New Zealand plunges into recessionary spiral • Hacker News Board

Re: New Zealand plunges into recessionary spiral

#21

Post by ghaff » Fri, Nov 04, 2022, 7:46 PM UTC

zinckiwi wrote: post #13

mmazing wrote: post #10

Wow! That's a lot of variable rate or only temporarily fixed rate mortgages! I'm certainly no expert in all of this, how does that stack up with other countries data?

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?

Re: New Zealand plunges into recessionary spiral

#22

Post by yonaguska » Fri, Nov 04, 2022, 7:46 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'…

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.

Re: New Zealand plunges into recessionary spiral

#23

Post by twelvechairs » Fri, Nov 04, 2022, 7:46 PM UTC

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?

US has 30 year mortgages backed by government. New Zealand and Australia do not so the overwhelming number are either floating/variable or fixed for 1-5 years.

Re: New Zealand plunges into recessionary spiral

#24

Post by jemmyw » Fri, Nov 04, 2022, 7:48 PM UTC

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?

Mortgages in NZ are typically fixed for between 1 and 5 years, with most fixing around 3 years. So 95% of mortgages will always be rate adjusted in the next 3 years.

Re: New Zealand plunges into recessionary spiral

#25

Post by rr888 » Fri, Nov 04, 2022, 7:48 PM UTC

abeppu wrote: post #19

As an American I was struck by the graph of mortgages by fixed term length. I guess I've always heard that US home buyers are constantly benefiting from policies propping up 30 year fixed mortgages, and I knew that other places this wasn't the norm. But it's surprising to me that a majority of mortgage debt in NZ is fixed for less than 1 year. Even in years that don't see rapid interest rate changes, this must make i…

The long term fixed term mortgage in the US rely on Govt regulation and the securitization of debt. In most countries when you get a mortgage its literally a loan from the bank, not sold on to bond holders.

Floating rate makes sense, if inflation rises, rates rise and usually so the pay rises so you can afford to pay more. In the US I have fixed at ~2% for 15 years which is good for me but seems silly over such a long term.

Re: New Zealand plunges into recessionary spiral

#26

Post by recuter » Fri, Nov 04, 2022, 7:48 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.

Clear as custard.

Re: New Zealand plunges into recessionary spiral

#27

Post by throwaway788 » Fri, Nov 04, 2022, 7:49 PM UTC

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 comb (there was a bit of backlash in the media, but turns out it was a good thing). NZ banks have quite a high capital reserve buffer requirement which was increased by the Reserve Bank of New Zealand a few years ago – with a lot of pushback from the banks at the time.

Re: New Zealand plunges into recessionary spiral

#28

Post by loeg » Fri, Nov 04, 2022, 7:49 PM UTC

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?

> Is there something different about how houses are purchased in NZ?

The US government subsidizes long term fixed-rate mortgages as a matter of policy. This is not true in most other countries, including, apparently, New Zealand.

Re: New Zealand plunges into recessionary spiral

#29

Post by onlyrealcuzzo » Fri, Nov 04, 2022, 7:49 PM UTC

twelvechairs wrote: post #23

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?

US has 30 year mortgages backed by government. New Zealand and Australia do not so the overwhelming number are either floating/variable or fixed for 1-5 years.

The US and Belgium are the only countries in the world with a government subsidized 30-year fixed rate AFAIK.

Re: New Zealand plunges into recessionary spiral

#30

Post by soperj » Fri, Nov 04, 2022, 7:50 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'…

Prior to 2012, there was also the National Bank of New Zealand which was also just another retail bank. Extra confusion haha.