New Zealand plunges into recessionary spiral • Hacker News Board

Re: New Zealand plunges into recessionary spiral

#101

Post by astrange » Fri, Nov 04, 2022, 9:42 PM UTC

yonaguska wrote: post #22

hn_throwaway_99 wrote: post #7

One clarification if you're not familiar with New Zealand banking. The article states: > Last week, Bank of New Zealand warned that “things could well and truly turn to custard” as the global economy is plunged into recession. I read that and thought "Holy hell, central bankers in the US are usually extremely measured in their comments, they would never say something like 'things could well and truly turn to custard'…

Let's be clear, the federal reserve does not belong to the USA, and is not beholden to any direct representation to the people of the United States. I'm not familiar with how the Reserve Bank of New Zealand operates, but if it's anything like our federal reserve, the country belongs to the bank, and not the other way around.

The Fed is independent because things generally go terribly when it's not independent. The people who control fiscal policy don't do a good job of monetary policy.

If this causes worse problems (which it may but hasn't yet) things will simply be changed again.

Re: New Zealand plunges into recessionary spiral

#102

Post by iggldiggl » Fri, Nov 04, 2022, 9:44 PM UTC

happymellon wrote: post #91

hn_throwaway_99 wrote: post #84

Earlier quoted context omitted.

Many central banks are named "Bank of ", like Bank of England (for historical reasons not Bank of UK), Bank of Germany, Bank of France (Banque de France) or Bank of Spain (Banco de España). If we had a private "Bank of The United States", then yes, that would be confusing, but no official institutions are named "BlahBlah of America". Also, the fact that the official central bank is so close at "The Reserve Bank of Ne…

The German central bank is The Deutsche Bundesbank,which literally means "German Federal Bank" not "Bank of Germany".

Also regarding the putative "Bank of Germany" – in German "Deutsche Bank" (literally "German Bank") sounds more natural than "Bank von Deutschland" (if you literally translate "Bank of Germany"), and there actually is a "Deutsche Bank", but it is a private entity (and always has been).

Re: New Zealand plunges into recessionary spiral

#103

Post by astrange » Fri, Nov 04, 2022, 9:46 PM UTC

hn_throwaway_99 wrote: post #7

One clarification if you're not familiar with New Zealand banking. The article states: > Last week, Bank of New Zealand warned that “things could well and truly turn to custard” as the global economy is plunged into recession. I read that and thought "Holy hell, central bankers in the US are usually extremely measured in their comments, they would never say something like 'things could well and truly turn to custard'…

"Central bankers are extremely measured in their comments" is usually true, but it's a funny thing to say about New Zealand, because the reason the US and other countries have a 2% inflation target is almost literally because a New Zealand central banker made it up off the top of his head on TV once.

This works okayish but, you know, could be better. (Some more explanation at https://someunpleasant.substack.com/p/the-prime-directive.)

Re: New Zealand plunges into recessionary spiral

#104

Post by robocat » Fri, Nov 04, 2022, 10:10 PM UTC

SturgeonsLaw wrote: post #81

mdasen wrote: post #65

Earlier quoted context omitted.

Silly question, but how do you budget given floating interest rates? Let's say that you buy an $800,000 place at 3% interest with a 20% down-payment ($640,000 borrowed). Your payments are $2,698/mo. Fast-forward a couple years and you're now at 7.3% and your payments are up to $4,388/mo. That's a 63% increase in your housing budget. That's an extra $20,280/year in housing costs. Yes, rent can increase crazy amounts w…

Your scenario desribes how it works in Australia (similar system to NZ). Almost all mortgages are variable rate, you can lock in a fixed rate for a few years but otherwise you're at the mercy of interest rates. Buyers are subject to strict lending criteria to determine whether they can afford $current_rates + $future_increases. This means a lot of people are locked out of owning housing. The system is benefiting the…

> The system is benefiting the already wealthy and leaving others, particularly young people, out in the cold.

That is correct, but I think your cause and effect analysis is wrong.

We have 5 million people bidding against each other on 2 million households.

People bid as much as they can on their home, so if lending becomes looser, home prices shift up. The long term affordability doesn't change much. There can be other dynamic effects in the short term, I am talking about long term stability.

People bid to the limit of their affordability, so houses remain at the limit of affordability, regardless of the actual prices.

The structural problem is that home prices are a zero-sum game where we collectively bid to the point we can individually only just afford the interest payments. And we also screw the country because we are bidding on how much money we can give to Australian banks.

Home prices follow the same distribution as income (I think), until you reach a minimum wall of a few hundred thousand, below which nothing is available.

The problem of house prices is an effect of bidding, and I believe prices have almost nothing to do with land availability or the costs of building houses.

We could build more houses, but wealthier people will just buy two or more. I would like to own a second home in town for my occasional use.

What to do? I don't know. Keep increasing minimum wage so that 50% of people are in the lowest income bracket? Extra taxes on investment properties or empty vacation homes? Suggestions?

Are our city council rates already a significant way towards a Georgist taxation system? I looked at a wealthy suburb in Christchurch, and they were paying 5x as much as I do on rates ($15k per annum for the house I looked at).

Living in Christchurch, we had heaps of as-is houses that couldn't get a mortgage, and their prices reflect the cash price, which was wayyyyyy lower than the same home would be with a mortgage. I bought a perfectly good 3 bedroom home for land-valuation + $5000. At least half the price, because a mortgage was unavailable (and market was slow, so amplification factor on price too).

Re: New Zealand plunges into recessionary spiral

#105

Post by Strom » Fri, Nov 04, 2022, 10:40 PM UTC

happymellon wrote: post #88

rich_sasha wrote: post #83

Earlier quoted context omitted.

England, France, Spain, Germany and Italy have f"Bank of {country}" as central bank. I stopped looking after these 5.

And you would also be wrong. The German central bank is The Deutsche Bundesbank,which literally means "German Federal Bank" not "Bank of Germany".

Interestingly they don't seem to translate their name in their English material, they just continue using the German name.

Re: New Zealand plunges into recessionary spiral

#106

Post by __turbobrew__ » Fri, Nov 04, 2022, 10:44 PM UTC

Waterluvian wrote: post #2

I'm sensing this tremendous tension and anxiety in Canada too. Hopefully our energy sector will buoy things a bit so they don't get too terrible.

I (Canadian) had to call our mortgage advisor about something unrelated to the rate hikes, but they said people are losing it because their 30 year mortgage now has a 40+ amortization period due to the payments on the mortgage staying the same but the rates going way up. If rates don’t stabilize it is going to be a bloodbath once peoples 5 year terms are up. You can easily see your monthly payments double.

Re: New Zealand plunges into recessionary spiral

#107

Post by happymellon » Fri, Nov 04, 2022, 10:50 PM UTC

iggldiggl wrote: post #102

happymellon wrote: post #91

Earlier quoted context omitted.

The German central bank is The Deutsche Bundesbank,which literally means "German Federal Bank" not "Bank of Germany".

Also regarding the putative "Bank of Germany" – in German "Deutsche Bank" (literally "German Bank") sounds more natural than "Bank von Deutschland" (if you literally translate "Bank of Germany"), and there actually is a "Deutsche Bank", but it is a private entity (and always has been).

Indeed, which is why I found it very odd that the two people who tried to argue that it is common then used Germany.

Re: New Zealand plunges into recessionary spiral

#108

Post by tmnvix » Fri, Nov 04, 2022, 10:57 PM UTC

robocat wrote: post #104

SturgeonsLaw wrote: post #81

Earlier quoted context omitted.

Your scenario desribes how it works in Australia (similar system to NZ). Almost all mortgages are variable rate, you can lock in a fixed rate for a few years but otherwise you're at the mercy of interest rates. Buyers are subject to strict lending criteria to determine whether they can afford $current_rates + $future_increases. This means a lot of people are locked out of owning housing. The system is benefiting the…

> The system is benefiting the already wealthy and leaving others, particularly young people, out in the cold. That is correct, but I think your cause and effect analysis is wrong. We have 5 million people bidding against each other on 2 million households. People bid as much as they can on their home, so if lending becomes looser, home prices shift up. The long term affordability doesn't change much. There can be ot…

> What to do?

Make housing less attractive as an investment vehicle. In my opinion the best way to do this is with the tax system (which, in NZ, currently favours property investment to a large extent).

Two proposals that are often discussed are a capital gains tax (CGT) and a land value tax (LVT). Personally I would prefer a LVT. A CGT would be an improvement on the current situation, but it would be a big impediment to freely moving to take up a new job or for family reasons. An LVT has the opposite problem of being a potential impediment to staying put if the value of your land increases relative to other areas. For an older person who is no longer working this could force them to find a new home but could be dealt with by deferring payments until sale or settlement of an estate.

Re: New Zealand plunges into recessionary spiral

#109

Post by Atsuii » Sat, Nov 05, 2022, 12:00 AM UTC

r00fus wrote: post #60

robocat wrote: post #43

Earlier quoted context omitted.

In New Zealand, all mortgages are approximately at a floating interest rate. You can lock in a rate for up to 5 years (with the majority choosing 1 or 2 years), but after that “fixed” period completes, you now renew your interest rate at whatever the current market is. Most mortgages are signed up for a term of decades (mine is 30 years, and I signed up at age 50), so although you might use “fixed” rates for a few ye…

Here in the US we have ARMs (adjustable rate mortgages) - usually they are rated by (fixed period/stepping rate) - the most common being a 5/1 ARM = 5y fixed + adjustable rate reset every year. So is it the case that in NZ, if you refinance your mortgage, you typically get charged a significant fee?

I can’t speak exactly for NZ but I assume it’s similar to Australia; it is normal to get charged a discharge fee from the bank your leaving and there maybe an establishment fee at the bank your refinancing with, along with another small cost to change the official register of state government. This could all amount to a couple of thousand dollars every time you refinance.

Re: New Zealand plunges into recessionary spiral

#110

Post by Atsuii » Sat, Nov 05, 2022, 12:15 AM UTC

throwaway788 wrote: post #27

hedora wrote: post #18

Figure 9 looks dire: 95% of mortgage (by total value, not count) are going to have their rates adjusted in the next three years; 56% in the next year. In the US, that'd definitely lead to a housing crisis worse than 2008. Is there something different about how houses are purchased in NZ?

The banks are required to stress test those loans with somewhat stringent requirements. When the loans were granted they take the current retail interest and add around 3% and ensure that the loan recipient could still afford it. Last year there were stories in the NZ media around how banks were not writing loans because people were spending too much on Uber Eats etc. They were going over finances with a fine-toothed…

I know from family in NZ that the stress test banks apply is very similar to stress test we apply in Australia. As of the latest rate rise, rates are now above what banks were required to stress test for at the lowest rate loaned in 2021. I imagine New Zealand is reaching that number as well. For 90% of households this won’t matter as they purchased pre 2020/2021 so they were means test for higher rates but for households who took loans on during Covid they could theoretically really struggle when their fixed rates are up.