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Credit crunch looming

Rising household debt, combined with ballooning house prices are likely to lead to a credit crunch, Bancorp economist Stuart Marshall says.

Monday, September 2nd 2002, 6:14AM

by Jenny Ruth

While ANZ Bank economist Sean Comber worries about what the surprisingly strong housing market will mean for inflation and interest rates, Bancorp economist Stuart Marshall is worried that household indebtedness continues to rise even as the economy is slowing.

The latest Reserve Bank figures show household indebtedness rose $495 million to $8.74 billion in July from June and was $6.08 billion, or 8.4%, higher than in July last year. The lion’s share of this was accounted for by mortgage debt, which rose $450 million to $71.48 billion in July from June and was $5.49 billion, or 8.3%, higher than in July last year.

There hasn’t been a month in the past year when household indebtedness hasn’t risen.

"The more I see of data like this, the more I believe a credit crunch at the consumer level will happen," Marshall says. "It can’t last."

He notes that wages are growing at a much slower rate of about 3.5%. However, the median house price rose a greater 8.8% between July and July last year.

"If house prices keep going up at a faster rate than debt and repayment levels and as long as the economy is growing to the point that people can afford to enter the housing market, then there’s no problem," Marshall says.

Comber isn’t so worried about the overall rate of household indebtedness. He notes that although household debt has risen from about 90% of household income in 1996 to more than 110% of household income now, since 1999, it’s been reasonably stable at more or less 110% of household income.

His concerns centre around the fact that even though it’s winter when the housing market slows, house sales in July were at a record for that month and that building consents were also at a record.

He notes the unemployment rate was a 14-year low of 5.2% in the June quarter and is likely to fall below 5% in the second half of this year. Immigration growth, at a net 34,000 people in July, exceeds the peak in the mid-1990s.

"Looking forward, it is difficult to see any likelihood of a significant slowdown in housing market activity," Comber says.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 ▼2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼3.15 3.29 ▼3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.09 3.19 3.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.59 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.99
The Co-operative Bank - Standard 4.40 3.05 3.19 3.49
TSB Bank 5.34 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.12 3.22 3.19

Last updated: 31 July 2020 3:01pm

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