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New Zealand plunges into recessionary spiral

macrobusiness.com.au

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Re: New Zealand plunges into recessionary spiral

#31

Post by Tiktaalik »

lostlogin wrote: post #4
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.

Is the energy sector mining, drilling, oil and gas? If that's the way out of financial strife, that's depressing.

Tech industry in bc employs more people than all the mining oil and gas combined.

The importance of the traditional resource industries feels like an out of date meme leveraged for political reasons. It's not the future for Canada.

Re: New Zealand plunges into recessionary spiral

#33

Post by jemmyw »

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?

Banks are supposed to stress test customers to that kind of rate. Not sure how successful that is. I know we thought about it and moved pretty far out in order to afford the home we wanted without stretching our budget to the limit. Most of our peers stretched themselves to the absolute limit they could afford.

Re: New Zealand plunges into recessionary spiral

#34

Post by voisin »

jemmyw wrote: post #24
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.

Same as Canada. I assumed it was market forces but no, it is regulated this way! Seems like a bizarre plan to make your populace less resilient to rate fluctuations.

Re: New Zealand plunges into recessionary spiral

#35

Post by exhilaration »

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?

I've read comments on Hacker News that adjustable rate mortgages are the rule rather than the exception in many countries (outside of the U.S.). Here's a comment saying that Canada ONLY does ARMs https://news.ycombinator.com/item?id=15185052 and another comment saying that they're very common in some European countries: https://news.ycombinator.com/item?id=30339845. I'm guessing this is how it is in New Zealand.

Re: New Zealand plunges into recessionary spiral

#36

Post by voisin »

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.

How are they backed by government differently than say in Canada where CMHC backs most mortgages?

Re: New Zealand plunges into recessionary spiral

#37

Post by loeg »

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?

Most countries don't have long-term fixed-rate mortgages. The US does because the federal government subsidizes them as a matter of housing policy.

Re: New Zealand plunges into recessionary spiral

#38

Post by matteotom »

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 designed to be independent from the whims of any individual politician, but it still exists due to an act of congress, and could be changed at any time by congress passing a law and the president signing it. And if that can't/doesn't happen, it's because _congress_ doesn't represent the people of the United States.

Re: New Zealand plunges into recessionary spiral

#39

Post by Tiktaalik »

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?

Variable rates are bad in those rare years where rates spike upwards, but the data shows that in general, variable rate mortgages are more affordable than fixed rate mortgages (which are a premium), which is why they're pretty popular.

The thing that makes them not painful in bad times is that often the payments stay fixed, and the extra interest is tacked onto the end (meaning that you are gaining more to pay). (you can get a mortgage where the payments do immediately change as the rate changes)

That being said it is possible to hit the "trigger rate" where your fixed monthly payments are no longer even covering interest alone, and then the bank will give you a call to make your payments go up.

Re: New Zealand plunges into recessionary spiral

#40

Post by dbetteridge »

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?

Well it's not like you have a choice...

Most banks will give 5 years fixed at maximum and the interest rates were always higher than variable.

Most people signing for the variable rates didn't expect this sort of massive increase within a year, given its been fairly low for a decade.

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