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New Zealand plunges into recessionary spiral

macrobusiness.com.au

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Re: New Zealand plunges into recessionary spiral

#61

Post by vosper »

ITT: Lots of people from overseas wondering how New Zealand's mortgage and housing market works.

This post is wrong, we're not in a recessionary spiral. Households (and banks!) are overall doing fine. Unemployment is at record lows, wages are rising faster than inflation, non-performing (ie in default) mortgages are at 0.2% of all mortgages (lower than GFC), mortgages are stress-tested to higher levels than we're seeing. Banks are extremely healthy (making money hand over fist).

Consumer confidence is low, but it's low in defiance of reality.

For more see here: https://thekaka.substack.com/p/incomes-are-rising-faster-tha...

Re: New Zealand plunges into recessionary spiral

#62

Post by voisin »

michael1999 wrote: post #55
voisin wrote: post #34

Earlier quoted context omitted.

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.

Woah, that’s strange. I just bought a house and the mortgage guy I was dealing with said anything more than 7 years is prohibited in Canada unless you go to an unregulated B-lender. Clearly I stand corrected!

Re: New Zealand plunges into recessionary spiral

#64

Post by john2x »

potatochup wrote: post #14
lostlogin wrote: post #9

Earlier quoted context omitted.

If you skim headlines it's much as you say. Interest rates rising (but still around historic averages), falling house prices and high inflation. https://www.rnz.co.nz/topics/business-economy

> falling house prices Good?

Good for the wealthy.

Middle-class still can't buy because of stricter lending rules and increasing interest rates.

Middle-class who FOMO'd in the last 2 years will see their interest rates double and even triple when they refinance in the next months. With inflation and cost of living rises recently, that bump up in their mortgage payments is really going to hurt.

Meanwhile, those with the cash can just scoop up houses (if/when they want to).

Silver lining is younger and future generations might not be completely and utterly f'd.

Re: New Zealand plunges into recessionary spiral

#65

Post by mdasen »

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…

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 which makes budgeting hard as well and we've seen rent go up 20% from pre-pandemic levels in many markets (though that seems to be rapidly falling as the market changes). However, you're not committed to that rent. Yes, it might be bad to downsize to something smaller that you're renting or to a less desirable location, but it's theoretically possible. In this case, you now have to pay 63% more money without a possibility of alleviating that burden.

As rates go up, the amount you can sell a property for likely goes down (since it's now a more expensive property). In the US, at least you can continue living there at your low interest rate and fixed monthly payment. In NZ, your $800,000 place is now worth $700,000 and your payments have gone up 63% and you can't really sell it because you owe more than it's worth and you also can't afford the payments...?

I feel like I might be missing something, but your answer might just be "yea, that's how it is here."

Re: New Zealand plunges into recessionary spiral

#66

Post by chrisco255 »

coliveira wrote: post #53
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 collaps…

Did they even really do anything with ARMs? I thought they were just flushed out with all the foreclosures that happened after '08. And then they just fell out of favor.

Re: New Zealand plunges into recessionary spiral

#67

Post by tenpies »

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 in the US, because over 50% of the Kiwi economy is based on housing and associated services: https://figure.nz/chart/WRpSmBftC60lEu2q

Canada and Australia are similar stories.

Canada is probably the worst in that it intentionally is using immigrants to try to prop its rental market and suppress wages. This works well if you are intent on starting a golden era for slumlords, but it's also going to absolutely demolish quality of life and send food/energy costs screaming.

It's very likely we're at the apex of a golden era of incompetence in these three countries in particular, but the West broadly.

Re: New Zealand plunges into recessionary spiral

#68

Post by mdasen »

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?

We do have ARMs in the US, but fixed mortgages are a lot more popular - presumably because they allow someone to know how much it's going to cost.

Re: New Zealand plunges into recessionary spiral

#69

Post by cgh »

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.

I understand the hesitance to rely on oil and gas, but what’s wrong with mining?

Re: New Zealand plunges into recessionary spiral

#70

Post by happymellon »

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'…

Assuming you are American, do you also get confused with Bank of America, or US Bank?

Most countries have a retail bank that uses the name of the country or region, even if they aren't the central bank.

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