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New Zealand plunges into recessionary spiral

macrobusiness.com.au

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Re: New Zealand plunges into recessionary spiral

#111

Post by ameminator »

rufus_foreman wrote: post #80
mig39 wrote: post #52

Earlier quoted context omitted.

Canada does both adjustable-rate and fixed-rate mortgages. Just that we tend to do it for shorter periods. Typically 5 or 10 years. I have two fixed-rate mortgages with really low rates. They won't come up for renewal until 4 years from now. Then I'll have to choose whether to do another 5 years with the current rate, or convert over to an adjustable rate.

In the US a mortgage with a rate that resets after 5 years would be considered an adjustable rate mortgage, although the rate would typically reset yearly after the initial 5 years (a 5/1 ARM). A mortgage that ends after 5 years and needs to be renewed would be considered a balloon mortgage, and they are rare in the US. They are "non-qualified" mortgages which means the government sponsored entities won't buy them, s…

It seems to be common due to the oligopoly of Canadian banks (there are 5 big banks for all of Canada and the concept of a small bank just doesn't exist, due to regulatory hurdles). It's a way to push the risk onto the consumer and guarantees that homeowners are first to suffer in a downturn - conversely Canadian banks are very "safe" from economic pressures, at least compared to their American counterparts. It's already a big problem because Canadian household debt has reached 2.1 trillion dollars [0], with a GDP of 1.9 trillion dollars [1] (all in USD). Note these figures don't include government debt, which is also significant. Altogether, Canada may face a liquidity crisis on servicing the debt, if rates continue to rise.

[0] https://www.ceicdata.com/en/indicator/canada/household-debt

[1] https://tradingeconomics.com/canada/gdp

Re: New Zealand plunges into recessionary spiral

#112

Post by ameminator »

tenpies wrote: post #67
jeffbee wrote: post #5

Their consumer sentiment is only at -25 for major household goods? In the U.S. it is -35! https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=35...

There are a couple of Western countries that have combined a decade of terrible housing policy, banking policy, immigration policy, and every other government lever you could imagine; in order to generate an absolutely generation-crushing property bubble. New Zealand, Canada, and Australia will all be catastrophic lessons in the future. So when you see -25 sentiment in housing by Kiwis, it's much more severe than -35…

The Canadian government just doubled down on immigration to attempt to bring in 500,000 new immigrants per year[0]. Note, this does not include other sources of immigration, such as students and other types of international work visas.

Since most immigration goes to the major Canadian cities of Toronto, Vancouver and Montreal, there is a serious impact on housing and services. For reference, it's as if the US government committed to bringing in over 5 million immigrants per year and putting them in the 5 biggest metro areas, without any increase in housing development, education or health care.

This is also probably why the health care system is collapsing, why educational quality is decreasing and why housing prices have sky-rocketed to some of the most unaffordable in the entire world.

[0] https://abcnews.go.com/International/wireStory/canada-500000...

Re: New Zealand plunges into recessionary spiral

#113

Post by refurb »

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.

Canada is going to be hit hard. If you go on the Canadian financial subreddits, you'll see plenty of "Can my bank increase my mortgage by $1,500 per month?".

The decades of continuing dropping interest rates mean a good chunk of the population don't even understand the mortgages they took on.

Now imagine buying a home for $1.5M in GTA, then having your mortgages payment increase by 50-75% and the value of your home drop by 30%+.

Winter is coming.

Re: New Zealand plunges into recessionary spiral

#114

Post by refurb »

ghaff wrote: post #21
zinckiwi wrote: post #13

Earlier quoted context omitted.

In my experience the concept of a 30-year fixed mortgage is uniquely (or close to it) American. Certainly in NZ anything beyond a two-year fix is rare.

Which, as an American, seems wild. How many people are prepared to have their mortgage go up 2x to 3x just a few years--which doesn't even require an increase to especially outrageous rates from historically low interest rates?

The problem is that interest rates have been on a long, slow downward trend for almost 30 years in Canada. Anyone less than 50 years old hasn't be around in a rapidly increasing interest rate environment.

It's very common to always go with a floating variable mortgage and for the past 3 decades it's been the clear winner to locking in a rate for 3-5 years.

It also explains why last year the average sale price of a Canadian house was double that of the US. Let that sink in, in a country with higher taxes, lower wages and variable mortgages...the price is double.

It should be the other way around. You'd expect the US to be the same or maybe a small premium to Canadian home prices.

Re: New Zealand plunges into recessionary spiral

#115

Post by dzhiurgis »

thecoppinger wrote: post #77
lostlogin wrote: post #12

Earlier quoted context omitted.

> Bank of New Zealand And here is the funny bit, it's Australian owned. If it's anything like the rest of the market which is dominated by Australian banks, it'll pay some old kiwiana type music when you are on hold and say 'Kia Ora' or similar at regular intervals. Kiwi as.

If I had a dollar for every time I’ve had to listen to Six60 while on hold, I’d be rich enough to start a bank.

Well my call to waka kotahi cost me 90 euros last week. 30 minute wait time and 6 minute convo. Turns out calls outside EU while roaming is priced at a whopping 2.5 eur a minute.

Re: New Zealand plunges into recessionary spiral

#116

Post by robocat »

tmnvix wrote: post #108
robocat wrote: post #104

Earlier quoted context omitted.

> 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 impedimen…

I am a strong opponent to CGT for businesses. I suspect it would be hard to introduce CGT just for real estate. Reasons for hating on CGT:

1. in NZ we need more investment in businesses, and less in real estate. I think introducing CGT would decrease business initiation and growth.

2. Most businesses fail i.e. your expected returns are often negative. The power law returns mean your expected return is highly dependent on winning big (VC model that one massive winner makes up for 10 losers), but CGT discourages winning big, and it discourages early investment in businesses.

Re: New Zealand plunges into recessionary spiral

#117

Post by dzhiurgis »

lostlogin wrote: post #96
potatochup wrote: post #14

Earlier quoted context omitted.

> falling house prices Good?

Yes. But there will be losers. Some of this I'm fine with but hurting first home buyers and those who need a home to live in is crap.

So what happens when your house mortgage is in negative equity? Just means you’ll need to hodl longer?

Re: New Zealand plunges into recessionary spiral

#118

Post by McNutty »

mdasen wrote: post #65
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…

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…

You've had multiple replies, but I think that one key piece of information missing from all of them is the fact that you could move between floating and fixed. In your example you might see rates going up and you'd decide to change from the floating rate to a fixed rate for a term of 1-5 years. A few years later you might go back to floating. You might also have your mortgage split up into 2 or 3 tranches with 1 floating and 1or2 fixed at different rates. You can move from floating to fixed at any time, but you can only from fixed to floating at the end of the fixed term (or earlier by paying the bank a break fee)

Re: New Zealand plunges into recessionary spiral

#119

Post by dzhiurgis »

tmnvix wrote: post #108
robocat wrote: post #104

Earlier quoted context omitted.

> 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 impedimen…

I’d like to add - forbid leveraged investors from buying existing stock.

Re: New Zealand plunges into recessionary spiral

#120

Post by littlethrowaway »

dzhiurgis wrote: post #115
thecoppinger wrote: post #77

Earlier quoted context omitted.

If I had a dollar for every time I’ve had to listen to Six60 while on hold, I’d be rich enough to start a bank.

Well my call to waka kotahi cost me 90 euros last week. 30 minute wait time and 6 minute convo. Turns out calls outside EU while roaming is priced at a whopping 2.5 eur a minute.

Skype call credit can certainly help you out when calling home from overseas!
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