include the fairly small amounts of borrowing 'for business purposes' in the break-out figures so therefore the figures seen for the first home buyers, investors and other owner-occupiers don't exactly add up to the 'total' figures seen, nor do the percentages add up to 100. Percentages are rounded).

Share of mortgages by number - first six months of the year
	First home buyers	% of total	Investors	% of total	Other owner/occup	% of total	Total mortgage numbers
2019	13,593	10.2%	17,143	12.8%	100,651	75.4%	133,468
2020	11,867	10.7%	15,643	14.1%	81,553	73.7%	110,590
2021	16,792	11.0%	21,358	14.0%	112,909	73.9%	152,734
2022	11,104	12.2%	11,660	12.8%	66,898	73.5%	90,997
2023	11,845	14.7%	9,750	12.1%	57,695	71.5%	80,645
2024	13,136	14.6%	11,823	13.2%	63,177	70.4%	89,709

So, what do we say about the first six months of this year in terms of mortgage borrowing? We can say it's better than the first six months of last year. But, obviously as said above, we can also say the first six months of last year were particularly dire in terms of activity.

As also referred to above, activity tended to improve as the year went on last year. For the whole of 2023 over $62 billion worth of mortgages were committed to. While the first half of last year was the slowest since this data series started, the whole year was NOT, thanks to around $33.5 billion of mortgage commitments in the second half.

A significant factor in play a year ago though was the anticipation of the forthcoming election - and the expected election of a National-led government that was pledging to remove some of the Labour introduced measures that went against investors, such as removal of interest deductibility for them.

Indeed with signs of activity ramping up in the housing market as we headed for the election, economists were talking of likely reasonable rises in house prices this year. However, those forecasts are progressively being wound back at the market loses steam in the face of still high interest rates and a slowing economy.

Second half worse than the first?

So, just looking at those six month figures, it's not beyond the bounds of possibility that this year the second half could be worse than the first.

The crucial factor will be when and if the RBNZ starts to cut the Official Cash Rate (OCR) from the current 5.50%. Economists expect cuts sooner rather than later, with November now seen as probably the latest time at which cuts might occur. But the RBNZ will definitely keep its own counsel on this one.

We've already seen banks making some mortgage cuts in anticipation of expected OCR cuts - and in recognition of lower wholesale interest rates. But it's probably going to need more to cause a lift in housing market sentiment. And it's hard to see the banks cutting much more from here before they've seen some actual OCR cuts.

So, don't be too surprised if the housing market stays pretty flat in the second half and mortgage figures are possibly somewhat lower than they were in the first half.

Anyway, to finish off, I'll just go through some of the points of interest in the figures for the first six months of this year.

When looking at the amounts of money borrowed, we have to consider the impact of rising house prices on mortgages sizes. For example, in the first six months of 2019 the average sized mortgage was a little under $240,000. By the time of the first half of 2022 this average figure had soared to over $398,000. In the first six months of 2023 the average had eased back to nearly $354,000. In the first six months of 2024 this figure's risen again to $366,000. These figures are all rounded.

One of the key features of recent times has been the rise from very low levels of participation by the first home buyers (FHBs). Going back to the early days of the RBNZ's mortgage data series the FHBs on occasions had an under 10% share of the mortgage money, while at times the investors had as much as 35%.

The trend paths of the FHBs and investors have very much crossed in the past couple of years. But there are some signs from the latest figures that these trends may now be ready to reverse again.

The FHBs may have peaked

Note that the FHB grouping enjoyed a record high share of the mortgage money in the first six months of last year with 23%. In fact on a monthly basis the FHB share hit a record high of 25.2% in December of 2023.

Recently though the FHB share looks like it might have peaked. For the first six months of this year it was 22.4%.

Investors fell a long way but are, not exactly bouncing back into the market, showing some signs of renewed interest - although I should stress that the investor figures weakened in terms of share in both May and June. So, will the upward movement prove to be a blip?

For the first six months of the year the investors took an 18.5% of the mortgage monies, up from a nadir of 16.7% over the same period of 2023.

However we look at the latest six month figures overall though, the overwhelming impression is of a housing market bouncing along the bottom.

It will take meaningful interest rate cuts to kick start it again it appears. And even then in the short term this might not be enough if the economy continues to languish and the unemployment numbers keep moving up.

*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.

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108 Comments

by bw | 28th Jul 24, 7:40am 1722109235

'Investors .... showing some signs of renewed interest..'

At some stage it should sink in, like it is doing elsewhere. But not in New Zealand! We're different...

"Being a private landlord in Britain no longer makes financial sense"

https://www.telegraph.co.uk/business/2024/07/27/private-landlord-britai…

by Houses Overpriced | 28th Jul 24, 9:55am 1722117318

NZ prefers to learn the hard way..

by CN - new | 28th Jul 24, 10:30am 1722119417

"NZ prefers to learn the hard way.."

Most people choose to ignore the lessons of history. Look at the multitude of real estate price crashes throughout history and the collateral damage on owner occupiers. Here are some off the top of my head:

1) Japan 1990's

2) US 2007

3) Ireland 2007

4) Hong Kong 1997

5) Singapore 1997

6) Russia 2006

7) Kazakhstan 2007

8) Cyprus 2008

9) Spain 2008

10) Italy 2011

11) Saudi Arabia 2014

12) US 1930's

by jimmyH | 28th Jul 24, 7:42am 1722109354

So 650 k mortgages total, in 6 x 1/2 year period, say 1.3 million mortgages drawn in the full 12 months x 6 years, of a total 2 million housing stock , thats a hell of a lot of churn isnt it, 2/3 thirds of total stock , mor or less got financed or re-financed in 6 years?

Can't New Zealanders find something more productive to do with finance ,than churn the housing stock over and over?

Friggin hopeless.

by bw | 28th Jul 24, 8:11am 1722111114

There's only one reason it happens - because we allow the banks to do it.

As a start change the Lending criteria for secondary properties; make the banks hold much higher capital against any such lending, and with any luck they will lend to other, more productive, areas of our economy. Chance of that happening? Zero.

by CN - new | 28th Jul 24, 9:29am 1722115767

"As a start change the Lending criteria for secondary properties; make the banks hold much higher capital against any such lending,"

Another way to give priority to owner occupier buyers in the existing house market is via tax treatments between different categories of buyers. Here are current tax rules in Singapore:

https://www.iras.gov.sg/taxes/stamp-duty/for-property/buying-or-acquiri…-(absd)

by Blackdog | 28th Jul 24, 2:39pm 1722134359

The banks don’t like to lend on businesses or farms, when they do the interest rates are double house mortgage rates.

by K.W. | 28th Jul 24, 3:09pm 1722136162

People move house because they want to move - to upgrade, to get into school zones, to be closer to work, to downsize, to move towns, etc. The average hold period is 7.7 years. Who wants to be locked into being forced to live forever in the first house they buy? We should be glad that it is easy and relatively low cost to be able to move house, not seek to impose restrictions on it.
Other countries lock buyers into staying in unsuitable housing because of the costs of stamp duty (Australia) and cheap fixed mortgages (USA) and there are many studies that show that this reduces the mobility of labour and consequently productivity. It also increases inequality as poor areas continuing to decline while wealthy areas become wealthier.

by kiwikidsnz | 28th Jul 24, 4:11pm 1722139915

by meh | 28th Jul 24, 7:48pm 1722152933

Go back a generation and tell me what the hold period was. That figure above might not be a true representation due to the speculative capital gains house flipping era of the past 20 years.

That's a weird projection that anyone is locked into being forced to live forever in the first house they buy? We haven't made it low cost to be able to move - we've made it high cost just to have a home.

Maybe the crux of the matter is that human beings are a social species/herd animal and it's in our inherent nature to have social and lateral mobility. Maybe we need the freedom to just move sideways or lower. Could it be that the construct of upward mobility and "economic" productivity as measured by $$ is what forces us to be and do, and against our inherent nature? Could it be we weren't designed to be expending all our energy to own homes?

by CN - new | 28th Jul 24, 8:25pm 1722155109

"The average hold period is 7.7 years. "

The average holding period for many highly leveraged buyers in the 2020 - 2022 period is likely to be much lower than this.

by Speedmax | 28th Jul 24, 10:32pm 1722162728

Surely a significant number are borrowers refinancing with another bank - or are these all new borrowing?

by Jonny.Foe | 28th Jul 24, 8:46am 1722113211

Good article. If you want to see a graphical version of that mortgage money creation, click here. The figures are for net mortgage money creation (new loans minus repayments) and are adjusted for inflation. This is one hell of a slump.

Our floundering fish of a housing market doesn't bother me per se. However, our economy is our housing market and the chilly auction rooms and empty open homes have a real world impact. With no new money flowing into the economy, businesses can't generate a surplus and jobs are disappearing fast.

Hopefully this episode will properly expose this fundamental flaw. We have become totally reliant on a net flow of mortgage credit money of around $40m per day. That is what enables businesses to make profits and households to save etc. When the flow slows or stops, everything goes to crap. People think that our housing market moves with our economic cycle. But it's the other way round!

by bw | 28th Jul 24, 8:08am 1722110937

"our economy is our housing market" Quite right. But allowing our banks to sustain that will be the path to more of the same.

We have to change our economic model. It's only a matter of whether we do it ourselves - painful though it will be, or someone else does it for us. The most benign of them being the IMF.

by Jonny.Foe | 28th Jul 24, 5:36pm 1722145014

The IMF would prescribe austerity and deregulation - more of the same. At least we would get a capital gains tax - but in a continous recession those gains would be minimal.

We need industrial policy - a 20-year electrification project would be my choice with an explicit goal of energy and food sovereignty. Make it a national mission with a job for anyone that wants to help.

by Kohukohunui | 28th Jul 24, 9:47am 1722116820

At least we would get a capital gains tax - but in a continous recession those gains would be minimal

That does perhaps make it politically easier to introduce.

by rastus1 | 29th Jul 24, 2:22pm 1722219746

What a motivator for govt and banks to create inflation!

by HouseMouse | 28th Jul 24, 6:27pm 1722148050

Jfoe for PM!

by Speedmax | 28th Jul 24, 10:40pm 1722163218

I believe we are heading towards the IMF because no govt will have the balls to do what’s necessary, the current model is completely unsustainable and has now hit the wall. The IMF will bring in competent, objective technocrats who will dictate the changes that must be made as preconditions for release of funding, the population will squeal but it will get done and we’ll be better off after after the pain subsides. Ireland 2008-12 is a great case study

by Flying high | 29th Jul 24, 3:43am 1722181406

F'd up by the one who the rest of the world rate. The economy was going well until 2020,

by Jonny.Foe | 29th Jul 24, 7:09am 1722193774

There is literally zero chance of this happening. Worse case scenario is a marked currency devaluation.

by sit23 | 29th Jul 24, 10:21am 1722205266

The IMF has an agenda that is totally unrelated to what NZ and NZers need, require, or want. Someone show me where their intervention actually did anything useful for their victim countries.

by Simon | 28th Jul 24, 7:01pm 1722150061

Check out nz house prices v gold.

They were more expensive in those terms in 1970.

Money creation v real assets I guess..

by meh | 28th Jul 24, 7:11pm 1722150701

We need a whole new way of getting money to flow through the economy.

There's no point leaving the tap on if we're not addressing the dams and leaks. One of those leaks is the source and origin of credit creation being in corporate control. We can't trust it in the hands of politicians and the people are too divided and ill-informed to be responsible. How do we address this? Of course one could say the system has been designed that way, and a new design is required. A whole lot of beliefs have to collapse too though and I don't see that happening.

I don't think we're able to see past our own hubris and accept that our own intelligence might be lacking.

by Yvil | 28th Jul 24, 8:13am 1722111181

Why is it considered bad, if there are less mortgages? Yes, RE agents will suffer from less sales = less commission, but why do you rate fewer sales as bad David?

by bw | 28th Jul 24, 8:15am 1722111308

Without more new Debt, this country sinks into the Pacific. As JFoe writes above, new Debt is the liquidity; the Life Blood of the economy we have made for ourselves. And we now only have ONE asset class that banks will lend against - property. Be that for its own sake or the backing for any new business.

by OldSkoolEconomics | 28th Jul 24, 9:12am 1722114751

The problem is it's unsustainable. There simply aren't enough buyers to keep prices high or building more houses.

- our Nz population is declining birth wise

- the skilled next generation are leaving already due to poor standard of living and expensive housing.

- we can't attract high skilled young immigrants for the same reasons our own are leaving. And there is no point importing low skilled immigrants who just can't pay enough tax for the services they consume nor afford housing they are already stuffing our rates bills.

We simply have to stop the house buying/ selling / building merry-go-round. Accept the reality of our financial position and get through the inevitable slump..minimising it but putting massive energies into developing different economic engines.

by J.C. | 28th Jul 24, 11:07am 1722121643

The problem is it's unsustainable.

But it is sustainable if you have a steady demand for credit creation.

Where the West seems to differ from Japan is that even with low cost of debt, the Japanese have been reluctant to take on debt. That is entirely different to Aotearoa, Australia, Canada, and the US. Lowering the cost of debt excites us and signals the opportunity to spend like drunken sailors, even if that means just bidding up prices on existing housing stock.

Perhaps there's something behaviorally intuitive going on - that people instinctively know that borrowing today is good because they believe the nominal value of our money is being decimated.

by Audaxes | 28th Jul 24, 9:06am 1722114412

Why the banks just want our houses

by IT GUY | 28th Jul 24, 9:42am 1722116575

OK you post a lot of links I do not read but I am glad I read that one. I suggest others here do as well, its a great write up of how the banks are motivated to lend more into real estate then other loans due to the risk weighted asset calculations and there own internal models.

Its written in a way most will understand vs normal discussions.

Basically what it shows is if the economy wants to pivot away from real estate (ie lend into non real estate), either the banks are going to have to raise a lot more capital, or the risk weightings will need to change. Problematic for little NZ. How much, as a bank can lend its capital at a ratio of about 6 times to RE vs unsecured, if we want to pivot the banks would need MULTIPLE times there current capital.

I see the base problem for any economic pivot is that assets of all types are overvalued, even in farm and orchard, fishing quota etc, assets are really expensive.

I think the way forward, said it again and again, is to setup a Fannae Mae Freddy Mac type system, for owner occupiers. BANKS AND LAWYERS ETC COULD FINANCE LANDLORDS.... The big banks would get much smaller overnight... but would be forced to pivot to commercial and institutional structures again. If you look back at the history of why the US set up

Fannie Mae was first chartered by the U.S. government in 1938 to help ensure a reliable and affordable supply of mortgage funds throughout the country.

Its the Rescue plan, because if NZ property overnight became as affordable as say US property, it would wipe out the banks existing capital... (ever tried margin trading at 60:1....), people are leaving NZ because its not even as affordable as regional Australia.

This solution is not going to voluntarily happen but its good to have a Plan B so that we can pick up the pieces.

by HouseMouse | 28th Jul 24, 9:48am 1722116887

Yep. There will only be meaningful change if the there is total economic carnage. Until then, it’s shuffling deck chairs on the titanic

by HouseMouse | 28th Jul 24, 10:39am 1722119997

Actually, carnage is no guarantee at all that there would be a meaningfully different approach to the economy. The government of the day would probably just try as hard as possible to pump the population and housing ponzi again

by IT GUY | 28th Jul 24, 10:47am 1722120462

We are talking depression level crisis planning

It would need a credit vehicle to do that, the options are rescue AUSTRALIAN Banks, after perhaps nationalisation, or setup something akin to the US solution during the great depression. If you have just screwed up so badly the rescue cannot be do the same thing again....

by HouseMouse | 28th Jul 24, 11:18am 1722122315

Yep exactly

by nktokyo | 28th Jul 24, 8:25am 1722111937

Credit is important to business and you can't get it without a house as collateral.

Economically we would almost be better off joining currency and tax laws with Aussie.

by bw | 28th Jul 24, 8:33am 1722112433

You know what? Decades back, when this country was making itself into a developed economy, businesses didn't have property to pledge to borrow against. Banks lent against the business opportunity as they assessed it. And it worked. Businesses and jobs got created. Working families were established. But banks got lazy, when all they had to do was take residential property as collateral. The risk was spread over a million properties, not just a handful of businesses. That's what has to change.

by IT GUY | 28th Jul 24, 10:48am 1722120485

Banks didn't really lend against farms as much back then, lawyers and "stock and station" companies much more so.

by kiwikidsnz | 28th Jul 24, 11:59am 1722124741

The old joke used to be: when milking the cows 4 teats "Pyne, Gould, Guinness, me"

by OldSkoolEconomics | 28th Jul 24, 9:11am 1722114670

Credit is always accessible if you have a solid business opportunity that stacks up.

If we stop lending so much against housing and protecting that market (which may not be protectable anymore anyway).. the money will find its way into businesses instead.

by CN - new | 28th Jul 24, 9:49am 1722116978

"Credit is always accessible if you have a solid business opportunity that stacks up."

A business might be financially viable with financing costs at say 7% (i.e mortgage over existing residential real estate) but not financially viable at financing costs of 16% (i.e unsecured business lending)

Most businesses want the lowest cost as possible for the business in order to be profitable and cost of financing is no exception.

by CN - new | 28th Jul 24, 4:44pm 1722141857

Some business owners are learning that their business was viable when they were able to borrow at 2-3% cost of financing (using residential real estate as collateral) are now learning that the business is unviable at cost of financing of 7% (using residential real estate as collateral) - the business activity is negative cashflow at that cost of financing.

by interesting1234 | 29th Jul 24, 8:26am 1722198402

Is the bank not then shooting itself in the foot by lending more and more to residential real estate? For example: if the price of housing, for an extreme example, got to 15-20x median wage, then there would be even further concentration of wealth by those who currently already own several properties amassing even more properties while the prices were rising, which, over time would drastically lower the level of credit creation by less people taking on mortgages and more landlords leveraging more and more equity.

by Nzdan | 29th Jul 24, 8:50am 1722199858

Yes but think in the short term. Incentive bonuses today and dwindling business in 20 - 30 years time.

by OldSkoolEconomics | 29th Jul 24, 12:13pm 1722212016

Running a business based on the expectation of continued low financing is a rookie error.

The owner needs to make their businesses more efficient and productive or find other ways to grow it.

An expectation that a business can only grow with low interest rates is insane.

Nz businesses have very low productivity vs oecd norms. We hear it again and again... and it's largely driven by importing low skilled cheap labour and by borrowing cheaply. The only solution in the long term is to grow by improving productivity like the rest of the world.

by Let me be Frank | 28th Jul 24, 9:40am 1722116426

"Economically we would almost be better off joining currency and tax laws with Aussie."

Formally (politically)...as in the EU of the south pacific?

Why....they have the same problems as us, albeit with a better BoT.

by Sluggy | 28th Jul 24, 12:41pm 1722127300

I have business loans secured against the business. I don't own property. We are a small business with a line of credit of 1.2m roughly 20% of our turnover. Interest cost averages at around 9%. We use credit for roughly 6 months of the year being very seasonal.

It is possible, but it took me 8 years to get anything out of a bank, I couldn't even get a business credit card initially. We were with ANZ, they were beyond useless, been with kiwibank for last 5 years, having access to capital has allowed us to grow, employ more people and become more resilient.

by powerupkiwi | 29th Jul 24, 10:17am 1722205034

Or just straight up joining Australia.

by Pagz | 28th Jul 24, 9:20am 1722115221

" The housing market 'recovery' fails to launch "

"It's not possible!

...Noo, It's necessary."

https://www.youtube.com/watch?v=jnDjdrfilzI 

by Houses Overpriced | 28th Jul 24, 9:57am 1722117451

The reason it's failed to launch is due to the foundations being weak...

by Zwifter | 28th Jul 24, 10:16am 1722118612

The numbers look good to me, still up despite the interest rate doubling. The housing market will launch as soon as interest rates fall, oh wait they are already falling.

by HouseMouse | 28th Jul 24, 10:21am 1722118865

Never go away Zwifter! We would miss the comedy you provide with your laughable spruiker confirmation bias

by Zwifter | 28th Jul 24, 10:57am 1722121024

You cannot argue with the numbers, lending has hardly fallen off a cliff has it ? I would expect the last 6 months of this year to be pretty bad but we will not know the actual numbers until summer and by then rates will be down. This will be as hard as it gets for most people right now, the whole thing was engineered and we knew it was coming well over a year ago now. I see some people have not been able to weather the storm and drop their lifestyles so the shit has hit the fan for them, but most will make it through.

by Retired-Poppy | 28th Jul 24, 11:27am 1722122832

by Zwifter | 19th Jun 23, 6:36pm "ACT/National government from October and then Summer so the positivity will be on the rise"

On one thread you explain how people are going to be in for a shock upon fixed interest rollovers then on another you underestimate the delayed economic impact higher interest rates altogether by pointing out August to October 2023 was the last opportunity to buy a "cheap" house! Now, look at your comments today?

Unemployment is still rising and is expected to continue rising for most of 2025. Many of those still in jobs are feeling insecure and less inclined to borrow and spend going forward. They've seen their work peers/friends family members get laid off.

Lower interest rates - sure, they will provide welcome relief and recovery over time but not the lightening asset price recovery Spruikers such as yourself are dreaming off.

by pacifica | 29th Jul 24, 8:43pm 1722242585

Sadly and honestly in many ways he is right NZ is still importing people who can afford the prices (even as large groups or using suspect overseas financing) at unsustainable rates. The only issue is then is NZ still attractive enough to wash money through or does it look like a bit of societal collapse & poor infrastructure might threaten those investments. After all our immigration numbers still far exceed new housing to the point we don't even have enough homes for those seeking them and many are still in "temporary housing" and "emergency housing" situations long term.

by NZGecko | 28th Jul 24, 10:26am 1722119214

The market may launch up again, when mortgages are written below 3.5%.

Untill then, it's "watch out below"

NZ property junkies will need a hellava lot of methadone, to deal with the next few years of painfull falls/withdrawals - as the decades long party, of cheaper and cheaper money, are finished!

by DTRH | 28th Jul 24, 11:23am 1722122590

The NZD is tumbling if they drop the OCR we will see inflation raising very quickly. We have already seen a 20% drop in prices form highs and until house prices drop to a place where average wage couples can buy expect to see more carnage

by bdogg | 28th Jul 24, 3:23pm 1722137014

The nzd dropped because of the expectation of ocr drops. So it is priced in already.

by Pragmatist | 28th Jul 24, 1:43pm 1722130988

Retail rates have barely moved.. volumes will start recovering shortly after the second OCR drop, and prices will start recovering 9-24months after that, depending on how fast the OCR rates get cut.

by IT GUY | 28th Jul 24, 10:24am 1722119096

I wonder what % of real estate lending is in actual fact being used for business purposes, just loaded that way as enough security exists for the the bank to be able to do it...

Basically in a falling market this % tap is turned off, as JFoe says, its significant ... and we will not recover until alternate funding can be found. Housing falls far enough and its going to get real interesting.

by bw | 28th Jul 24, 10:53am 1722120805

Indeed.

And it's why we have to get back to lending to businesses based on their business case. Not "Here's the cash, and if it doesn't work, we're taking your home".

The current economic model we are using is past its use by date, by a long way. As the last one was, and the one before that. So what did we do in each case? Changed it. We scrapped rural subsidies; we floated the exchange rate, and we brought in CPI targeting. Each time a different approach.

And that's what has to happen now - we have to change our economic lending model.

by IT GUY | 28th Jul 24, 11:10am 1722121819

BW - the only institution who can fund cheaper then the Banks is the Government.

Selling Kiwibank now is probably smart, it cannot compete, and adding funding is a fools errand, its just playing around the edges of the problem.

The issue is that no one is going to buy it

by bw | 28th Jul 24, 11:16am 1722122207

It depends on what those banks are funding.

If they can't fund the residential property market, and THEY keep their models the same, what happens to them? They'll go broke, and that will affect more than just the onshore entities. So what will they do? Lend to other sectors at what will become a lesser rate. They'll have to if they want to stay in business.

by IT GUY | 28th Jul 24, 12:37pm 1722127051

They are global businesses, they will just redirect credit/capital to another country. Ie they will shrink there book and move on.

They are not setup to lend to that market with that type of credit assessment

by Sluggy | 28th Jul 24, 12:52pm 1722127977

Personally I don't see how it is about rates. As I stated above my business has been averaging around 9%, sure paying less would be nice, but it works for us at that rate, the lack of access to that capital is the problem for most.

by nktokyo | 28th Jul 24, 10:37am 1722119834

You can expect 9 months of these articles. The recovery won't happen until business and employment confidence returns and that is at least 6 months after lending markets start ease and the government stops culling the public sector.

by HouseMouse | 28th Jul 24, 10:43am 1722120200

Yep, or more than 9 months. Depends how quickly the OCR is lowered

The ponzi won’t see any glimmers of life until retail interest rates are near 5%

by IT GUY | 28th Jul 24, 10:59am 1722121198

Given how over extending things became you have to think its a combination of lower rates and lower prices.

Anyone who buys here, to exit in time, has to find an incredibly greater fool to sell to... who is also incredibly rich. Even minor price movements in housing averages could be bigger then average peoples ability to save over a year... ie its so overcooked its nuts, then factor in 80% lending inside DTIs....

Anyone buying and "topping" up a rental is a fool. You are just subsidising the renter. You have is no exit strategy with capital gain.

We are at the point now where buyers are offering what they can afford, and sellers are asking what they want.

by K.W. | 28th Jul 24, 3:20pm 1722136856

As I keep pointing out, history shows that house prices recover at the END of an interest rate reduction cycle, not at the beginning. So start asking when the RBNZ plans to make its last interest rate cut not its first.

by Flying high | 28th Jul 24, 10:59am 1722121187

Pete wolfkamp on zb discussed Land 400k and construction cost 750k. From those numbers I see that construction is the issue and land is no longer the issue. Also how does the average young couple afford 1.15million.

by IT GUY | 28th Jul 24, 11:06am 1722121599

They cannot afford this now, nor can they hedge future interest rate risk if rates fall in the short term.

$779k in Brisbane

https://www.realestate.com.au/property-house-qld-caboolture-144877368

Our young will keep leaving until we solve this, clearly the land did not cost 400k for this Brisbane property..... and build costs where lower

You could buy this type of build for reasonable money in Hamilton perhaps 8-10 years ago.

by Flying high | 28th Jul 24, 11:14am 1722122040

England has the same overpriced RE, 800k for FHB. NZ not alone

by bw | 28th Jul 24, 11:32am 1722123143

They do.

And anyone who was there to witness what happened last time - circa 1988-1993, will know how that ends. Surely we can learn from even that one foreign event and avoid the same fate? (It devastated the lives of millions of Britains, and took them untold years to recover from it - if at all. And yet, here they are again. And this time, the result will be worse).

One approach? "Cornwall plots 300pc council tax on second homes"

by bw | 28th Jul 24, 12:11pm 1722125506

Ahh....memories...

"The summer of 1988 was drawing to a close and house prices were booming as never before. The Royal Institution of Chartered Surveyors went as far as to admit that the London market was looking sticky, but there was no evidence that prices were falling." ( sounds a bit like what we are reading here today!)

"Inflation in the whole economy in the late Eighties and early Nineties disguised the full extent of the underlying fall in house prices. In real terms, they declined nearly 34% from their 1989 peak to 1995 trough."

"Astonishingly, a house owner and wait until June 2002 before he was back to square one. Only then was his house, in real terms, worth as much as he paid for it in 1989."

"Experts were wrong in 1988 to say the only way was up. Building societies and estate agents were wrong, too. Home-owners must hope that this time, the experts are not making the same mistake."

by CN - new | 28th Jul 24, 8:19pm 1722154746

For those that are interested - Black Wednesday 1990

https://youtu.be/K_oET45GzMI

by CN - new | 29th Jul 24, 7:51am 1722196273

BW,

What is the link to those quotes? Interested in reading the source.

Thank you in advance.

by Jonny.Foe | 28th Jul 24, 3:31pm 1722137501

You're quoting south east England prices. You can still get a three bed up north for less than $250,000.

by HouseMouse | 28th Jul 24, 11:40am 1722123655

Bingo!!!!! You are getting there….

by Flying high | 28th Jul 24, 2:24pm 1722133463

Was a good discussion esp the architectural designer at 825am. Wolfie wants to keep the 2023 insulation standards even though he reckons R6.6 is excessive and adds no tangible benefit to houses north of taupo

by Zwifter | 28th Jul 24, 3:03pm 1722135809

Doesn't even break down by region its more pure location. In Tauranga over in the lakes in places it goes sub zero, like -1 Deg C its freezing, down low and no late or early morning sun. Where I am its evaluated and I don't see outside temps dropping much below 6 Deg C, that's a huge difference. Just standard insulation and double glazing is fine and I have lot of glass.

by sgtshortcut | 28th Jul 24, 11:22am 1722122526

Look at construction today compared with construction when houses were in that 4X income band…it’s chalk & cheese 🤷🏻‍♂️

You could argue why would we want “unsafe” houses…but the houses from decades ago are still standing & have been through storms/earthquakes & the kids raised in them are still standing. I have said before the expectations of new builds is also different, walk-in wardrobe/ensuite/scullery/media room/home office/attached double garage with internal access…the additional labour & material costs needed to meet current standards & expectations is huge. Let alone the red tape costs before the first shovel hits the ground…if we met in the middle somewhere maybe, more moderate designed homes with adequate (not over the top) construction it could make building a home more efficient/affordable? Or…keep all the cool shit & ask the joker with the ranger & stabi to take a haircut 😂

by nktokyo | 28th Jul 24, 11:51am 1722124309

We want 2024's 200sqm 4br palaces with triple glazing and stone benchtops at 1979 kitset prices.

by HouseMouse | 28th Jul 24, 11:58am 1722124693

Yet but even a very modest two bed box needs to sell in Auckland for 700-800k

by IT GUY | 28th Jul 24, 3:53pm 1722138801

That's the issues, it will be 15 years at that price before you can climb the "ladder" at 50 years old, do you want to take on another 500k of lending for the next step.... the ladder itself is too steep now without capital gains to climb it , lets go to aussie instead.

by sgtshortcut | 28th Jul 24, 2:01pm 1722132100

Would be interesting to see a breakdown of the costs associated with that, profit isn’t a dirty word so I’ve no issue with the developer making a return. Surely land in Auckland would be a larger portion of cost?

by Colin Cameron | 29th Jul 24, 6:23am 1722191029

But house mouse just like jfoe said re England how house prices in the north are way cheaper than the south east. Get out of Auckland house prices in tokoroa, fielding, Ashburton, Blenheim way cheaper and better value

by interesting1234 | 29th Jul 24, 8:33am 1722198821

As the population of Auckland continues to accelerate, more and more people make the call to leave the rat race.

by 1harlow1 | 30th Jul 24, 3:27pm 1722310036

The bit you are missing, is that a city in the north east of England such as Newcastle is a genuinely viable location with great infrastructure and numerous employment opportunities covering almost all industries.

Tokoroa.. not so much.

by Frank. | 28th Jul 24, 2:54pm 1722135288

Triple glazing? Or is it double glazing with argon gas in between. Argon gas that breaks down. That leaks. That is gone within 10 years. It’s a scam.

by Pragmatist | 28th Jul 24, 6:42pm 1722148950

what exactly does argon break down to?

And the acceptable rate of argon leakage in an argon filled IGU is less than 1% a year. So you shouldn't see a noticable performance loss in less than 20 years.

by pacifica | 29th Jul 24, 8:59pm 1722243555

Frack that most just want a door they can enter, a toilet, a place to put a stove and a fridge and a small patch of floor they can sleep safely in without getting a severe respiratory disorder that ends up as a disabling permanent heart condition.

Much of NZ housing has severe leaks and rot that have lead to significant medical illness, and in fact in other countries (even the US) they would not even enter such places without hazmat & respiratory protection in place. Even lead and asbestos products did not engender such aversion (well not until you started breaking it down into fine dust say by sanding or deconstruction).

NZ just does not have the skills to understand how to build without critical structural failures all over the show. Even the UK had better building standards decades ago. Just look at the designs, and architect plans on offer. Most are completely inaccessible to large sections of the population, not to also forget they are designed on purpose to be wasteful and uneconomic. Yet you cannot change an off the plan design, nor can you buy an old property, (which is more efficient by unintended design for plain functionality) that costs near 500k more even though it was built near half a century ago. This sadly will play out for years yet as our architecture education is dead on arrival and clueless to much of the standards and core needs & skills of the roles. But hey at least 3d engineering apps like revit are becoming more accessible to the general public. Building quotes and planning though is still in a ditch as the system for price estimates has for a long time been a joke.

by Sam Bridgman-Smith | 28th Jul 24, 12:47pm 1722127648

Fear is in the air.

by endlesslearner | 29th Jul 24, 8:29am 1722198588

In a debt-based economy, rates (OCR) need to be lower than growth (GDP). Simply put, we need growth - rates > 0. If growth - rates < 0 = debt explosion.

Currently, with GDP around 0.2% (and potentially even dipping into negative territory with all the lags in reporting) and the OCR standing at 5.5%, the RBNZ should be implementing a ZIRP. Of course they won't and the rate cuts will be cosmetics at the start (highly likely 0.25% cuts). However, even if they decided to implement ZIRP today, the change wouldn't be immediate. Given the long and variable lags, it could take 12-24 months for such a policy shift to make an impact. Like other central banks, the RBNZ tends to be reactionary, often waiting to see the "iceberg" before taking action. Unfortunately, by the time you spot the iceberg, it is too late to save the Titanic.

So, what happens when you tighten credit in an already heavily indebted economy? You hit a grinding halt in economic activity, leading to an explosion in bankruptcies. According to Centrix's latest report, May 2024 saw the highest number of bankruptcies since May 2014 (a clear sign of the pain). This is all before we fully feel the effects of the tightening, with all the delays in economic feedback.

Unprecedented rate increase (2100%) over the shortest time frame for tightening + the longest peak period ever (15 months so far) + long and variable lags = massive demand destruction + debt defaults -> rising unemployment -> more demand destruction -> increased unemployment -> debt defaults -> deflation.

by sgtshortcut | 28th Jul 24, 2:06pm 1722132400

Interesting read…as you’ve said with the lag in effect of these hikes still washing ashore for a while to come yet…coupled with the lag of action by ole Tane Mahuta, sorry Governor Orr, it looks like we are absolutely f**ked yeah? 😬

by IT GUY | 28th Jul 24, 2:37pm 1722134257

proper

by makechange | 29th Jul 24, 7:07am 1722193633

Rest of the comment is solid, but Tane Mahuta is a kauri tree up north 🫣😅

by K.W. | 29th Jul 24, 11:40am 1722210043

"In Māori mythology, Tāne Mahuta is the god of the forest and birds.
Māori oral traditions tell us that Tāne Mahuta dug his shoulders into Papatūānuku (mother earth) and used his legs to push against Ranginui (father sky) so as to separate them and let light into the world.
With that light, Tāne Mahuta the kaitiaki of the forest and birds, enabled life to thrive.
The Reserve Bank is akin to the being Tāne Mahuta of New Zealand’s financial landscape."

https://www.rbnz.govt.nz/hub/publications/speech/2022/speech2022-06-13

by pacifica | 29th Jul 24, 9:08pm 1722244107

To see culture references used by the reserve bank for such blatant corporate branding that serves no purpose except to waste funds beyond any purpose is quite sad. It is even worse that they picked such irrelevant references that do not have any relevance to the subject and indeed only serve to make NZ look even more backward then cultures 7000 years ago. Even if they picked tally marks or fishing references that would still be miles closer then what they actually chose. Was the cultural advisor that day completely clueless about mathematics and finance because it certainly looks that way. I know lets shoehorn more BS in after all the reserve bank is about as useful as tts on a bull. Throw in more over designed rebranding every year, after all it is not like they have other jobs & projects to do instead that have far less focus.

by Jonny.Foe | 28th Jul 24, 3:36pm 1722137777

Yes, exactly. I wish more of the HFL folks understood the basics maths here. If we want interest rates of 5% then private debt needs to back down at 60% of GDP. It's 140% now.

When our economy is 'growing' at 3% it is because private debt is increasing by 4%, catalysed by house prices rising at 5%.

by Averageman | 29th Jul 24, 8:06am 1722197193

growing' at 3% it is because private debt is increasing by 4%, catalysed by house prices rising at 5%

No sign of growth by productive profit, just more and more debt. Ponzi.

by Averageman | 29th Jul 24, 8:03am 1722196983

Perhaps a debt implosion is exactly what is required. The real issue is to much debt unsupported by income and thus value.

🍿

by K.W. | 28th Jul 24, 3:40pm 1722138037

Investor lending is up because the LVR got relaxed from 40% to 35%, so they can borrow more.

Also, the interest tax deductibility change will have redirected investors from buying hugely negative cashflow, overpriced new builds to buying positive/neutral cashflow, cheaper existing builds, and when the numbers make sense surprise surprise, investors start buying again.

The real train wreck that is happening is all those new townhouse developments that were built for investors only, because they are not fit (or priced) for owner occupiers. Now that investors are no longer held hostage by Govt policy and forced to buy them, those nasty, low quality build, tiny boxes will languish unsold on the market until they start getting sold off in mortgagee sales.

Which brings me to the next train wreck in progress. The people who invested funds in the likes of DuVal, Williams Corporation, Wolfbrook. Many of these investors are pensioners who have invested their entire life savings in these funds, and they stand to lose the lot because the FMA saw fit to slap these developers with a letter telling them off, but did not make any of them return the funds to the retail investors that were illegal securities transactions under NZ Securities law. And they are still doing it despite that FMA letter. Desperate times means criminal conduct, right?

Then there will be a Govt enquiry into "how did we not see any of this coming". Yeah, right.

by Averageman | 29th Jul 24, 7:57am 1722196675

Other people's money.

by Final Account | 29th Jul 24, 9:16am 1722201380

+ Limited Liability

by IT GUY | 28th Jul 24, 3:51pm 1722138682

Music is stopping grab a chair quick

https://www.afr.com/markets/equity-markets/tech-reversal-pushes-us-mega…

Just like NZ Resi Real Estate, the Revenue from overhyped AI are not living up to the price premium that was paid.

by CN - new | 28th Jul 24, 4:22pm 1722140552

"not living up to the price premium that was paid"

Similar to past investor euphoria in the following newly formed / developing industries:

1) electric vehicles

2) legalised marijuana growing and distribution in US

3) internet in 2000

by K.W. | 29th Jul 24, 11:48am 1722210514

People overestimate what will happen over the course of a year or two, and underestimate what will happen over 20 years. Amazon was a crap investment in 1999 but different story if you bought it in 2015. AI will be the same.

by Averageman | 28th Jul 24, 5:02pm 1722142945

Ticker clippers oh the woe.

by stefanblaise | 29th Jul 24, 9:24am 1722201850

In the long term, the quoted price/value of an investment asset is directly correlated to its earnings.