New Zealanders are in a strong borrow-and-spend cycle, fuelled by strongly rising house prices, according to Westpac's chief economist Dominick Stephens.
In his latest Home Truths commentary on the housing market, Stephens said house prices were continuing to be pushed up by low interest rates.
"The New Zealand housing market remains red hot," he said.
"The REINZ House Price Index has now risen 6.9% over the past three months, which is the fastest three month gain since 2005.
"And a wide tableau of other indicators all point in the direction of house prices continuing to rise rapidly in the coming months," he said, pointing the finger at low interest rates as the culprit.
"Our assessment is that low interest rates are the key driver of the market at present," Stephens said.
"Low interest rates also help explain why share prices and commercial property prices are rising at the same time as house prices.
"Rising house prices have sparked a strong borrow-and-spend dynamic across the economy.
"When house prices rise, home owners tend to spend some of their increased wealth.
"Meanwhile, house buyers need to borrow more, and they are able to do so courtesy of low interest rates.
"The net effect is that the nation borrows and spends," he said.
And he doesn't see that pattern ending anytime soon.
"Once it gets going it can develop a life of its own," Stephens said.
"This self-reinforcing cycle tends to continue until a circuit breaker comes along to end the party.
"Last decade a sharp lift in interest rates was the circuit-breaker, but we don't expect a repeat of that anytime soon.
"In fact, we can see no circuit-breaker at all over the coming year or so, which is why we are forecasting such strong house price inflation over that period," he said.
53 Comments
Seriously ? Forget the popcorn , bring out the Caviar and crack a bottle of Moet en Chandon , and hope like hell we don't go into a shock recession or an Asian -style Banking /Currency crisis anytime soon.
I am always fearful of going on a rampant spending spree with unearned money ............ things always change its the only constant we know
first comes a recession. as soon as its (recession) spotted we want people to get out (i assume people here meaning investors) and borrow and spend. In the meantime, everyday investors, as part of their long term plan have been doing this very same thing from day zero and continue to do so on a regular and in a planned manner / basis- and tell me whats wrong with that. I assume most of the current investors know what they are doing. May be they are not investing in "what I think is the right thing to invest in". or may be they are not borrowing "from me and instead borrowing from other banks". Leave the scales alone. Let it swing back and forth a bit, It will settle in the middle, if its not already there.
He's saying "...year or so..."
That's a ridiculously short period of time compared to the length of the average mortgage!!!!!!!
So if the circuit breaker happens in 3 yrs time everyone who bought recently is absolutely and completely stuffed. So will the banks be, and consequently, unfortunately, so will savers be. (Unless the govt steps in, and then its tax payers too!)
these very same "experts in all" people who wants all this to stop because its ALL wrong to invest in houses for your retirement came out around 2009 (and still going on) and gave their "know it all" and told investors to sell out investment homes or dont buy now because prices are crazy and will drop- "buy then" . Feel sorry for the guys who listened to these "know it all experts". It happens all the time - free advice from these "know it all experts". Listen to them, but be careful, be very careful.
Eggs in one basket investing? Sounds great! Given that in 25 years we will be around peak retirement population, with about one third of the population above the current retirement age, how many houses do you think each retiree can buy as their retirement "fund"?
Why wouldn't people sell some of their investment properties to buy into bonds and shares to spread the risk. Realising gains allows for rebalancing and an increase in return.
What are the people who invested everything in property supposed to do with the 50% price crash that has hit now their bubble has burst? Why do NZers insist on gambling instead of investing?
The banks have made it pretty obvious that interest rates aren't going anywhere soon accept maybe down. The only way to slow this market, not even mentioned by this bank economist, is to remove the demand.
Stop foreigners from all over the world, buying NZ real estate. Currently anyone anywhere in the World can buy up to 5ha without any restrictions. They don't even need to visit NZ.
Cap immigration at 10,000 useful people.
The rampant property inflation would stop overnight.
The further from 'wages reality' that the property prices get the worse the inevitable crash and recession will be.
I don't understand how so many educated intelligent NZ'ers can't see the unfolding disaster that our property market is becoming.
I don't understand how so many educated intelligent NZ'ers can see the symptoms but can't associate them with the causes of the unfolding economic disaster.
Politicians, media and economists are either blinded by their capital gains or complicit to the selling off, of our low population and the countries infrastructure.
Our exports for the year are $36 billion.
Auckland needs $17 billion for the basic infrastructure to provide for the housing shortage. That doesn't include a hospital or power station or another lane on Auckland's motorways.
What is this population growth doing for our export income? NOTHING. we just have more people to support with that income.
The immigrants bring in foreign currency which pumps the property market and supports car salesman but after the currency is spent, then what?
Wake up people, Where selling our lifestyle, our infrastructure and our children's future.
try 2-3 lanes needed, try driving down any of aucklands motorways during peak if you can get up to 20ks an hour your doing great.
Sh1 needs to be 5 lanes wide from Bombay, and sh20 needs to be 4 lines wide to handle the growth in population.
not to mention all the main roads needing widening as well.
I think 17 bil is a bit light
Yeah sharetrader, $17 billion is just a drop in the bucket of what it costs to build infrastructure for the 200,000 people who have immigrated here in the last 3 years. The NZ taxpayer has laid it on and will have to build the infrastructure needed to support these people. The NZers who want more people should go check out England. The NZers who think roads and bridges are part of the natural landscape should go check out a 3rd world country and then maybe realize the value of what we've got. (mostly built and paid for by the much maligned baby boomers back in the days of the Ministry Of Works)
The politicians are getting away with this nonsense simply because they are not being held account by the media on prime time TV and radio. Instead they get away with sound bites of rubbish which is never contested. I remember well the likes of Tom Scott and co getting stuck into Muldoon at parliamentary press conferences. Nowdays they are scarred of getting banned and missing the invite to the next overseas junket with Key and his sales team.
You are being sedated
Northland Hippy asks a good question "why so many educated intelligent NZ'ers can't see the unfolding disaster that our property market is becoming"
From my perspective One answer is the absence of real-information. Everyone is aware that there are serious societal problems and what the consequences are - but we dont know what the causes are
Imagine if you will the possibility that house prices stabilise and stay flat for 20 years, everyone adjusts to the new normal, and then, suddenly the same begins to happen all over again - nobody knows what caused it in the first place and nobody will know what caused it to stabilise
NZ will go through the same crisis again - no-one will know why, or what to do about it
What is astonishing is the way the populace is mis-led and beguiled, and fed smoke-and-mirrors by the lever-pullers, and the sad state of affairs the main-stream-media are in. They dont and cant afford investigative journalists. That isnt helped by a compliant govt controlled television station constantly feeding the masses with sanitized feel-good nothingness
I have difficulty watching the amount of advertising on TV for feel-good self-enhancing potions and medications
Last night on TV One, there was Doctor Nick Smith, he with a doctorate in earthquakes, re-announcing for the 4th time the release of 190 sections on crown land in Massey. Top of the news. First announcend May 2015. Twelve months later nothing done. But, we have had 4 announcements. And the builder will be (one day) you guessed it, Fletcher Building. Sweetheart deal done and dusted.
What isn't announced is the use of crown land which is of fixed supply.
What happens next time around, when all the SHA's are done, all the available crown land gone
Selling off crown land doesn't solve the problem - it postpones it till another time
Yeah Crow22, most of those kiwi's were immigrants who used NZ as a stepping stone to get into Oz. The Oz'ies back lash has been to deteriorate our special relationship with them so that now kiwis in Oz can't get benifits or free med care and are justifiably now sent home if misbehaving. we didn't even used to need a passport to go to Oz.. We were like one country.
"Last decade a sharp lift in interest rates was the circuit-breaker, but we don't expect a repeat of that anytime soon."
Yet that is EXACTLY what the RBNZ have the capability to do IF they really wanted to end the madness.
Yes there would be consequences, and pain, and bankruptcy in certain areas. But the ones who didn't binge or 'bet on debt' will soon pick up the pieces and carry on in a more sound educated manner.
I see Westpac cut saving rates again along with a few others this week. Those deposits become less secure each time these banks do it, due to added depositor dissatisfaction .
They are starting to feel like victims and will feel like "whats the point of saving at all with a bank?"
Might as well buy a safe and at the very least secure those hard earned savings.
So when does it reach a point where the cutting off of incentives to deposit start to effect borrowing levels to 'fractionally' fund the growth of the debt binge?
We're just about to talk to our financial adviser about using as part of a more conservative investment portfolio. There's two ways you can invest - the first in gold itself where you buy actual minted bars and they sit in a safe/bank deposit box somewhere. The second is in a gold mining or trading co where you get the dividend and fluctuating share value typically indexed with the gold price. Gold is one of the most stable risk averse investments available. You're unlikely to make a fortune in capital gain, although who knows if we hit "GFC2: The Awakening". And at the end of the day you have a commodity that's been held in high value since time immemorial. See the 20 year prices here https://www.bullionvault.com/gold-price-chart.do
Why would you - but if you are going to buy gold anyway then make sure you actually receive it. Then physically carry it somewhere else for safe storage under your control.
Too much of the gold trading is on paper only, and from time to time people have not been able to find the gold they were told they had purchased.
If you are buying it as a high level defence to some economic disaster, then it's value to you is being able to actually put your physical hands on it. At the time of disaster, the printout on paper won't give you much comfort.
There is a lot of physical gold held in the poor parts of India -jewellery. And in some places it's diamonds. Because they know that if the poo really hits the fan they can pick it up and bolt for the border.
Ok, well then no harm in putting them up significantly then using that logic.
I do understand you are really pointing to large immigration numbers and foreign money coming here as the key driver. But to say there is no direct link to a great deal of that domestic speculation and our OWN record low interest rates (regardless of what they are abroad) is being dis-ingenious.
Continued lowering is fixing nothing and got us ALL here, including abroad ( referring to the global debt issue around housing/property) So is it not logical to kill it via doing the reverse?
Your thoughts MB?
the low world wide rates, and easy credit to be loaned for property is the biggest driver. there is a lot of credit out there looking for a home and our open door policy means we get some headed our way.
until you lower immigration , change the immigration policy to not include housing, and close of non citizens being able to buy.
then you could bring in LVRs and income and loan that would work
Well justice, do you really expect this "not" to happen with a drop in interest rates? Its like giving a baby candy and telling him not to eat it. I dont own property. I dont have debt. I do have liquidity. The rbnz doesnt like people like me because i dont spend. Im a saver. But somehow thats bad for the economy. I disagree. Saving is actually deferred spending and hence, deferred economic growth. Assuming you can hold on to it. Trust me this isnt going to be perpetual debt fuel growth. The world wants to deflate. And it will in a very big way.
Everyone is obssessed with house prices but look at how prices in bonds,equities and agricultural land has done in last 10 years. The NZX has performed almost in line with the Auckland housing market.
The unfortunate consequence of Quantitative Easing is due to putting billions more cash into circulation it has devalued every $1 that people held.
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