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New Zealand plunges into recessionary spiral

macrobusiness.com.au

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Re: New Zealand plunges into recessionary spiral

#51

Post by bombcar »

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?

It's somewhere between US fixed-loan buying and month-to-month renting. It can go up but you can plan for that, basically by buying less house than "the maximum".

Re: New Zealand plunges into recessionary spiral

#52

Post by mig39 »

exhilaration wrote: post #35
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.

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.

Re: New Zealand plunges into recessionary spiral

#53

Post by coliveira »

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?

This is certainly bad, but if it will lead to a crisis like 2008 in the USA, depends on a number of factors. First, there was a lot of leverage and fraud in the US case. Then, there was lack of financial support for families that had no option other than default on their mortgages. The US government didn't anticipate the issues caused by ARMs and only dealt with the problem when it was already clear the total collapse of the mortgage industry.

Re: New Zealand plunges into recessionary spiral

#54

Post by vosper »

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…

This is correct, and also wages are rising faster than inflation. Very very few households with mortgages are actually at risk of defaulting (so low the number is essentially zero), and both banks and households can sustain higher interest rates than we're seeing.

Much more info (with numbers and charts) in Bernard Hickey's post from a few days ago.

https://thekaka.substack.com/p/incomes-are-rising-faster-tha...

Re: New Zealand plunges into recessionary spiral

#55

Post by michael1999 »

voisin wrote: post #34
jemmyw wrote: post #24

Earlier quoted context omitted.

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.

How do you mean it is regulated this way? RBC lists a 25-year fixed right now - https://www.rbcroyalbank.com/mortgages/mortgage-rates.html#p....

It isn't competitive (9.75% vs 6.2% on a 5 year), but it's there.

Re: New Zealand plunges into recessionary spiral

#56

Post by fdsafdewe »

Tiktaalik wrote: post #31
lostlogin wrote: post #4

Earlier quoted context omitted.

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.

You'd be amazed at how many "traditional resources" it takes to manufacture CPUs and other semiconductors.

Re: New Zealand plunges into recessionary spiral

#57

Post by soperj »

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.

We're still a resource extraction economy in Canada. If it's not oil & gas, it's timber, mining, water, fish, food. You look at every major export from any province in Canada and it's mostly resources. Ontario is cars, which I'm not sure is any better.

Re: New Zealand plunges into recessionary spiral

#58

Post by soperj »

Tiktaalik wrote: post #31
lostlogin wrote: post #4

Earlier quoted context omitted.

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.

BC's biggest exports is still Coal, and then Lumber. I'm sure Natural gas will be added to that list shortly.

Re: New Zealand plunges into recessionary spiral

#59

Post by AlgorithmicTime »

robocat wrote: post #43
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?

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…

No post body was provided.

Re: New Zealand plunges into recessionary spiral

#60

Post by r00fus »

robocat wrote: post #43
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?

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?

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