Hyperinflation hits New Zealand property after RBNZ drops ball

New Zealand house prices rocketed in October to another record high, according to the REINZ:

Extraordinary growth is being recorded, with the seasonally adjusted median price surging by 4.7% in October and by 20.0% year-on-year:

Sales volumes have also soared, rising 25.8% year-on-year:

The price rises are being driven by the top half of the market, where sales volumes have soared:

New Zealand’s median house price has soared to $725,000, with Auckland’s topping $1 million:

Median house prices across New Zealand increased by 19.8% from $605,000 in October 2019 to a new record median high of $725,000 in October 2020; and up from $689,000 in September this year (a 5.2% lift)…

Median house prices for New Zealand excluding Auckland increased by 15.4% from $520,000 in October last year to a new record median price of $600,000, and up from $585,000 in September this year (a 2.6% increase).

Additionally, Auckland’s median house price increased by 16.3% from $860,000 at the same time last year to $1,000,000 a new record high, and up from $955,000 in September this year (a 4.7% increase)…

Bindi Norwell, Chief Executive at REINZ says: “October 2020 will go down in ‘housing history’ as being the point in time when Auckland region’s median house price hit the million dollar mark for the first time – something no one anticipated or expected just six months after the entire country came out of lockdown.

The RBNZ has clearly dropped the ball here. In May it lifted loan-to-valuation (LVR) mortgage restrictions and in the process, helped reignite New Zealand’s housing bubble.

Now the RBNZ is looking to shut the gate after the horse has bolted by reintroducing high LVR restrictions on new mortgage lending:

The Reserve Bank’s made a shock announcement that next month it will consult on the possible reintroduction of high loan to value ratio (LVR) lending limits on banks early next year – and concedes it is now observing “rapid growth in higher-risk investor lending”.

The move, to reintroduce the LVRs in March, is in effect a screeching u-turn by the central bank…

By rushing the announcement out now the RBNZ is signalling through its actions that the housing market is clearly getting away on it…

The LVR restrictions – originally put in place in 2013 – are used to reduce the risks to financial stability from higher-risk lending. At the time they were removed the LVR restrictions called for investors to have 30% deposits for houses, while in terms of lending to owner-occupiers the banks were limited to only 20% of their new lending for loans in excess of 80% of the value of a property.

The decision to remove LVRs always appeared extremely risky.

Whoops!

Unconventional Economist
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Comments

  1. reusachtigeMEMBER

    This is spectacular news. All good people love boom times in property. We are starting to see our own version. Ours will be mega extreme intense and supreme.

    • Jumping jack flash

      Couldn’t have said it better. This is great.
      Hopefully the debt keeps up with it. Go you good thing!

    • The only downside I can see is that with the smaller pool of residents their relations parties aren’t as good as the ones Reusa attends. But on the other hand … THERE ARE NO SNAKES IN NZ! Maybe that is what is driving the growth!

    • And you managed to say that with a Kiwi accent. Thought you only did things like that for the ladies.

  2. This can only be deliberate.
    No one in their right mind could have been this stupid.
    I’m going to be fascinated to see how it’s written up in the textbooks of the future, instructing us on “How to solve a Debt and Homelessness Problem in One Easy Lesson” also known as “More Net Debt makes People Richer”

    • SupperannuationMEMBER

      When property prices go up it creates wealth. That wealth can be used to provide housing for homeless people. The more prices go up the easier it becomes to help homeless people because everyone has more money. Or something like that.

      Edit: sarcasm

      • What Wealth? I’d guess you’re being sarcastic ( it’s better than crying at what’s happening here) but any surplus that anyone ends up with after selling-up will get recycled back into more investment property with additional debt.
        The Wealth never makes it out of the grand loop if interest rates are at 0%. Why would it? It’s captured ‘wealth’ and will never get spent. At best, it will be used as collateral for even more debt and as I just suggested, there is only one place to spend it!

      • Jumping jack flash

        Yes!
        Because debt is wealth in the New Economy.
        And in the New Economy debt is also real money… I mean, what more do you want but to be able to buy things with it? Debt does that job quite nicely.

    • chuckmuscleMEMBER

      yep, apparently a “left wing” government too, lol. All the same neoliberal looting party, just one doesn’t lie about it and pretend to be otherwise.

      • Actually its more like complete incompetence, with a Govt who have no talent, or skills, in managing anything. They are all social policy wonks who havent had a job in the private sector. This is the qualifications of our Minister of Finance!
        – studied political studies at the University of Otago, graduating with a Bachelor of Arts with honours in 1995.
        – His honours dissertation studied the restructuring of the New Zealand University Students’ Association in the 1980s.
        – joined the Ministry of Foreign Affairs and Trade in 1997 after leaving university. His overseas postings included the United Nations in New York. Robertson also managed the NZ Overseas Aid Programme to Samoa
        – worked as a Ministerial advisor to Minister for the Environment Marian Hobbs and later Prime Minister Helen Clark.
        – left the Prime Minister’s office to work as the Senior Research Marketing Manager for the University of Otago based at the Wellington School of Medicine.
        Jacinda’s only job outside of Govt was as a teenager in a fish and chip shop. These are the people running this country. God help us.

    • You’ve already heard that;

      – War is peace
      – Freedom is slavery
      – Ignorance is strength

      In the modern world of today, in the Grave New World, we also have;

      – Debt is wealth

      And, the latest one;

      – Minority of votes means I won the election.

  3. You are NOT allowed to mention “inflation” in the contect of house or asset prices. These are not included in any inflation measurement.

    More expensive food = inflation
    More expensive homes = increase in wealth

  4. blindjusticeMEMBER

    Its a problem across the western world, pre-GFC and (even more so 10 years ) post GFC…..Where else does money go?, its being printed every where ever since. Interest rates are lousy and the economies are zombies and skeletons.

    Every spare dollar from tax cuts & every economic stimulus package is going to take the path of least resistance

    • True.

      If you’re a low risk investor and interest rates are 0% what are you going to do?
      The stock market? no, its too volatile.
      Houses? well “safe as houses” has been true for a long time.

      With a vaccine close, immigration will start again and people will be pouring back in into NZ. Property is looking like a much better investment than money in the bank.

    • Yeah, but it’s the old chestnut.
      How do you know when a politician is lying? Their lips are moving………

    • Yes. And I switched allegiance to vote for her. Not again.
      In fact. We’re lucky! We don’t get fined if we don’t vote like you guys. So I shan’t be from now on. They have all proven themselves to be ….well just like each other. Hopeless.

    • Jumping jack flash

      Affordable housing! Lol.
      They’re nice buzzwords, but the devil is in the detail.
      No pollie has ever managed to work it out yet.

      They can weasel out of it pretty easily though, and say that when they said “Affordable housing” they were really talking about places to rent for the impoverished, or building government housing (for the same), rather than implying they were making ordinary houses more affordable for ordinary people to buy… because that’s simply not possible.

      Besides, “unaffordable houses” aren’t actually a thing in the New Economy, anyway. The actual issue is being eligible for the amount of debt that is required to be able to buy the house you want.

    • Affordable housing and reducing child poverty. Under her short 3 year term, the waitlist for public housing has quadrupled! So bonus points for not only not delivering on her promises, she actually managed to make the existing problem 4 times worse. Thats quite an achievement. Not that I care. I own houses.

  5. NEW ZEALAND: RECKLESS MONETARY INTERVENTIONS TURBOCHARGING A STRUCTUALLY UNSOUND HOUSING MARKET … SOUTH AMERICAN STYLE …

    How much debt is too much for Kiwi households to bear? … Daniel Dukley OPINION … Stuff NZ

    https://www.stuff.co.nz/business/opinion-analysis/300155588/how-much-debt-is-too-much-for-kiwi-households-to-bear

    … extract …

    … To put NZ’s high household debt into perspective, take a look at Europe. Following the global financial crisis, Ireland capped mortgages at 3.5 times income to reduce risks in its financial system. In 2014, the Bank of England put limits on mortgage lending above 4.5 times income to keep a lid on debt and rising house prices.

    “After the GFC, the central bank of Ireland concluded that mortgage debt-to-income was far more significant than loan to value ratios,” says Hugh Pavletich, co-author of the annual Demographia international housing affordability survey. He is concerned about “grossly excessive” lending multiples in NZ.

    Pavletich describes New Zealand’s debt to income levels as “hugely dangerous”, particularly for first home buyers. He says the problem is a direct symptom of decades-long planning and building failures. According to Demographia, the unweighted median multiple house price across New Zealand metros is 7.0, in contrast to 5.9 in Australia, and 3-3.5 in many parts of the US, which has far more effective systems for planning, financing, and developing affordable homes.

    “I find it insane that the banks are lending at multiples of 5.5 times to 8 times household income,” he says. “People shouldn’t be paying more than 3 times household income to house themselves, with a 2.5 times income mortgage.
    “Loading young people up with grossly excessive debt is simply callous and contemptible,” Pavletich adds. “It is destroying people’s lives, getting them committed to these multiples.”
    .
    .
    JUST RELEASED … REAL ESTATE INSTITUTE OF NEW ZEALAND (REINZ) OCTOBER REPORT RELEASED TODAY https://reinz.co.nz/residential-property-data-gallery … NEW ZEALAND HOUSING INFLATION NOW 5.2% A MONTH … YES … A MONTH … SOUTH AMERICAN STYLE ! …

  6. The90kwbeastMEMBER

    And this is with immigration slammed shut at zero.

    Horrendous financial management by the RBNZ that shows greed has no bounds when left unrestrained.

    Also, interest rates hit the floor in NZ too guys, don’t forget that piece.

    • Its not zero. MIQ hotels are currently full with Russian sailors, the West Indies cricket team, post graduate international students, and family members of non NZers here to visit those on work/study visas. Actual NZers cant get back in the country as a result.

  7. The RBNZ has admitted that the calculations it made when Covid19 didn’t eventuate. But it had committed itself to emergency measure that would expire in May 2021, and by golly, it was going to stick to them, regardless of the change in outcomes. Yesterday it eased off and brought the expiry date back to March 2021. Yes; next March. It effectively sent the market a sternly worded letter that ” it ought to be careful because come next March we are going to get tough on you again” You could hear the laughing from the market in Sydney! And the terrified panic of those who thought they’d be cautious in case ‘things’ did get worse again was totally unexpected?
    Who gets it that wrong, except a Central Banker who can be wrong 35 times out of 35 and still tell you that on the 36th attempt they’ll be right. And if not then certainly the 37th….
    This is people lives, hopes and futures we are talking about here. No whether Tesla shares have gone up or down; people lives.

    • The hopes, futures and lives of those that don’t own property and/or aspire to own it don’t matter. They haven’t mattered for a long time.

    • Jumping jack flash

      Oh how surprising.

      All that “stimulus” in the name of COVID is still going to be applied? Well I never!

    • Jacinda is simply shoring up her voter base. The more people dependent on the Govt for handouts and housing, the more likely she stays in her job. And the more house prices go up, the more the traditional National voter will vote for her too. Its a win win for her.

  8. Serge UpwardsMEMBER

    Well U.E, you need to have a word with your colleague David Llewellyn-Smith as he is also cheering on the madness shown lately by the RBA in slashing interest rates and launching Q.E. Best you give him a damn good slapping upside the head, see if you can knock some sense into that thick skull of his.

  9. Jumping jack flash

    This is great as long as the debt keeps up. If the debt expansion falters, then it all stops and turns around quite quickly.
    House prices are safe of course, at whatever stratospheric level they achieve.

    It is everything else that suffers to make way for the debt.

  10. UPDATE … NZ PM ARDERN SADLY WAFFLING ABOUT HER GOVERNMENTS HOUSING DISASTER …

    An understandably nervous and confused Prime Minister Ardern waffling about New Zealand’s self – inflicted housing disaster … with no mention of genuinely sorting out land supply and infrastructure debt financing, to allow affordable new housing to be built …

    … The building of affordable housing is STILL effectively politically banned in New Zealand … sadly … by a supposedly ‘caring’ Labour government …

    PM Jacinda Ardern on house prices: ‘It just cannot keep increasing at the rate that is’ … Radio New Zealand

    https://www.rnz.co.nz/news/political/430441/pm-jacinda-ardern-on-house-prices-it-just-cannot-keep-increasing-at-the-rate-that-is

    Prime Minister Jacinda Ardern says she wants to ensure first home buyers can get into the market after it was revealed this morning that house prices have increased nearly 20 percent.

    Watch the PM speaking to media here: … view and read more via hyperlink above …