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Daily Briefing, Monday March 03, 2008
IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at the latest signs of stress in a housing market where the bubble is bursting,We'll look at the latest news from the global credit crunch and what it might mean here for interest rates and our exchange rates,And finally we'll preview the next big batch of mortgage rate resets and how it will coincide quite nicely with the election.Story 1, Firstly we look at some signs emerging of real stress in the housing market.Essentially the bubble is bursting and we're at that exact stage where the bubble pops, covering everyone in soap.The Sunday Star Times has reported that all 21 house auctions it watched in the last week failed to sell the house, either at auction or after auction. It seems some of the auctions even failed to raise a bid.Real estate agents report that auction failure rates have more than doubled to 70% in the last year. It's clear the market is in deep trouble when you look at the pointy end of the process -- mortgagee sales.We've just started an index measuring mortgagee sales listed on trademe.co.nz and realestate.co.nz. This week we saw a big increase to 212 properties listed from 154 properties listed last week.However this should be taken with a grain of salt. Barfoot and Thompson, which is the biggest real estate agency group, have just started listing their properties with trademe. So their mortgagee sales were included for the first time.But it is clear there's a rising trend of mortgagee sales.Story 2Now let's have a quick look at the latest news on the credit crunch coming through from America. New Zealanders are starting to work out this really matters now that some of the banks are putting up fixed mortgage rates because of higher wholesale mortgage rates, which are directly linked to the turmoil on global credit markets since the sub-prime credit crisis hit the markets midway through last year.Late on Friday UBS predicted that the big banks may have to book losses of US$600 billion because of exposures to toxic bonds that aren't paying their way. And then we saw more news that the housing market in America is in dire straights.There are now more than half a million new houses that are sitting there empty. More than 300,000 of those are empty because people pulled out of initial deals to buy the house.This latest batch of bad news had real impact on financial markets late on Friday. Stock markets fell more than 3% and the nerves hit those currencies seen as slightly riskier because they depend on the carry trade, where investors borrow in one cheap currency and invest in another currency with higher interest rates.That meant the New Zealand dollar fell sharply this morning to below 80 cents. This is likely to mean higher interest rates too as nervous global investors demand more for the money they lend us to finance our current account deficit.Story 3And finally we look ahead over the rest of the year to an impending rash of mortgage rate resets.You might remember back in the spring of 2004 the BNZ launched its unbeatable campaign for 2 year fixed mortgages that sparked a price war and a heavy bout of lending. This gave the housing market a second wind.Those mortgages were reset for the first time in the spring of 2006 and now they're due to be reset again in the spring of 2008.We estimate over $40 billion of mortgages or more than 300,000 mortgages will be reset and their mortgage rates will rise from 7.99% to around 9.7%. For someone with a 250,000 dollar mortgage it means their weekly payments will rise by around $60.This will all happen around the time of the election later this year and will no doubt sharpen political minds on the effects of their policies on interest rates.In particular the effects of big tax cuts, which the Reserve Bank governor Alan Bollard has warned would increase inflation and may force him to put up interest rates.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Tuesday.
Treasurys gain as jobs outlook appears sour - MarketWatch
Blogging On Interest Rates, Economics & Business in New Zealand
The effective mortgage rates remains a focus of the RBNZ, noting that it is expected to fall, albeit relatively slowly due to the predominance of fixed mortgage rates and its impact on consumption will be muted by households increased ...
Australian, NZ Dollars Rise on Stocks, Central Bank Rate Cuts - Bloomberg
Australia Stocks, Japan Futures Rise on Home Loans, Rate Cut - Bloomberg
Europe Stocks Rise as ECB, BOE Cut Rates; S&P 500 Futures Drop - Bloomberg
Should NZ have a deposit insurance scheme?
IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at whether New Zealand should have a bank deposit insurance scheme, just like in other countries,And we'll look at the latest on housing prices and official interest rates, where some are now calling on the Reserve Bank to cut rates. We'll explain why they're wasting their time.Story 1, But firstly, we look at whether New Zealand should have a bank deposit insurance scheme.Most people here don't give much thought to whether they might lose their money if they put it in the bank.Surely the bank is safe? We haven't had a bank collapse and surely some one would stop that from happening.Well actually, there are no formal guarantees about the safety of your bank deposits. Aside from the shareholders at the big 4 Australian banks, we have no guarantees.Now the assumption is that the government would bail out one of those banks if they got into trouble, but that's only an assumption and a big one at that.New Zealand is unusual in that it doesn't have a deposit insurance scheme. Britain has one. The United States has one. Even Zimbabwe has one.The Reserve Bank has argued that a deposit insurance scheme raised a "moral hazard" risk. It says bank managers might lend willy nilly if they knew their depositors were safe, or that depositors wouldn't bother to check out their bank if they knew it was insured.I believe that argument is flawed. No one is checking out the bank now and the idea that bank managers would operate more riskily with deposit insurance is tenuous at best.We need a deposit insurance scheme for say the first 50,000 or 100,000 dollars. These are nervous times and anything that prevents a run on a good bank is a good idea.Story 2Now for a quick look at what the Treasury is now saying about the housing market.It has warned that it is slowing down much faster than it expected previously.It says higher retail mortgage interest rates and lower net migration are to blame for a slowdown that could push prices down this year.Treasury is not the first to say this. The Reserve Bank said last week it saw house prices as 20-30% over valued and that prices could fall 5% this year.Now we have some banks calling for the Reserve Bank to cut interest rates to boost the economy. The ANZ has suggested things are slowing quickly and the central bank should act now.Even Mark Weldon, the head of the NZX, is saying there should be a rate cut.There's a couple of problems with this. New Zealand still has an inflation problem and the Reserve Bank needs to beat that.And secondly, any cut in the official cash rate would be a waste of time for consumers in particular.That's because fixed mortgage rates, which covers almost 90% of home owners, are based off wholesale market rates, and those rates are if anything rising because of turmoil on global financial markets.New Zealanders will have to just deal with higher interest rates. It may means house prices will fall and the economy will slow. But that's the price we all pay for going on a 5 year long debt-fuelled consumption and house buying binge. It's time for the hangover and no amount of Berocca from the Reserve Bank is going to fix it.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Tuesday.
Daily Briefing, Tuesday March 04, 2008
IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at the government's decision to ban foreign investment in strategic assets on sensitive land, and what that might mean for interest rates over the long term,We'll check out the latest survey on customer satisfaction for the banks and find out who are the winners and losers,And we'll update you on some astonishing numbers on just how much money is flooding into New Zealand from Belgian dentists and Japanese housewives.Auckland AirportBut firstly, we look at the government's announcement that it will ban foreign investment in so-called strategic assets on so-called sensitive land.This rule was specifically created last night in an awful hurry to block the sale of Auckland airport to the Canadian Pension Fund.Essentially, the government has changed the fundamental rules of the game right near the final whistle. Foreign investors will look at this sort of government policy making and shudder.This will discourage many foreign investors and opens up a pandora's box for this and future governments. Just what is a strategic asset? What is sensitive land?Should we block any sale of Fletcher Building because it builds most public and private infrastructure? Should we buy back Contact and its key power stations?Is land in high country south island sensitive and strategic. Do we like the look of Shania Twain and is she a threat to our national infrastructure.So what would happen if foreign investors are rightly turned off by this big closed sign on our front door. We currently have a current account deficit of around 8% of GDP. That means we have to borrow more than NZ$15 billion a year just to keep spending the way we do. We depend on foreign investor confidence to keep spending. Without that foreign investor confidence they will demand a higher interest rate.If we lose that confidence, that will over the long term increase our wholesale interest rates and therefore our mortgage rates, because they are funded directly from those wholesale markets, as we've found out in recent weeks.Customer SatisfactionNow let's take a quick look at how the banks are doing with customer satisfaction.A Roy Morgan survey shows Westpac, The National Bank and BNZ improved their customer satisfaction ratings in the December quarter.Meanwhile ANZ and Kiwibank saw further satisfaction declines.The National Bank extended its lead as the major bank with the highest customer satisfaction rating. ANZ's satisfaction rating fell to 68.9%, but it remains above its level from a year ago.Westpac's rating rose in the quarter, but remains below its rating from a year ago.Interestingly, the average for the top 5 banks in the December quarter was 74.6%, up from 73.3% a year earlier. Another big mover was Kiwibank, which saw its rating fall to 78.9%. It is now down 5% from a year ago and the honeymoon seems to be waning with the government-owned bank as it moves into its seventh year.Carry tradeAnd finally we take a quick look at the latest tally of Uridashi and Eurokiwi bond issues. This matters because it is essentially a measure of how happy foreign investors are right now to invest in our high interest rates.Amazingly, in the middle of a credit crunch, the Japanese housewives and Belgian dentists bought NZ$2.97 billion worth of these Uridashi and Eurokiwi bonds. This is the biggest monthly total in two years and was well above the 1.52 billion dollars worth of maturing bonds.No wonder the Kiwi rose during the month and remains strong around 80 US cents.That carry trade is far from dead.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Wednesday.
Kiwibank cuts mortgage rate
http://www.interest.co.nz Kiwibank cuts mortgage...
Blogging On Interest Rates, Economics & Business in New Zealand
jill wellington on Banks slash mortgage rates after OCR cut (update 6); sharon v on Have your say: Dr Bollard says the recession is over. Is it really? Mich on Have your say: Dr Bollard says the recession is over. ...
IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at the latest signs of stress in a housing market where the bubble is bursting,We'll look at the latest news from the global credit crunch and what it might mean here for interest rates and our exchange rates,And finally we'll preview the next big batch of mortgage rate resets and how it will coincide quite nicely with the election.Story 1, Firstly we look at some signs emerging of real stress in the housing market.Essentially the bubble is bursting and we're at that exact stage where the bubble pops, covering everyone in soap.The Sunday Star Times has reported that all 21 house auctions it watched in the last week failed to sell the house, either at auction or after auction. It seems some of the auctions even failed to raise a bid.Real estate agents report that auction failure rates have more than doubled to 70% in the last year. It's clear the market is in deep trouble when you look at the pointy end of the process -- mortgagee sales.We've just started an index measuring mortgagee sales listed on trademe.co.nz and realestate.co.nz. This week we saw a big increase to 212 properties listed from 154 properties listed last week.However this should be taken with a grain of salt. Barfoot and Thompson, which is the biggest real estate agency group, have just started listing their properties with trademe. So their mortgagee sales were included for the first time.But it is clear there's a rising trend of mortgagee sales.Story 2Now let's have a quick look at the latest news on the credit crunch coming through from America. New Zealanders are starting to work out this really matters now that some of the banks are putting up fixed mortgage rates because of higher wholesale mortgage rates, which are directly linked to the turmoil on global credit markets since the sub-prime credit crisis hit the markets midway through last year.Late on Friday UBS predicted that the big banks may have to book losses of US$600 billion because of exposures to toxic bonds that aren't paying their way. And then we saw more news that the housing market in America is in dire straights.There are now more than half a million new houses that are sitting there empty. More than 300,000 of those are empty because people pulled out of initial deals to buy the house.This latest batch of bad news had real impact on financial markets late on Friday. Stock markets fell more than 3% and the nerves hit those currencies seen as slightly riskier because they depend on the carry trade, where investors borrow in one cheap currency and invest in another currency with higher interest rates.That meant the New Zealand dollar fell sharply this morning to below 80 cents. This is likely to mean higher interest rates too as nervous global investors demand more for the money they lend us to finance our current account deficit.Story 3And finally we look ahead over the rest of the year to an impending rash of mortgage rate resets.You might remember back in the spring of 2004 the BNZ launched its unbeatable campaign for 2 year fixed mortgages that sparked a price war and a heavy bout of lending. This gave the housing market a second wind.Those mortgages were reset for the first time in the spring of 2006 and now they're due to be reset again in the spring of 2008.We estimate over $40 billion of mortgages or more than 300,000 mortgages will be reset and their mortgage rates will rise from 7.99% to around 9.7%. For someone with a 250,000 dollar mortgage it means their weekly payments will rise by around $60.This will all happen around the time of the election later this year and will no doubt sharpen political minds on the effects of their policies on interest rates.In particular the effects of big tax cuts, which the Reserve Bank governor Alan Bollard has warned would increase inflation and may force him to put up interest rates.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Tuesday.
Treasurys gain as jobs outlook appears sour - MarketWatch
Treasurys gain as jobs outlook appears sour MarketWatch - Reports that the government is considering steps to lower mortgage rates also helped out US debt, as investors speculate the government may buy Treasurys ... |
Blogging On Interest Rates, Economics & Business in New Zealand
The effective mortgage rates remains a focus of the RBNZ, noting that it is expected to fall, albeit relatively slowly due to the predominance of fixed mortgage rates and its impact on consumption will be muted by households increased ...
Australian, NZ Dollars Rise on Stocks, Central Bank Rate Cuts - Bloomberg
Australian, NZ Dollars Rise on Stocks, Central Bank Rate Cuts Bloomberg - Interest rates in New Zealand will fall to 3.5 percent by April next year, Bagrie said. The currencies gained after Asian equities followed US stocks higher ... Australian, NZ Dollars Advance on Equities, Central Bank Cuts |
Australia Stocks, Japan Futures Rise on Home Loans, Rate Cut - Bloomberg
Australia Stocks, Japan Futures Rise on Home Loans, Rate Cut Bloomberg - 4 (Bloomberg) -- Australia shares and Japan futures rose after US mortgage applications increased by a record and New Zealand’s central bank cut interest ... |
Europe Stocks Rise as ECB, BOE Cut Rates; S&P 500 Futures Drop - Bloomberg
Europe Stocks Rise as ECB, BOE Cut Rates; S&P 500 Futures Drop Bloomberg - Indonesia unexpectedly lowered rates and New Zealand reduced borrowing costs by a record as policy makers combat recessions in the world’s biggest economies ... |
Should NZ have a deposit insurance scheme?
IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at whether New Zealand should have a bank deposit insurance scheme, just like in other countries,And we'll look at the latest on housing prices and official interest rates, where some are now calling on the Reserve Bank to cut rates. We'll explain why they're wasting their time.Story 1, But firstly, we look at whether New Zealand should have a bank deposit insurance scheme.Most people here don't give much thought to whether they might lose their money if they put it in the bank.Surely the bank is safe? We haven't had a bank collapse and surely some one would stop that from happening.Well actually, there are no formal guarantees about the safety of your bank deposits. Aside from the shareholders at the big 4 Australian banks, we have no guarantees.Now the assumption is that the government would bail out one of those banks if they got into trouble, but that's only an assumption and a big one at that.New Zealand is unusual in that it doesn't have a deposit insurance scheme. Britain has one. The United States has one. Even Zimbabwe has one.The Reserve Bank has argued that a deposit insurance scheme raised a "moral hazard" risk. It says bank managers might lend willy nilly if they knew their depositors were safe, or that depositors wouldn't bother to check out their bank if they knew it was insured.I believe that argument is flawed. No one is checking out the bank now and the idea that bank managers would operate more riskily with deposit insurance is tenuous at best.We need a deposit insurance scheme for say the first 50,000 or 100,000 dollars. These are nervous times and anything that prevents a run on a good bank is a good idea.Story 2Now for a quick look at what the Treasury is now saying about the housing market.It has warned that it is slowing down much faster than it expected previously.It says higher retail mortgage interest rates and lower net migration are to blame for a slowdown that could push prices down this year.Treasury is not the first to say this. The Reserve Bank said last week it saw house prices as 20-30% over valued and that prices could fall 5% this year.Now we have some banks calling for the Reserve Bank to cut interest rates to boost the economy. The ANZ has suggested things are slowing quickly and the central bank should act now.Even Mark Weldon, the head of the NZX, is saying there should be a rate cut.There's a couple of problems with this. New Zealand still has an inflation problem and the Reserve Bank needs to beat that.And secondly, any cut in the official cash rate would be a waste of time for consumers in particular.That's because fixed mortgage rates, which covers almost 90% of home owners, are based off wholesale market rates, and those rates are if anything rising because of turmoil on global financial markets.New Zealanders will have to just deal with higher interest rates. It may means house prices will fall and the economy will slow. But that's the price we all pay for going on a 5 year long debt-fuelled consumption and house buying binge. It's time for the hangover and no amount of Berocca from the Reserve Bank is going to fix it.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Tuesday.
Daily Briefing, Tuesday March 04, 2008
IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at the government's decision to ban foreign investment in strategic assets on sensitive land, and what that might mean for interest rates over the long term,We'll check out the latest survey on customer satisfaction for the banks and find out who are the winners and losers,And we'll update you on some astonishing numbers on just how much money is flooding into New Zealand from Belgian dentists and Japanese housewives.Auckland AirportBut firstly, we look at the government's announcement that it will ban foreign investment in so-called strategic assets on so-called sensitive land.This rule was specifically created last night in an awful hurry to block the sale of Auckland airport to the Canadian Pension Fund.Essentially, the government has changed the fundamental rules of the game right near the final whistle. Foreign investors will look at this sort of government policy making and shudder.This will discourage many foreign investors and opens up a pandora's box for this and future governments. Just what is a strategic asset? What is sensitive land?Should we block any sale of Fletcher Building because it builds most public and private infrastructure? Should we buy back Contact and its key power stations?Is land in high country south island sensitive and strategic. Do we like the look of Shania Twain and is she a threat to our national infrastructure.So what would happen if foreign investors are rightly turned off by this big closed sign on our front door. We currently have a current account deficit of around 8% of GDP. That means we have to borrow more than NZ$15 billion a year just to keep spending the way we do. We depend on foreign investor confidence to keep spending. Without that foreign investor confidence they will demand a higher interest rate.If we lose that confidence, that will over the long term increase our wholesale interest rates and therefore our mortgage rates, because they are funded directly from those wholesale markets, as we've found out in recent weeks.Customer SatisfactionNow let's take a quick look at how the banks are doing with customer satisfaction.A Roy Morgan survey shows Westpac, The National Bank and BNZ improved their customer satisfaction ratings in the December quarter.Meanwhile ANZ and Kiwibank saw further satisfaction declines.The National Bank extended its lead as the major bank with the highest customer satisfaction rating. ANZ's satisfaction rating fell to 68.9%, but it remains above its level from a year ago.Westpac's rating rose in the quarter, but remains below its rating from a year ago.Interestingly, the average for the top 5 banks in the December quarter was 74.6%, up from 73.3% a year earlier. Another big mover was Kiwibank, which saw its rating fall to 78.9%. It is now down 5% from a year ago and the honeymoon seems to be waning with the government-owned bank as it moves into its seventh year.Carry tradeAnd finally we take a quick look at the latest tally of Uridashi and Eurokiwi bond issues. This matters because it is essentially a measure of how happy foreign investors are right now to invest in our high interest rates.Amazingly, in the middle of a credit crunch, the Japanese housewives and Belgian dentists bought NZ$2.97 billion worth of these Uridashi and Eurokiwi bonds. This is the biggest monthly total in two years and was well above the 1.52 billion dollars worth of maturing bonds.No wonder the Kiwi rose during the month and remains strong around 80 US cents.That carry trade is far from dead.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Wednesday.
Kiwibank cuts mortgage rate
http://www.interest.co.nz Kiwibank cuts mortgage...
Blogging On Interest Rates, Economics & Business in New Zealand
jill wellington on Banks slash mortgage rates after OCR cut (update 6); sharon v on Have your say: Dr Bollard says the recession is over. Is it really? Mich on Have your say: Dr Bollard says the recession is over. ...
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