Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
NZ cuts interest rate, signals more to come
BUSINESS SPECTATOR JUNE 11, 2015 4:21PM
Mitchell Neems
Business Spectator Reporter
Melbourne
The Reserve Bank of New Zealand has cut the official cash rate by 25 basis points to 3.25 per cent and is signalling more cuts could be on the way.
The move is the first reduction in the rate since January 2011.
Reserve Bank governor Graeme Wheeler said in the accompanying statement that the New Zealand economy was growing at an annual rate around three per cent, supported by low interest rates, high net migration and construction activity, and the decline in fuel prices.
But he warned that the fall in export commodity prices that began in mid-2014 is proving more pronounced, and was a key factor behind today’s decision.
“The weaker prospects for dairy prices and the recent rises in petrol prices will slow income and demand growth and increase the risk that the return of inflation to the midpoint would be delayed,” he said.
The RBNZ has an inflation target range of between one per cent and three per cent annually.
“A reduction in the official cash rate is appropriate given low inflationary pressures and the expected weakening in demand, and to ensure that medium-term inflation converges towards the middle of the target range,” he said.
“We expect further easing may be appropriate.”
On the property market, Mr Wheeler said house prices in Auckland continue to increase rapidly, and that increased supply is needed to address this.
The RBNZ said the NZ currency has declined from its recent peak in April, but remains overvalued, despite the fall in commodity prices and the expected weakening in demand.
“A further significant downward adjustment is justified,” Mr Wheeler said.
“In light of the forecast deterioration in the current account balance, such an exchange rate adjustment is needed to put New Zealand’s net external position on a more sustainable path.”
The New Zealand dollar fell as low as US70.11c, from US72.07c immediately before the decision was released at 7am (AEST). It was recently trading at US70.57c.
With AAP
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Jun 12 2015 at 3:13 PM Updated Jun 12 2015 at 7:39 PM
Bill English says Kiwis must follow Australia's housing rules or risk buyer spillover
The problem with the housing market is that it's run by lawyers and planners who are ignorant of economics, according to New Zealand's Finance Minister Bill English. Louise Kennerly
by Luke Malpass
Regulation of New Zealand's housing market must be in lockstep with Australia otherwise tighter foreign ownership requirements in Australia could create "spillover effects", further fuelling Auckland's booming housing market.
According to New Zealand's Minister of Finance and Deputy Prime Minister Bill English, not regulating could run the risk of further pressure on the market in Auckland, the country's biggest city.
"We have to tighten up in tandem, otherwise enforcement of the rules here [in Australia] will just spill over into Auckland," he said
Mr English, speaking exclusively to The Australian Financial Review at the National Infrastructure Summit, said that while New Zealand does not actively co-ordinate with Australia on home ownership policy, it does take an take an active interest in recent moves such as the clampdown on non-legitimate foreign investors in housing.
"[We're] not co-ordinating, because you've got different systems and jurisdictions, but we do keep a pretty close eye on it."
PRICES UP 17PC
The warning comes as both the New Zealand government and the Reserve Bank of New Zealand are endeavouring to cool the Auckland housing market, where prices rose 17 per cent in the past year, according to Mr English.
He said the current demand is underpinned by "low interest rates, sustainable outlook for wages and incomes, big shift in net migration – for instance a 30,000 outflow to Australia has reverted to a small net inflow from Australia."
In response to the continued boom in house prices and the lending that underlies it all, the Reserve Bank of New Zealand introduced stricter loan-to-value ratios in 2013, which had the practical effect of limiting the number of loans that banks could give to mortgage borrowers with less than a 20 per cent deposit. According to the bank this lowered price growth by four percentage points. Special regional LVRs will now be extended to Auckland only from 1 October.
TIGHTER RULES
Mr English said the government has also responded to the sharp price uptick by tightening rules for foreign owners as well as introducing a "white line test" of two years, where anyone who sells a house within two years will have to pay income tax on the transaction
But Mr English said that overall the problem, as in Sydney, was an over-regulated property market and a lack of supply.
"It was a radical idea five years ago that supply had an impact on prices – the market's been run by lawyers and planners so it's been run without a good grip of economics," he said.
"We deregulated in the '80s labour markets and electricity markets and telecommunications markets: you've got an over-regulated housing supply. So we're working through the complexity of trying to undo that."
Mr English said that in a policy sense, the understanding of housing markets was minimal. "Given that it's the largest asset class, the economics of housing markets are pretty thin.
"The more you look at the urban economics of it, the more it matters that your housing market can respond to demand, because it underpins the mobility of your workforce, their mobility to access higher-productivity jobs," he said.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
NZ Q1 growth slows on drought, oil, backing rate cut view
Date
June 18, 2015 - 11:00AM
Read later
Gyles Beckford
Economic growth in New Zealand has fallen to its slowest pace in two years, possibly setting the stage for a new rate cut.
New Zealand's economy slowed markedly in the first quarter as drought hit farming and low prices hit oil production and exploration, offsetting strong domestic activity and leaving the central bank with room to cut rates further if needed.
The economy edged up a seasonally adjusted 0.2 per cent in the quarter, the lowest quarterly rate in two years, according to Statistics New Zealand, against economists' and the central bank forecast of 0.6 per cent.
The annual growth rate eased to 2.6 per cent from the previous quarter's seven-year high of 3.5 per cent. Economists had expected 3.0 per cent.
The data showed consumer spending, record numbers of tourists, and a stronger housing market underpinning growth at a time when commodity prices have tumbled and drought has hit farm production in some regions.
The softness in the data was seen allowing the Reserve Bank of New Zealand's (RBNZ) the leeway to follow up last week's cut in its official cash rate (OCR) with another in coming months.
"It seals the case for a July OCR cut and really raises the question about whether there may be further cuts beyond July," Westpac chief economist Dominick Stephens said.
The New Zealand dollar fell around half a U.S. cent to $0.6905 after the data, as investors priced in a bigger risk of a rate cut next month. The Aussie jumped 1 per cent to above $NZ1.12, its highest since early November.
Economists expect one further 25 basis point rate cut to 3 per cent from the RBNZ, with opinion divided between July and September.
Financial market pricing puts a 52 per cent chance of a rate cut next month, with 39 basis points of cuts seen over the next 12 months.
The RBNZ had been the standout among developed economies having raised rates by 100 basis points last year and then staying on hold while others were cutting in the face of weakening outlooks and low inflation.
But prices for key dairy exports have halved over the past year and a lower payout to farmers this season might knock a NZ$7 billion hole in the economy.
Growth is expected to average around 3 per cent for the next couple of years but inflation, which was just 0.1 per cent for the year to March, is not seen returning to the RBNZ's target point of 2 per cent until the end of next year.
"The outlook remains clouded by the fall in dairy prices late last year. It will take time for the indirect impact on real GDP from the deterioration in the terms of trade to be felt," says Capital Economics senior Asia economist Daniel Martin. "Meanwhile, the construction boom looks set to fadeand exports are likely to be undermined by weaker growth in Australia's economy."
Capital Economics expects the RBNZ to cut rates again to 3.0 per cent over the coming months, and possibly take them as low as 2.75 per cent either late this year or in early 2016.
In the latest data, activity was supported by retail trade and accommodation, up 2.4 per cent on strong tourist spending, while business services rose 2.1 per cent, and strong construction. The service sector makes up about 70 per cent of the economy.
The primary sector of farming, forestry and mining, fell 2.9 per cent overall, driven by a 7.8 per cent decrease in oil and gas exploration and production on lower prices, while agriculture production fell 1.4 per cent because of drought in some regions.
On an expenditure basis the economy grew 0.1 per cent on the previous quarter.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
http://www.smh.com.au/business/markets/m...iijx7.html
Milk sours New Zealand's economy
Date
July 23, 2015 - 7:38PM
8 reading nowRead later
Vanessa Desloires
Vanessa Desloires
Reporter
View more articles from Vanessa Desloires
Follow Vanessa on Twitter
Email articlePrintReprints & permissions
World milk prices have hit a six-year low
World milk prices have hit a six-year low Photo: Louie Douvis
It's a remarkable turnaround for the New Zealand economy.
Last year the central bank undertook a tightening cycle that saw it hike interest rates four times - on Thursday it cut key interest rate for the second time in a row, with another one flagged in September.
So what happened across the ditch for the kiwi economy to turn sour?
A slide in milk prices has sparked a dramatic turnaround in New Zealand's economic fortunes.
A slide in milk prices has sparked a dramatic turnaround in New Zealand's economic fortunes.
The answer can be linked to New Zealand's most important commodity: milk. The dairy industry is to New Zealand what iron ore is to Australia.
In 2014, New Zealand exported $NZ14.5 billion ($13 billion) in dairy products, according to the nation's department of trade and enterprise, double that of its second largest export, tourism.
That is around a third of overseas merchandise trade exports, Bank of New Zealand senior economist Doug Steel said.
The RBNZ's statement on Thursday acknowledged the sharp fall in milk prices was a major reason to cut 25 basis points off its official cash rate to 3 per cent, and flagged more.
There are several global drivers causing dairy prices to fall. As the chart shows, the price has plunged 50 per cent since February, and more than 70 per cent since late 2013.
By comparison, iron ore, Australia's key export, has fallen 20 per cent since February and 60 per cent since late 2013 and widely considered responsible for Australia's sluggish economy.
Global glut
One reason for milk's fall is a global glut. Tensions between Russia and the Ukraine in 2014 spilled into trade embargoes on Ukraine's allies, and one of the fallouts were the bans on dairy imports from the European Union.
That milk had to go somewhere, Mr Steel said, and a weaker euro on the back of the Greek debt crisis has made European prices more competitive.
Meanwhile, demand for imported milk from the world's most populous nation, China, has "softened enormously".
"There are a lot of questions around the true inventory in China, and the build up in stock was a lot bigger than previously thought," Mr Steel said.
But he said the rest of the economy was growing, particularly sectors exposed to a falling kiwi dollar which is fetching around US65¢, down from US88¢ a year ago.
The kiwi has also lost ground against the Australian dollar, sliding from near parity in April to fetching around 90¢ now.
New Zealand's GDP is around $240 billion. It has been growing, around 2.5 per cent.
But Mr Steel said it was unlikely dairy prices had bottomed.
"Those global factors are still in full swing, a lot of the momentum is certainly downwards, and we expect the next dairy trade options to fall, it's just a question of how much," he said.
"If you look at the cash flow impact of dairy prices to date, looking at the previous season we're talking about $NZ7 billion less.... that's a big chunk of income out of the system, something the Reserve Bank has taken into consideration," he said.
New Zealand's 11,000-odd farmers are also starting to feel the strain, with cash flows well below production costs.
Christina Leung, senior economist at the New Zealand Institute of Economic Research said as dairy incomes fell, it would have a downstream effect as farmers rein in spending, flowing through the the wider economy.
"That said, lower interest rates and a lower dollar are providing some buffer, and we do have pretty solid activity in some other sectors, like construction and tourism," Ms Leung told Bloomberg.
Australian farmers, for now, aren't under the same pressure. Morgans senior analyst Belinda Moore said Australian farmers were fetching much higher prices.
"Aussie farmers have received some of hte higher farm-gate milk prices over the past couple of years, but are cognisant of the global dairy environment," she said.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Rock star New Zealand wakes up with hangover
Luke Malpass
608 words
17 Jul 2015
The Australian Financial Review
AFNR
English
After being billed the world's "rock star economy" in 2014, New Zealand is now showing signs of an economic hangover, with dairy prices dropping, inflation virtually non-existent and growth rates returning to trend .
"New Zealand is suffering, I suspect, from growth fatigue. Since 2010 they have been firing on all cylinders. For the next couple of years we are looking at 2.5 or 2.75 per cent growth rates," TD securities analyst Annette Beacher told The Australian Financial Review.
"If we are looking at ... 12 to 18 months ahead, everything is back to trend. I don't think that we are into a downturn, but back to the normal business cycle," she said.
ANZ New Zealand chief economist Cameron Bagrie said natural shock absorbers such as a lower OCR and exchange rates, combined with solid migration, would keep the Kiwi economy stable.
"The New Zealand economy is facing challenges. We characterise the outlook as having some 'unruly children' to manage as opposed to the economy heading off the rails," he said.
The latest qualms for growth came as the price of whole milk powder dropped 13.1 per cent to $US1848 ($2500) a tonne in the latest global dairy auction, causing the NZ dollar to drop to US65.53¢ from 67.28¢ by late afternoon trading on Thursday. The price has declined from $US3273 since February.
Partly as a result of recent falls, Fonterra said it was scrapping 523 jobs to save $NZ60 million ($53 million) a year.
"The global dairy market currently has a big imbalance between demand and supply," Fonterra group director of co-operative affairs Miles Hurrell said. "There is a lack of demand globally, particularly from China and Russia, and a huge surplus of supply from New Zealand, Australia, the European Union and the United States."
Dairy accounts for a staggering 29 per cent of all New Zealand's merchandise exports.
However, not all is bad news for the Kiwis. Ms Beecher thinks widely expected cash rate cuts by the Reserve Bank of New Zealand next Thursday will be positive. By lifting interest rates through 2014, and keeping the inflation genie in the bottle, the RBNZ had remained ahead of the curve, she said.
"Inflation has only gone above 2 per cent once in the past five years, and that was in 2010 when the GST was increased. In contrast to the RBA, the RBNZ can cut rates without inflation, and it's not like the Bank of Canada with strong exogenous shocks."
Wednesday's New Zealand consumer price index rose only 0.4 per cent in the quarter to June, driven by petrol prices, which for 91 octane increased from $NZ1.79 a litre to $NZ1.95 ($1.73), according to Statistics New Zealand.
"The main impact came from higher petrol prices, which were up 8.8 per cent in the June quarter; without petrol, the CPI was flat for the quarter," Statistics New Zealand prices manager Chris Pike said.
The New Zealand Initiative, an economics and public policy think tank, was also positive, viewing the dairy price as a blip.
"We can expect dairy prices to recover in the medium term thanks to still-increasing Asian demand. and the government is still keeping its focus on budget discipline combined with market-oriented, yet incremental reforms," executive director Oliver Hartwich said.
"The biggest concern for the New Zealand economy, in the long run, are not dairy but house prices. The overheating of the Auckland housing market thanks to artificial supply constraints needs to be addressed urgently," Dr Hartwich said.
Fairfax Media Management Pty Limited
Document AFNR000020150716eb7h0002d
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Alarm bells over surge in Auckland home prices
AUCKLAND • Surging house prices in Auckland pose an increased risk to New Zealand's financial stability but the central bank cannot raise interest rates to curb demand, deputy governor Grant Spencer said.
"When something keeps you awake at night, it is good to do something about it," Mr Spencer said in a speech published on the website of the Reserve Bank of New Zealand (RBNZ) yesterday.
The response must be multifaceted because "the current weakness in export prices, economic activity and CPI inflation means that interest rate increases are likely to be off the table for some time", he said.
House prices in Auckland, home to a third of New Zealand's 4.5 million population, surged 21 per cent in the year to July amid a housing shortage and record immigration.
The RBNZ has nevertheless cut the official cash rate (OCR) twice in the past two months to stimulate the slowing economy and boost inflation from near zero.
It will cut the cash rate by another 25 basis points to 2.75 per cent at its next policy decision on Sept 10, according to 16 of 17 economists surveyed by Bloomberg, with one forecasting no change.
"The Auckland housing market is unlikely to be a barrier to further OCR cuts," Mr Michael Gordon, senior economist at Westpac Banking Corp in Auckland, said. He expects the cash rate to fall to 2 per cent next year.
The RBNZ recognises that low interest rates are contributing to housing demand pressures and this is a factor it takes into consideration when setting monetary policy, Mr Spencer said. The resurgence in Auckland house prices has increased the bank's concern about financial stability, he added.
"Investors are now accounting for 41 per cent of Auckland house purchases, up 8 percentage points since late 2013," Mr Spencer said.
From Nov 1, the RBNZ will require Auckland property investors to have a deposit of at least 30 per cent to secure a mortgage. The government has also said it will tax capital gains on property held for less than two years from Oct 1.
While these policies may help to reduce imbalances in the Auckland market, "much more rapid progress in producing new housing is needed in order to get on top of this issue", Mr Spencer said.
There have been some signs in recent months of housing demand spilling out of Auckland and starting to fuel price increases in the neighbouring cities of Hamilton and Tauranga, he said, adding that if this persists, the removal of restrictions on low-deposit lending imposed by the RBNZ in 2013 could be delayed.
BLOOMBERG
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
Kiwi confidence drives shares to record high above 6000 points
DateOctober 28, 2015 - 9:02PM
[Image: 1426323565853.png]
Vanessa Desloires
Reporter
[Image: 1446026559711.jpg]
Kiwi confidence in the economy (and rugby) is high, sending its sharemarket through the 6000 mark. Photo: Christophe Ena
Record low cash rates and the potential for more cuts. High yielding stocks enticing investors into the equity market. Sound familiar?
New Zealanders are flocking to their sharemarket in droves, chasing double-digit yields in some stocks as its official cash rates sits at a record low 2.75 per cent.
The global equities rally in October has extended to the land of the long white cloud, sending the benchmark S&P/NZX 50 index through the 6000 mark for the first time on Tuesday.
The 6000 level proved an impenetrable resistance line for Australia's benchmark S&P/ASX 200. The market attempted to cross the barrier several times in April before concerns over the increased capital requirements of the banks and the state of the global economy sent the index down 15 per cent.
To even the playing field, however, it is important to note the NZX 50 is an accumulation index, as distinct from the ASX 200 because it assumes all dividends are reinvested.
Grant Williamson, Christchurch-based director of financial advisory firm Hamilton Hindin Greene, said the best performing stocks were the highest yielding, with yield averaging between 7.5 and 8.5 per cent.
"Anything that has a relatively positive earnings growth outlook, high dividend yield and also quite defensive in its earnings [is doing well]," Mr Williamson said.
Confidence
What set New Zealanders apart from their antipodean counterparts however was their positive outlook.
"There does appear to be an overriding degree of confidence among investors regarding the economy," he said.
While the price of the nation's key export, dairy, has helped drive down the New Zealand dollar, the currency fall has boosted other exports.
"Tourism has almost taken over as our largest industry, there are some quite bright spots," Mr Williamson said.
Compare that with Australian investors' grim outlook on the Australian economy.
The ANZ-Roy Morgan consumer confidence is tracking slightly higher than its long-term average, but the move by the big four banks to lift their owner-occupier and investor-mortgage lending rates knocked consumer's perceptions of their current finances.
Across the ditch, the same index hit its highest level in four months as consumer expectations of the economy's future continued to improve, the research found.
Do the kiwis think our benchmark index can join theirs above the 6000 line anytime soon?
Mr Williamson said while Australia's resources sector continued to have a "huge effect" on Australia's current account deficit, the banking sector's capital raising was proving the drain on the better performing sectors.
What about New Zealand's prospects of beating Australia in the Rugby World Cup on Saturday?
"We are very confident over here," Mr Williamson said.
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
New Zealand dollar getting too big for its economy in volatile world
DateOctober 28, 2015 - 10:58AM
New Zealand's dollar is showing what can happen when a currency gets too big for its own economy.
Average daily turnover in the kiwi is about $US105 billion, or 56 per cent of the nation's gross domestic product, the biggest proportion among the world's leading 20 currencies. That leaves New Zealand vulnerable to swings in its exchange rate, which have seen the local dollar switch from being the biggest loser among its peers earlier this year to the strongest gainer.
"It's a small economy, it's a small currency and therefore, in times of nervousness and positioning, it's a little bit like an emerging-market currency," said Thomas Fitzpatrick, head of technical strategy at Citigroup, the world's largest foreign-exchange trader. "That exit door gets very small, very quickly."
New Zealand's dollar has jumped 5.8 per cent this month, the biggest advance in the Group of 10 currency pairs, as central banks from Washington and Frankfurt to Beijing kept open the liquidity taps that have buoyed higher-yielding currencies. That's a turnaround from the first nine months of 2015, when the kiwi was the worst performer, tumbling to a six-year low in August.
Analysts see it sliding more than 8 per cent by March to US62¢ - taking it back to the bottom of the rankings. The kiwi was at US67.69¢ on Wednesday, set for its best monthly advance in two years.
Punching above its weight
For the currency of a relatively small economy where milk is a major export, New Zealand's dollar punches above its weight in terms of trading volumes.
At a daily average of $US105 billion in April 2013, over-the-counter turnover in New Zealand's dollar ranks 10th in Bank for International Settlements data, just after the Chinese yuan. That compares with the South Pacific nation's economy of about $US188 billion, the 54th largest in the world and just a little bigger than Vietnam's. The proportion of trading to GDP compares with 40 per cent for the Swiss franc, 32 per cent for Australia's dollar and 27 per cent for the US dollar.
Volatility in the kiwi climbed to a two-year high this month as a surge in dairy prices challenged those betting the central bank would cut interest rates. A measure of anticipated price swings is the highest among rich-world currencies at 12.8 per cent.
"It all seems rather unstable," said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand in Auckland.
Gains in the New Zealand dollar rely on Asia being weak enough for the European Central Bank to maintain quantitative easing and to prevent the Federal Reserve from raising rates, "but not enough to generate a risk-off" move, he said.
The kiwi's gyrations pose challenges for companies hedging currency risk and its central bank when it sets policy. Its recent strength is likely to vex Reserve Bank Governor Graeme Wheeler, as he seeks to combat below-target inflation and slowing growth. Officials hold their regular policy meeting on Thursday in Wellington.
Wheeler said September 10 that further easing in the official cash rate, currently at 2.75 percent, was likely and that it was "appropriate" for the kiwi, then trading around US64¢, to depreciate some more. Economists in a Bloomberg survey predict he'll pause this month before cutting rates again in December.
Slump in Asia
The South Pacific nation is susceptible to a slump in Asia. The central bank predicts annual economic growth will slow further after decelerating in the second quarter to the weakest pace since 2013. Exports to New Zealand's largest trading partner, China, have dropped by more than a quarter.
And the dangers this week for kiwi traders aren't all to do with Asia. The Fed is due to make its own policy announcement two hours before Wheeler, and investors are looking for clarity on whether US rates will rise this year.
A dovish statement from Wheeler combined with a hawkish Fed may send the kiwi crashing, while the reverse would help it extend recent gains, said Ray Attrill, co-head of currency strategy at National Australia Bank in Sydney.
While the kiwi will fall "over the next couple of months," in the short term, "the risk is for a bigger squeeze higher," Attrill said. "It's going to be a very, very sharp toy later this week. Handled carefully."
Posts: 8,305
Threads: 496
Joined: Jul 2011
Reputation:
60
NZ central bank sounds alarm on house prices
[Image: 375811-385b0c7c-8833-11e5-9620-9dfba13face1.jpg]
The NZ Reserve Bank has warned of risk to the financial system of runaway house prices in Auckland.Source: Supplied
[b]The New Zealand central bank’s worries about the rampant housing market in Auckland ticked up a notch yesterday, when it warned of the risk of a “damaging correction” that could have serious economic implications.[/b]
For more than two years, the Reserve Bank of New Zealand has been struggling to rein in rapid acceleration in house prices with a variety of tools, including ever-larger minimum deposits that have had little impact on the market, except to lock out first-home buyers.
Its focus has been on Auckland, where house prices have surged an eye-watering 27 per cent in the past year. Lending restrictions are tighter for Auckland than other areas.
It says there is rising potential for a sharp price correction in Auckland because prices have become stretched, relative to household incomes and rents.
“The increasingly stretched Auckland market is at risk of a damaging correction, especially if economic conditions deteriorate,” the RBNZ says in its semi-annual financial stability report.
“The interaction between low mortgage rates, high household debt, and increasing house prices poses a significant risk to the financial system,” the central bank concludes.
Those risks are not dissimilar to the ones posed by the Australian housing market, where record low rates have fuelled rapid price gains in Sydney and Melbourne (15.6 per cent and 12.8 per cent) and driven record levels of household debt.
However, Australian authorities have had rather more success than their New Zealand counterparts in cooling investor demand, with APRA’s hard line on growth in investor lending given a boost by the banks’ hikes in investor mortgage rates.
Auction clearance rates are falling in Melbourne and Sydney, and this week’s housing finance figures showed the steepest monthly decline in investor lending since 2009, although part of that could have been caused by the shock of the unexpected out-of-cycle rate rise initiated by Westpac.
Reserve Bank of Australia governor Glenn Stevens seemed unperturbed by the implications of the major banks’ move for the housing market, saying last week the combined rate rises across the total loan books amounted to retracting only about one-quarter of the RBA’s easing this year and did not require an offsetting policy response.
For New Zealand, the worries over distortions in the housing market have centred on investor activity, since as RBNZ governor Graeme Wheeler points out, investor loans have a higher tendency to default in the event of a major downturn in the property market.
He is concerned that a sharp downturn could undermine financial stability because of the banks’ large exposure to the Auckland market.
Auckland has become one of the most expensive cities in the world as house prices have surged while incomes have remained relatively steady. The price-to-income multiple for Auckland is up to 9.2, a massive surge from 6 in 2011, the bank says.
On November 1 the RBNZ brought in new restrictions on investor lending in particular that will now require a 30 per cent deposit instead of 20 per cent, after introducing blanket loan-to-valuation restrictions across the market in October 2013.
While there was market chatter that it would introduce new limits on total debt-to-income multiples, it abstained but warned banks to take “particular care” to test loan serviceability.
For the first time, the RBNZ says it’s starting to worry about house prices outside of Auckland, in places like Hamilton and Tauranga where prices are up 18 per cent and 14 per cent, respectively.
Bank of New Zealand senior economist Craig Ebert says price inflation is compounded by a sharp increase in the volume of sales in secondary areas, with turnover up by 50-60 per cent on a year ago.
That suggests that low interest rates are playing a big part in the market’s gains beyond Auckland and foreign buyers (read Chinese) are not solely responsible for extreme price gains.
With the RBNZ’s latest cut in the cash rate bringing mortgages down to fresh lows, the spread of the housing bubble outside of Auckland points to an increase in risks to the economy if the market stalls.
On this side of the Tasman, the RBA will be closely watching the impact of the RBNZ’s September rate cut on housing and thinking very carefully before it makes any such move at home.
|
Homepage
PR Newswire
