A major mortgage lender sets higher rates to start 2017, responding to higher wholesale rates, and hoping its rivals follow soon

ASB has raised all its fixed rates sharply in the first mortgage rate move of 2017.

The increases range from +10 bps to +30 bps, and are effective today (Friday).

These are changes that push ASB to a position of offering the highest rates for any fixed term, except for 18 months where ANZ has that distinction.

Their six month rate has been raised by +10 bps to 4.85%.

Their 1 year fixed rate has been raised by +20 bps to 4.49%.

The rate for 18 months fixed is also up +20 bps, now at 4.65%.

For two years fixed, the new rate is +30 bps higher than previously and now at 4.79%.

A similar +30 bps increase applies for all terms of 3, 4 and 5 years fixed and the new rates are 5.09%, 5.49% and 5.69% respectively.

All the above rates quoted are their 'special' rates, requiring at least 20% equity and other conditions.

Higher rates apply for 'standard' terms, generally +40 bps above the 'special' rates.

These increases come as the steam seems to be going out of the wholesale swap rates. These were lower today, following even sharper falls on Wednesday and Thursday.

But prior to the end of 2016, the wholesale rises had been sharp and relentless, so higher mortgages rates are not surprising.

ASB won't be able to stay as the only bank with such high rates - they will be counting on others following. 2017 start with a number of other institutions raising such rates as well, endeavouring to get them in place before most of us get back from holiday.

Today's adjustments doesn't change who has the leading carded rates for mortgage borrowers. HSBC Premier sill leads for a one year term, SBS Bank now has the leading rates for 2 years, and TSB Bank has the market-leading offers for all terms longer. Kiwibank also has the market-leading two year rate.

See all banks' carded, or advertised, home loan rates here.

A snapshot from the key retail banks is:

below 80% LVR  1 yr  18 mth  2 yrs   3 yrs  4 yrs  5 yrs 
  % % % % % %
4.25 4.99 4.59 5.29 5.45 5.60
ASB 4.49 4.65 4.79 5.09 5.49 5.69
4.39 4.99 4.59 4.79 5.45 5.59
Kiwibank 4.24   4.39 4.75 5.30 5.40
Westpac 4.25 4.95 4.54 4.79 5.49 5.39
             
4.39 4.55 4.55 4.89 5.39 5.55
HSBC 4.19 4.29 4.39 4.69 5.09 5.29
HSBC 4.29 4.45 4.39 4.75 5.29 5.45
4.25 4.45 4.49 4.59 4.89 4.99

In addition to the above table, BNZ has a fixed seven year rate of 5.99%. This has not changed today.

TSB Bank offers a fixed ten year rate at 5.75%.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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159 Comments

If this doesn't stop house prices increasing, nothing will.

The new buyers coming in from mid December have been vaccinised from the LVR contagion and are coming from the UK and Hong Kong to buy up large in Auckland.

Auckland will simply follow the lead of Sydney and Melbourne and continue it's upward trajectory earlier from January regardless of restrictive policy with more affluent purchasers.

This guy.

By any chance were you the real estate agent who told The Man that over 100k US citizens had registered their interest to come to NZ in the week following Trump's election?
If so, it would make a lot of sense...

Nice up there on your soap box Ted? I am not too sure what you mean by "vaccinised from the LVR contagion" - care to elaborate?

Buyers have been holding back as usual like the last LVR and now the sun is out they have realised they can't wait for ever as the house prices continue to climb in desirable Auckland.

The latest Herald article has most economists stating a continued rise in house prices in 2017.

Those who have the best idea what will happen to markets, including property markets are not 50 year old economists working for NZ banks. They are more likely to be sunning themselves on a yacht in the Mediterranean. If these economists were actually any good at consistently picking markets, they would not be drawing a wage at least 25 years after graduating from university.

Don't be silly, they don't draw wages, they draw a King's ransom!

Shh.
Don't tell anyone.

up
10

The Boy will not be happy with this news. He was spouting on how interest rates were not going to go much higher in 2017. The ASB have news for him and it is not good. Hold onto your seats.

It will take more than a small mortgage rate increase to suppress Auckland house prices.
Immigration, foreign buying, jobs growth, FOMO by first home buyers, and being a part of a global group of desirable cities will keep Auckland prices growing, if a bit slower.
The question for borrowers coming off a short- term fixed: should you go for the cheapest ie 1 year rate, & worry about future ongoing increases later? Or choose a dearer 3 year rate?

I have two fixed term mortgages coming up for renewal in March. Currently they are 5.19%. I'm crossing my fingers that the rates remain as low as ASB's new ones and I will start the year winning. It is difficult to know how long to fix though.

Personally, I am going to float later this year after coming off a 2 year rate at 4.69.
As the fixed term rate rises, the margin between floating & fixed lowers.
Also this may be a suckers rally, & there may be rate decreases within 18 months.
For flexibility of extra payments, and the possibility of selling/moving so need to avoid break fees.

Why float at 5.5%, when you can fix 6 months at 4.2%?

True, I just think a few months on floating gives you some perspective, and more time to scan for special rates, at your own bank or another. Also some opportunity to repay more.
Also may be selling later on so don't want to be stung with break fees ( so called).
Always suspicious of new rate rises, rhetoric, and pricing which tries to pressure borrowers to fix for longer. Banks aim for lock-in as well as margin.

What bank is offering 4.2% for 6m (presumably if they did, they also would have discounted the 5.5%, right?)

anz, not advertised but will offer if asked.may have gone up 1 bps or so , ut the large gap with floating remains.
30 day rates have remained steady at 2.1 % or so , making the banks floating rates an absoulute ripoff,

Who knows what will happen - even the paid experts struggle to predict... "The Bank of England has admitted its dire warnings of a downturn in the wake of the Brexit vote were a “Michael Fish” moment and said that the economics profession was now in “crisis”.

Andy Haldane, the Bank of England’s chief economist, said there was a “disconnect” between political warnings about Brexit and the “remarkably placid” state of the markets, adding that the worst predictions may turn out to be “just scare stories”.

He made the concession as new figures suggested Britain was the fastest growing of all advanced economies last year after the services sector defied gloomy forecasts to hit a 17-month high.

The FTSE 100, the index of Britain’s biggest companies, closed on a record high for the sixth time in a row on Thursday – the longest run for 20 years."

http://www.telegraph.co.uk/news/2017/01/05/bank-england-admits-michael-f...

Looks like this cycle is coming to an end.Just hope interest rates don't go up to nearly ten percent like in 07.don't think the world's economy's can afford that.

Should be fine. QE put a complete stop to that kind of scenario.

Zachary - the correct answer to that is, whatever suits your personal risk profile. If anyone's recommending a strategy to you outside of someone who's at the very least not wildly wealthy from trading the markets, clearly doesn't actually know the answer from a market forecasting point of view because no one can do that consistently from a hedging perspective - hint, there isn't anyone capable of that here or elsewhere who isn't a trader, and traders run stop losses and stop profits etc and wouldn't make money without them - and that's something you're unlikely to be doing, or indeed able to do with a mortgage.

Grant A: Can you re-phrase your comment in much simpler way please

Yvil - yes sorry, I have to agree it was a mouthful written on the fly. My point was the NO ONE can consistently pick markets, and no one on this website or elsewhere can give advice to an individual without knowing his circumstances. Professional asset and liability managers can't either (that's why they have treasury policies to operate under so as to stop too big one-way bets), and amateurs with generally poorer discipline, and no greater market insight, certainly can't. The answer to his question therefore is, what's your personal circumstances and risk tolerance, and then focusing upon that alone, make your decision on what term you fix for, or not.

Yes, thanks Grant A, I will probably just go with the standard two year fixed term and let The Force be with me.

House prices going to fall... now!
Ok... now!
NOW!
Dang... wait for it, wait for it... NOW!
What the ...
NOW!
Ok, any second now...

You can stop now, Auckland house prices fell by 2% in November

Now it starts then - Auckland House prices going to CRASH... now!
Ok... now!
NOW!
Dang... wait for it, wait for it... NOW!
What the ...
NOW!
Ok, any second now...

Wasn't it 4%?

Seasonally adjusted? I think 2% was the absolute.

"These increases come as the steam seems to be going out of the wholesale swap rates. These were lower today, following even sharper falls on Wednesday and Thursday"

How can ASB justify these rises, especially the 1year term ?

because the trend around the world is rising rates and inflation.
it is only a mystery as to why it took so long for inflation to start to appear with the increase in money supply around the world

Maybe because humans in general are a very cautious. People are now feeling safer to open their wallets and buy/upgrade their lifestyle after years of huge asset price inflations with no signs of downturn. I guess theoretically this is the right time to start increasing interest rates.

House prices are already rising as the buyers have come out of the woodwork since mid December. I predict a huge sales increase in January before the usual February upswing.

In my office buyer interest is overwhelming considering the slowdown prior. More buyers from the UK and Hong Kong are prevalent.

Cool, gives us more support to ban foreign buyers.

Ted honestly have you looked at TradeMe lately? There's hardly any auction properties being listed. If you look at North shore Auckland, there's only one that was listed today and the others were listed well before Christmas. So it's a Buyers market at the moment and is likely to stay that way with Trump throwing his tariff toys around.

Ah, the cool ade.

Ah yes. Like China. Where today the overnight cash rate went to... 105%, along with the biggest move in the USD/CNH fix in over a decade, moving the peg from 6.9307 to 6.8668. That....caught a lot of junior traders who thought they could hand back over to the Boss on Monday after their Christmas holding time, by surprise!
Interesting time all around us this very day.....

Global bond markets have recovered a bit in last 3 weeks so things might start to settle down a bit. The US 10 year bond yield has dropped back to 2.35% from 2.6% on Dec 15rh.

Well Trump is already throwing his toys out of the pram, so I wouldn't bank on our house prices increasing in NZ any time soon.
Trump says Toyota will face tariffs on cars made in Mexico
http://www.bbc.com/news/business-38525389

My gut feeling is that the Trump effect is going to stimulate business. As Professor Yasheng Huang wrote in another article here at Interest.co.nz recently unlike the Koch brothers he won't stubbornly cling to impractical and thoroughly debunked libertarian ideas. If Japan think they can setup shop just over the border and use cheap labour to save a few dollars at the expense of American workers then they have another think coming.

For once I do think you're right that it will stimulate business in the US for the short term. In the long term it could bankrupt them. As for China; it's likely to have a long term negative effect on their trade which has already proved a slow down result for our housing market. Though to be honest I view it as being an extremely positive thing if anything is shows just how much overseas investor influence and governed our property market (Way over 4%)!

And talking of cheap slave labour; the US has a trick up its sleeve called the US prison system, that's their penal slave labour.

The US 13th Amendment states that "neither slavery nor involuntary servitude, except as a punishment for a crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

If you want to see the ramification of this in full glorious technicolor then I suggest that you watch this excellent recent documentary: https://www.youtube.com/watch?v=V66F3WU2CKk

Happy New Year to all.
Gordon, your concern for me is appreciated but rest assured not required.
Most investors will be currently fixed at over 5 per cent whereas the new rates are still miles under 5 per cent so it won't effect them at all.
The ones that will be affected are people who currently are not on the ladder as repayments will be more, but we are only talking small rises here and they aren't going to move up much at all as I have previously stated.
Would be more worried about the sharemarket.

Welcome back THE MAN 2. You are right, I will be better off by hundreds a month when my mortgages roll around in a few weeks.

If people have split their mortgages correctly they should be saving money on the next refinancing. Not long until my next refinancing and the total interest paid will drop. I still don't see interest rates getting interesting until 2019.

Just the first of several increases in interest rates to come. Sharemarkets at record highs. Pays to be diversified.

sharemarkets valuations are way up there. I can see a correction this year once trump is in office. then they will take off again there is a lot of cash waiting to find a home
http://business.financialpost.com/investing/global-investor/the-us50-tri...

Usually you can negotiate those published rates down significantly, however I think we might not see any rates under 6% by the end of the year.

Don't believe rates will go over 6 per cent for a very long time if ever.
Firstly the United States can't afford to have the rates high as we have seen previously.
May be wrong but I doubt it!

Yes I think you're right, if the NZ mortgage rates increased to +6% we would be looking at a lot of mortgagee properties which is not good news for the banks or anyone for that matter.

So it is your opinion that we will just overcook the economy incredibly on the basis that people cannot afford higher interest rates?
Seems a bit counter-intuitive to me...

Why can't the USA 'afford' higher interest rates?
If the economy picks up, interest rates will follow. There is no doubt about that.

"Why can't the USA 'afford' higher interest rates?"

A vibrant growing economy requires spending. That is why credit (rates) are low at the moment.

But, the average working person has no money. Most of them are in debt. Therefore they are not spending (at least not on real products, they are spending huge on interest though.)

A rates rise = increase in expenses = even less disposable income = less spending = depressed economy.

Seems perfectly intuitive to me.

Lifting rates does not lift incomes of the average working person so how will the economy be better off from a rates rise?

Do you just argue for the sake of arguing?

You do know how inflation targeting works and the logic behind it, right?

I know how things work. I wonder if you do though?

I can see the what happens in real life all the time, Rate changes because of inflation, Rate changes because the economy has changed. I have seen banks raise and drop their rates completely separate to what the OCR does, and what the economy as a whole is doing. In fact I would go so far to say as I have seen banks change rates purely because they are a private enterprise out to make a dollar.

But for the life of me, I have never seen myself, nor seen anyone show me, actual quantifiable proof of what you claim.

So please, enlighten me. Show me some real evidence. Not your opinion, not "it's obvious and anyone can see", not "look at so and so's "theory"", not "you are just wrong". Just a real world example of ;

- how inflation has changed as a result of rate changes?
- how the economy has improved because rates go up?

I look forward to a well thought out, enlightened researched post.

As I said, arguing for the sake of it. That post shows you don't know the interest rate mechanism.

I don't know why you want examples of these things when they don't exist in theory or practice..What exactly was I claiming? That interest rates will pick up as the economy improves? What is wrong with that?
You expect interest rates to be suppressed so as the economy can grow ad infinitum?

"how inflation has changed as a result of rate changes"
Lowering or increasing the cost to service debt alters the propensity to consume. Altering the propensity to consume changes the level of inflation, given an inelastic supply of goods.

"how the economy has improved because rates go up?"
Increasing interest rates isn't a mechanism to 'improve' (in the sense you imply) the economy. It is used to cool off economic growth.

Not arguing, just failing to understand why you can't provide evidence.

I understand the interest rate mechanism, that's why I disagree with you - it does not work.

You have again shown me opinion - No real world evidence.

What you have stated is how economists expect things to work. Reality is showing that is not the case.

Interest rates have been portrayed as being good (up) and bad (down). That is not economically, or even logically correct, but that is what people believe at this point in time. So...

Interest rates drop
a) people don't consume more, they panic, consume less and pay off debt as they expect something bad to happen. (refer aftermath of GFC)
b) they take more debt, don't buy more products - rather they pay more for the same product (refer housing)

Interest rates go up - people go broke,

OCR, measured inflation, general economic feeling according to polls, mean nothing. Wages/income is the important thing in an economy.

Income has well and truly stagnated, expenses have not. (you may say Blah blah blah but look at the inflation rates)

But lets look at the main expenditure items.
- Rent - flat or going up
- Rates - going up
- Insurance - going up faster than everything else
- Power - going up
- Petrol - going up
- Houses (or more correctly mortgages) - going up.
- Food - not increasing as much, but definitely not dropping.
- Interest rates for mortgages - going up.

Now, explain to me what happens with an interest rate change to all these goods. Rates have gone up and down a lot over the past 20 years. All of the above have only gone up.

So your opinion is better than mine, despite mine having theory to back it up?

Interest rates drop
a) people don't consume more, they panic, consume less and pay off debt as they expect something bad to happen. (refer aftermath of GFC)
What about the growth in consumption in NZ?
b) they take more debt, don't buy more products - rather they pay more for the same product (refer housing)
"pay more for the same product" - Is that not inflation?

"Now, explain to me what happens with an interest rate change to all these goods. Rates have gone up and down a lot over the past 20 years. All of the above have only gone up."
Well, as you say, wages are affected as the access to cheap capital decreases. In turn demand for these products diminishes.
Sure they have all increased in nominal terms, but in aggregate terms has the real cost of living (CPI) outpaced wage growth for a sustained length of time?

My "opinion" is not better. However, Reality is better than your theory.

"Sure they have all increased in nominal terms, but in aggregate terms has the real cost of living (CPI) outpaced wage growth for a sustained length of time?"

I would say Yes. Quite markedly. Hence the larger gaps in inequality, and the near constant stream of news on the "have nots"

For myself, wages have gone up on average 2.5% per year for the past 8 years. My costs have risen by about 4.8%. Main contributors are power, insurance, rates and petrol.

Harder to tell with food/consumables, I buy different brands/products now when compared to 8 years ago - Usually due to cost. A lot of the products available in the supermarket have also maintained a "stable" price via reduction in quantity (most recent example I noted yesterday, was that you can now buy a 400g block of butter for the same price a 500g one cost 3 months ago. So my assumption is that the prices of most food items have also increased more than my wages over the past 8 years.

In the past 24 months my wages have gone up 0% and my costs have gone up 3.4%

Based on friends, family, and colleagues experiences they are all in the same boat.

Unless a rates rise, leads to a wage rise. Any increase in rates will be catastrophic to the majority of people.

From what I see, credit is no longer "I want it now" rather it is "this is the only way I can pay my bills" sure you still have all the "poor" people with Sky, modern cars, phones, and tablets. But I don't think they are quite the majority that most people would believe.

"I would say Yes. Quite markedly. Hence the larger gaps in inequality, and the near constant stream of news on the "have nots"" - in regards to CPI versus wage growth.

Okay, lets briefly look at some data...
I don't have wage growth stats quarter on quarter plotted next to CPI. However, we can proxy this.
So, if we take the average wage from 1995 of ~$15 p/h and inflate it to current period dollars it translates to ~$23 p/h. Interestingly the current average wage is ~$30.
So, where is the evidence that inflation (your cost of living) has outpaced wage growth over the long term? Even if we apply the same methodology to the medium term, its says the same thing...

To quote you, "Reality is better than your theory."

Regarding the "data", that is not data, that is applied assumptions you have made.

As for "My evidence"? My evidence is the actual income and costs I have had over the past 8 years (Since I kept accurate records) Do I need to make this data available to you? and would I publish the actual figures on a publicly available website? - NO, not unless you are keen to share yours.

So to amend my quote, reality is indeed better than theory, and it is a bucket load better than any Govt statistic.

Haha.
Well, you must be right, then.
Comments like this are why we need economists and why people like me will have jobs consulting for people like you for a a long time yet.

You may consult, but it isn't for people like me. So not to worried really.

Depends on how the wage increases are distributed. If they're going disproportionately to one end of the scale, the average will show as increasing, but gains against CPI will only apply to a sub-set wage-earners. What happens when you use a median rather than average, or break it up into income bands?

"What happens when you use a median rather than average, or break it up into income bands?"
The effect is the same.
Let's look at the minimum wage as a relevant example for your comment..

In 1997 (I don't know what it was in 1995 - perhaps someone can provide details?) the minimum adult hourly wage was $7.00. In current CPI adjusted dollars that is around $10.30. However, the current minimum wage is $15.25.
So, where is the argument that people at the low end of the wage spectrum are going backwards? It's definitely not in the data..

Even if we do it over the medium term from 2007 to current, we see the minimum wage go from $11.25 p/h to $15.25. The nominal value of that $11.25 in current period is around $13.50. So, the real rate of minimum wage growth has been significant.

So that proves it, we are all substantially better off.

Can you now please explain why we don't seem to be?

There could be a lot of factors missing from the above calculation. Hours worked, for instance. What if min wage is up but full-time jobs are down, and with them hours worked? $10/hr for 40 hours is a whole different ball of wax to $15/hr for 20 hours. Then there's the paying job/household factor. Then there's the prevalence of less than min wage under-the-table off-the-books exploitation jobs which are displacing genuine minimum wage jobs. All sorts of variables you can hide behind an average.

...But it doesn't matter - we are measuring a standard datum; the minimum wage. And, this isn't an average so we aren't distorting the factors you mention.
Hours worked is irrespective. If we were talking net weekly/monthly/yearly pay there might be an argument, but we aren't.
What it is saying is that for the most elementary marketable skills, real growth in remuneration has increased.

It must be that your marketable skills are deteriorating relative to the market.
That is not a systematic wider problem, but the result your own individual shortcomings.

Nocents... Low interest rates is not a free gift... To a large extent it is a transfer between borrowers vs savers..
Manipulating interest rates basically transfers wealth from one to the other.
( I'm keeping it simple to make the point ).

Ultra low interest rates kills savers.... and before you say "good job"... many savers are the elderly who rely on their savings for income.
I personally know of elderly people who are struggling because of low interest rates, reducing their income.

Your view on interest rates implies that it is ok to take from Martha and give to Arthur..??
IF so... then rather than take from an elderly saver..why not take from the Rich and give that to the average working person..??

A study by Rogoff and Reinhart, showed that credit driven asset bubbles in the property sector, suppress interest rates for at least a decade. This is the situation and NZ and most of the western world are in.

Is the situation the same as what Rogoff examines?
From what I have read, he has only examined post bubble dynamics - that is not the case of NZ.

The link would be much appreciated.

Yes... I think it is post bubble dynamics.

I think that was the curse for NZ....
We never had a post bubble credit contraction, and yet because the rest of the world did , long term interest rates collapsed..... benefiting NZ borrowers..

That was like a shot of pure heroin in the vein of the body....that is NZ real estate... because we are very eager credit junkies....
we have never had to taste withdrawal "shakes"..... so ... we are keen..!
We are still happy dependent users!

"Don't believe rates will go over 6 per cent for a very long time if ever."

You're like a broken record. We had this same conversation pre-xmas but you refused to put your money where your mouth is.

Still spouting from the same song sheet but zero substance when it comes to backing your wild claims. Put up or shut up. My wager still stands.

I think you will be proven wrong The Man 2
Only a matter of months ago a 4% two year rate could be negotiated - if after two years there is no rate lower than 6% then that will result in a 50% increase in mortgage interest repayments so perhaps two years before we may see a decline in house prices but for 2017 probably hold steady or around a 5% increase in Auckland which on a $1m average house in a reasonable suburb is still a pretty tidy $50,000 increase.

Sorry, but when it comes to financial matters I can not remember when I have been proven wrong.
Rates at my Bank are about 4.39 per cent and I am paying over 5 per cent fixed because some clowns on here kept saying rates were going to go up over 18 months ago so fixed for 3 years on most mortgages.
Even at 6 per cent they are still affordable for most people in the market as it is not much more than they will be currently on.
Interest rates high and there will be property price rises.
Not sure why many want higher interest rates as it affects everyone including the renters and home owners, so be careful,what you wish for!

high interest rates effect the baby boomers in a good way, more income to spend at the shops, not everyone is loaded up with debt

The Boy have you not just contradicted yourself. You never get it wrong but then you admit you got it wrong. You know everything financially so why listen to others.

Gordon, certainly didn't get anything wrong.
Banks were putting interest rates up awhile ago and were heading upto over 6 per cent and the tipsters on here were saying they were going to 9 or 10 per cent which I knew was rubbish.
However fixed most at just over 5 per cent for 3 years.
And yes the rates came down to 4 per cent which was half of what the so called experts were predicting.
Happy enough with what I did and when the returns are on average double the interest rate currently, I can't really complain, plus capital gains on paper.

Rubbish. Don't make stuff up.
18 months ago the 'tipsters' predicting 9 to 10% interest rates in the medium term would have been severely challenged on this site. That should have been a pretty clear signal for you.

Regardless, you should be able to tell reasonable from unreasonable.

Have to agree with Nymad "The Boy". It was never going to be 10%. " I never make a financial mistake." LOL.
It was never going to go to 6% either as the world economy was struggling overall then. I can only assume you are highly leveraged and therefore panicked. You will need to get used to different times. The
Dow hit 20000 this morning. America is recovering and interest rates are going back to normal levels and faster than people think. As interest rates rise property values drop. Economics 101.

Economics 101 rules no longer apply.
Check 2004 to 2008, interest rates rising up to 10% while house prices (NZ wide) also were increasing fast.
The drivers for house prices are far wider than localised interest rates.

"Economics 101 rules no longer apply."

And the nobel prize for economics goes to MortgageBelt for his truly astounding proposition that challenged 260 years of economic doctrine.
I can't wait to read the alternate theory. Please supply when possible.

Thanks Nymad, & unlike Bob Dylan I'm happy to travel & collect.
I suppose you are also under the delusion that historically low interest rates (but not comparatively globally) have been the driver of high Auckland house prices?
This is anteresting article showing low correlation between rising rates and lower property prices
https://www.integratedmortgageplanners.com/blog/mortgage-market-updates/...

Good sport.

'Dave the mortgage broker' is your source?
I'm sorry if I sound a bit elitist, but I'll look for something a bit more formalised than Dave's anecdotes..

Dave the Broker! LOL.

OK mockers, is Forbes high-brow enough for you?
http://www.forbes.com/sites/billconerly/2012/12/18/when-mortgage-rates-r...
Or a bank site?
http://www.bankrate.com/finance/mortgages/rising-rates-lower-house-price...
Or an academic article
"However, empirical models of house prices struggle to achieve credible results concerning the impact of interest rates with coefficients that are frequently insignificant or of the wrong sign"
http://www.sciencedirect.com/science/article/pii/S0264999307000909
Also NZ experience of 2004 to 2008 shows clearly rising interest rates and rising house prices side by side

Or an academic article
"However, empirical models of house prices struggle to achieve credible results concerning the impact of interest rates with coefficients that are frequently insignificant or of the wrong sign"

Do you want to read the whole article, or just cherry pick?
Because, if you read further..."This level of borrowing depends on disposable income levels and current interest rates. We empirically test this model by applying it to the Irish property market. Our results support the existence of a long-run relationship between actual house prices and the amount individuals can borrow with plausible and statistically significant adjustment to this long run equilibrium."

We'll see what happens.
Interest rates may or may not start rising with momentum.
If they do, we'll see just how house prices are influenced as a result.

Ahh, okay.
What a good way to contradict yourself.

History and real data proves your economic orthodoxy to be wrong.

http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates
Look at mortgage rates rising for 4 years while house prices also rising

Wrong - that is the case only if you consider the only determinant of house prices to be interest rates...
Luckily we know that capital costs aren't the only determinant of property demand and prices. Think real income, net population growth, etc, etc.

How can you say the economic orthodoxy is wrong when you just presented a piece of academic work that reiterated the economic logic?

Nymad is surprisingly orthodox in his thinking and besotted with standard expert theories. A bit like Scarfie in that regard.

Yes. Unashamedly, I must add.
Sure, question and critique the theories constructively. What you shouldn't do though is misunderstand theories and data before then berating it, which is what happens so often here.

Now you are the one hedging your bets with additional factors.
You were originally arguing a direct correlation and causation between rising interest rates and declining house prices. This claim is by no means currently provable or apparent.
Then, yes, adding all the other factors of high immigration, foreign financed house buying, gateway city of Auckland, first home buyer urgency, etc then the correlation between rising interest rates suppressing or causing declining house prices is even weaker.

I'll be ref.

Mortgagebelt is right.

His argument that higher interest rates will not cause lower house prices is most convincing. Clear evidence was presented, the 2004-2007 period where OCR went up, and prices went up clearly proves his argument.

Both interest rates and house prices are likely to be effected by the same thing, the underlying economy.

The 2004-2007 period was actually more normal.

Currently, house prices have unhinged from interest rates which are still low corresponding to the low growth economy (cpi).

House price drivers other than strong underlying economy are to blame, the single biggest of these drivers, population growth, pressure house prices up while drive wage inflation down.

The current population growth over last 3 years dwarfs anything we have ever seen in NZ history.

Don't look just at the annual net migration figure of 70k, look at HOW LONG THAT FIGURE HAS BEEN MAINTAINED.

It's the area under the net migration v time graph that's important, that's an indication of the boom this time v the previous population boom of 2001-2004 which spurred the 2001-2004 auckland property boom, and the 2004-2007 regional property boom.

We just finished 2004 in this cycle, with 20% regional price growth now widespread, and other cities getting aucklanders moving to them, or more likely investing in their 'cheap' houses. Just as 8%-10% mortgage rates didn't stop the regions continuing at double digit growth last time, the lvr's won't this time, Auckland will slow to nill , places I invest in, welly, Palmy likely strong double digit for a coulpe more years yet

Why its weird this time is because last time migrants came here as we started to show signs of strong economic growth.

This time migrants are coming here because we are the least ugly of all the other countries around.

So our OCR stays low and house prices go up and up, with RBNZ using their new LVR tool to try dampen housing in isolation.

Well, that was a completely contradictory comment..
I'm sorry, but you people need to structure your arguments to make sense.

"His argument that higher interest rates will not cause lower house prices is most convincing. Clear evidence was presented, the 2004-2007 period where OCR went up, and prices went up clearly proves his argument."
That is not clear evidence.

Then you say
"Currently, house prices have unhinged from interest rates which are still low corresponding to the low growth economy (cpi)."

And then, further you say
"House price drivers other than strong underlying economy are to blame, the single biggest of these drivers, population growth, pressure house prices up while drive wage inflation down."

And then to top it all off...
"So our OCR stays low and house prices go up and up, with RBNZ using their new LVR tool to try dampen housing in isolation."

Not at all. The congruent theme is increased interest rates will not cause (as in be the dominating factor over ruling all others) house prices to fall.

Prices being unhinged from interest rates, house prices being linked to rapid population growth, and house prices going higher at the same time (NOT DUE TO) interest rates stay low, are all congruent.

If you were so financially prudent, you'd use all the tools you could to inform your opinions.
If I may direct you to the mortgage calculator on every interest.co.nz webpage. Using this shows that a market interest rate increase from your 4.39% to 6% on a $500k results in close to an extra $500 per month in repayments. it's like a >25% increase in repayment obligations...
So, tell me how that is "not much more than they will be currently on"..

If they are home owners, this is substantial. If they are landlords, how do they recover this money - they can't increase the rent to do so...

I don't know what you are trying to say with "Interest rates high and there will be property price rises.
Not sure why many want higher interest rates as it affects everyone including the renters and home owners, so be careful,what you wish for!".

Most of us aren't on these great rates of low fours so will be better off when they renew.

"Most"
What about all those people who signed a mortgage within the past year?

The 2nd graph at http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates shows that many people renewing their mortgages now will be in for a payment reduction.

Most economists are predicting an increase in house prices in Auckland if you read the Saturdays Herald.
My suggestion is to buy now and enjoy the capital gain even if it is 5% to 10%.

Why because of record Immigration 70,000 people have to live somewhere.

There was a time when buying a house was for somewhere to live.
Buying for capital gain just doesn't seem right.

Look how it worked out for Iceland.

It has been a long time since it was only that. I remember my parents, a long time ago, insisting we get on the property ladder for financial stability. The surprising thing is that so few Kiwis could see that buying houses, especially in Auckland, was an essential thing to do. There may have been some sort of cultural, unwritten rule, that houses shouldn't be a source of excessive profit however that's gone with the wind in the new multi-cultural environment. One of the first things immigrants strive to do is get a house and then get another one.

up
10

"the first thing immigrants strive to do is get a house and then get another one"

In a nutshell, that's why it is essential to turn the immigration tap off completely, and introduce a deportation program for migrants who have a criminal conviction (cf Australia), and visa cancellation for those who haven't assimilated, haven't learnt the language, haven't contributed to the NZ economy (on a net basis) tax contributions less consumption of welfare handouts

when they said financial stability did they mean
to live in eg a home
or to invest in eg income

To live in as a home. Get married have kids. The observation at the time was that those with a home didn't miss out on things and were invariably better off in the long run than those that didn't buy. A home was a compulsory savings scheme.

Thanks
yes that was the way many of us were brought up, when you could afford a home and kids in your twenties on a median income in the city of your birth. it was hard but do able and many did
also when NZ had home ownership over 70%
alas those days are long gone for our young.
and I blame government policies for the last twenty years for turning homes into investments

"One of the first things immigrants strive to do is get a house and then get another one."

Evidence please.
I don't know how in touch you are with wage rates, but the unskilled labour that we are importing isn't in a position to be purchasing housing in Auckland.
Their contribution to the demand curve is in the rental sector.

There are many immigrants who arrive, buy home and then the partner heads back to wherever. Wifey goes on the dpb, gets the accomodation and wff while said partner is earning flat out elsewhere. The majority of these people know our tax and benefit system inside out.

Haven't you heard?

Gotta keep your eyes open and ears to the ground

Unless things have changed in recent years, some migrant ethnicities are culturally accepting and willing to share accommodation. They do join forces, of 2 or 3 or 4 families to buy a house - no trouble at all - much greater buying power than the locals

Shameless rabble-rousing. Anecdotal evidence drawn from the very small data set of ZS's acquaintances.

Nymad - evidence please

I work with alot of immigrants and haven't run across an unskilled one yet - in fact many are higher skilled than many of the rest of us. Gross generalisations aren't helpful

No there has always been the quest for capital gain even in Roman times BC they sold houses for profit. Ever since humans built a roof over their heads they on sold eventually for money.

They are not "most" economists

They are the 4 main go-to "comment dribblers" who can be relied upon most for an opinion

but you realize there is no capital gain in real terms if you're buying and selling in the same market unless you're downsizing.

There's a lot of different stuff being discussed in the comments. The last of the 3 year fixed mortgages around or above 6% will be wrapping up this year. This is supported by the S8 figures where interest rates have been declining steadily. This will reverse some time this year.

Another thing I noticed is the lastest S8 figures (November) show a reduction in floating rate mortgages by $1.8b month to month. These appear to have mostly shifted to 2 and 3 year fixed terms. So there will be a reduction in the debt servicing to income ratio while that shift is happening. Household debt statistics will look good for all of this year. In 2-3 years the picture will be different as the higher interest rates start having an effect.

If you have a mortgage increase payments or shorten the repayment term. Same thing I said a few times last year that will put you in a better financial position (for owner occupiers). Of course I'm assuming inflation will be staying low for some time yet.

The last of the 3 year fixed mortgages around or above 6% will be wrapping up this year.

Sound about right. And guess what comes along with those maturities? REVIEW TIME! Yes, that time when the Bank rings you up and suggests that "Call in for an overview of your relationship with us - just to see how we can help". And after the silence, where everybody knows what you are really there for, comes the topic of "Now. About your mortgage which has just reached the end of its fixed term period, what do you want to do?" Of course,"Extend it please" Is your immediate reply. Sounds good, but then the dreaded "Well let's see. Your income, quite frankly, is being consumed by your cost of living expenses, and we are not here to lend you money to live off the expected capital gains. So. How about we use that $X that you have in your savings account and on Term Deposit to reduce the amount of the rollover this time? Look. We'll even forgive the break fee on an early redemption of your Term Deposit. What do you think?"

Yes. Along with loan maturity time, comes The Inquisition......

I really don't think that will happen in the current environment. Especially if the customer has term deposits and a good income. The customer will just say, "fine, I will transfer everything to the ANZ then". Everytime I go to the bank they want to lend me more.

Maybe. But I got The Call a couple of weeks back "Look. You haven't used your credit card limit for a few years, and it's time for our annual look at your affairs. How about we reduce the limit by $50,000?"
And that is for an unblemished relationship going back to 1969!
And as far as going to "the ANZ". Have you tried that recently in this age of bank recapitalisation? As the population ages, and with it the concentration of wealth, and as formal income diminishes, 'swapping banks' is not going to be as easy as it was even 5 years ago. Just sticking with what you have will be the norm for fear of ending up with a new set of facilities based on the current norms.
Banks are going to be all about efficient use of capital from hereon in, and that, is going to mean a whole lot more questions for us all!

That must be a huge credit card limit if it can be reduced by 50K. I think the bank would see a credit card as more of a liability than a revolving credit account. My advice to people is to get the largest revolving credit account you can but don't use it. You can use that as a bargaining chip without any pain because you don't really use it anyway.
Now I think about it they made me cancel a credit card when I last applied for a mortgage over a year ago.

If only banks were that prudent...

The high interest mortgages have much lower payment minimums with the lower interest rates. I think 3 years of paying on time at a higher interest rate is pretty good evidence of being good for the money. Unless of course something about the bank relationship is not in good standing.

I don't see banks being prudent and unfortunately some of the staff need to be educated before they can understand what seem like straight forward requests. At least some of them are willing to learn. It would be good if banks were more sophisticated.

I've never heard of a bank reviewing income .. or much inquisition at all .... when a fixed rate rolls over. Also, why have funds on TD when owing on a mortgage?

The reality is that most people have a view on everything and it is very hard to convince them anything different.
The pro property people will normally do far better financially than people that are not in favour of property.
History has clearly shown this and will continue into the future.
Yes I appreciate that many on here will disagree with The Man but it will be to their detriment.
It is also apparent that the pro property people seem so much happier with life than the negative property spruikers

I totally agree, we all were equal as we went through the same education system in New Zealand so the opportunity to to get on the ladder was universally achievable.
If we were starting out today we would buy a cheap unit in Hamilton rent it out then continue to climb the property ladder to eventually buy in Auckland.
Unfortunately we hear the same old story of kids wanting to buy in Grey Lynn where their parents live so complain to the Herald who immediately put it on the front page.

What are the pair of you scared of?

Fifty years ago, 'kids' probably could buy in Grey Lynn.

Rubbish Ted/ Zach/the Boy or whoever you are. Everyone is not born equal. They just want a home to call their own. Us boomers have stuffed those after us with our greed.

It's a global world now. If I were young again I would seriously consider Estonia.

I thought you were going to comment less in 2017 Zach. Could I buy you a one way ticket to Estonia?

If I was 30 years younger I'd take you up on the offer but I'd only attract babushkas now.
I'm easing off on the comments slowly as I don't want to get withdrawal symptoms. Anyway nymad has commented 21 times on this thread while I've only done a mere 16.

How have we been greedy Gordon ?

If I need to tell you that you obviously have no idea of what was happening around you until August /September 2016 when The housing market in NZ slowed down.

What should have the Boomers done differently?

Zach is exactly right.
Don't blame the boomers; they have only done what they have been specifically incentivised to do. You can't fault them for that.

So we have to go back before the boomers to find the answer to the question?

I do believe the boomers are the dominant voting group. They set the rules. Who else to blame?

Well perhaps they are the dominant voting group because they survived and flourished.
That is the way it works.

nymad - they have only done what they have been specifically incentivised to do.

This is related to our evolution discussion and self selection. The theory would be that the boomers couldn't really do anything different because they were responding to events from the past. They were specifically incentivised or programmed. Can the blame be put on the previous generation, the so called Silent Generation? The same rationale could be used with this group also as they were programmed by events to create boomers and thus cannot be faulted either. The system cannot self select a better system; it can only be.

No, please explain it to me Gordon

If you are in fact a boomer you should not need any help from me.

I think gordon is referring to boomer companies that have overpaid their executives and exploited their workers. Companies that gordon has shamelessly invested in so that he can become part of the rentier class and lounge about all day pretending to be champion of the FHBs.

Good try Zach. Just another of your stupid inane comments.

Zac - Gordon's right, that comment was possibly one of the more desperate attempts to justify a stated position. I still haven't heard an intelligent explanation about how the baby boomers have been any worse in the way in which they have conducted their lives compared to any of the past generations (many of which had citizens instrumental in major disasters and atrocities). The jury hasn't even been convened yet on the judgement of the younger generations now coming through, but much of it from the likes of those in their 20's & 30's in places like the middle east aren't setting some new standard.

Yes you can't generalise about individuals in each generation, or indeed about each generation, that my point, whether its made by a baby boomer himself or not.

Grant A I think there is a sense that the Boomer generation have let down the next generation. My take on it is that the Boomers were born at very fortunate time in history, post war, when a lot of effort went into rebuilding, education and making capitalism successful to counter the threat of communism. The Boomers were spoiled by their parents who were in the Silent Generation, a generation that experienced the privations and horrors of the war but largely didn't fight in it. This generation provided the world with remarkebly few real leaders and were generally a bit rubbish. They were possibly overshadowed by the Greatest Generation and also hesitant to have strong opinions on things seeings as the previous generation had gone on an epic slaughterfest over different ideas. The Wiki page for this generation actually lists Jim Bolger among the few notables listed which tells you something. So the Boomers weren't brought up to consciously show any responsibilty for the actual next generation's wellbeing. It's like this idea is totally missing except in a general sense of global melting-pot harmony. They were shielded from the real world by their disoriented parents. The Boomers just assumed that things would get better and better without having to consciously try hard. An attitude that was like the opposite of our pioneering forefathers.

Zac- If its Jim Bolger listed as the notable one, then that's clearly the PC selection, I'd have choosen Roger Douglas. I agree to date its been a fortunate time to be born for the boomers but every generation has still had its burdens to deal with. My father's generation fought a world war, he was certainly involved as a young man, and yes then did much to rebuild after that war (it was his father's generation that caused it). However, in NZ's case his generation were the ones who borrowed excessively from the 70's when the UK entered the EU and the good times of "free" everything started coming to an end. By the late 80's that generation had stuck the boomers with a massive debt problem which the boomers have managed to get under control over the year's since such that, despite a GFC only 8yrs ago, NZ's debt to GDP is one of the lowest in the developed world, and one of the very few running budget surpluses.

Now it's certainly a different story in the likes of socialist europe where everything was damn near free right into the GFC, and accordingly their debt burden is hugely higher and their life styles, particularly the boomers in retirement, will be worse than their parents generation. That is why I have a problem with those calling for the days of free stuff again.

Jeepers Zach you talk some rubbish and too much of it. "The boomers were spoilt by their parents." How could the parents do that when they had no money left over after putting food on the table. My father was a chartered accountant and he could not spoil us. We all put ourselves through university through holiday work. I will agree that a lot of boomers like myself have been very generous to their children by helping them generously through university and then into housing. Boomers have done well in that they earnt a lot more than their parents if they got a trade or a university qualification. We still had cheap housing in the 1980's and therefore are sitting on a lot of equity today. Generally a lot more than our parents.

I can answer that one, we allowed governments to overspend, sell assets to pay it back, wind back entitlements and make bad decisions , laws, regulations.
look at all the things we had when we were coming through that are no longer available to our young
free university education, (if you qualified for a bursary)
cheap state housing (25% of wage)
free doctors and dentists for our young
cheap housing loans (state of advances)
http://www.teara.govt.nz/en/1966/finance-public/page-9
cheap power before deregulation.
we voted all this away and allowed those that enjoyed the benefits especially our politicians to change our society to a user pays one once we had set ourselves up

Sharetrader - I think you live with a strange memory of the past, or indeed are not a boomer and therefore with little experience or understanding of the last 4-5 decades . That "free" stuff you value so much was funded by my father 65% tax rate, and when that wasn't enough in the 70's and 80's, it was funded by borrowing that took NZ close to 60% debt to GDP and months away from the IMF stepping into NZ's affairs with consequences. The boomers took tax rates down substantially and let people spend their own money on things they actually used. I have lived in both periods and do not want to go back to my father's time. I have no problem with a user pays society and have alot of problem with people who want someone else to pay for them i.e. me. Facts are the changes encouraged people to get off their butt, and its certainly sorted the lazy and unintelligent from the rest - the vulnerable need protection, the rest get what they contribute.

Govt overspending and over borrowing to provide free stuff to the populist has been happening on and off for centuries, and the next generation will be no different because each one hasn't learnt from the past just as the coming generations won't either. Selling assets? - if you over-spend and buy stuff you actually don't need to own as a Govt, you're going to have to sell some stuff , but frankly I haven't see anything sold that a Govt should be owning so can't see the problem, only prudence.

The Man 2,

Your first sentence is a good description of confirmation bias and your following statements illustrate just how badly you suffer from it.
You offer no evidence for your argument,other than to assert that 'history has clearly shown this'. I invite you to produce the evidence.
I have both an equity portfolio and an investment property and having had both for over a decade(I came to NZ only in 2003),I have the figures to show that at least in my case,my dividend focused portfolio has given me a better return. This takes into account all the costs involved. There is no mortgage on the property.

Linklater01, I think that what THE MAN 2 means by "pro property people" is people who are pro borrowing a lot of money to invest in property. Your mortgage free property and I assume your cash in equities or whatever is not really comparable at all to this model of investment. A model which has a huge amount of societal support and encouragement.

Also you must be paying more tax than you need to on your rental property earnings if it is mortgage free. Wouldn't it be better, considering that equities are so lucrative, to raise a mortgage on the rental property and use that money to purchase more equities? It is curious that you are not doing that.

Looks like the Vancouver Tax is starting to have its intended consequences

http://globalnews.ca/news/3164124/toronto-home-price-growth-leaps-ahead-...

Per the article :
Home price trends in Toronto and Vancouver suggest that the foreign buyers tax is having a stronger influence than the changes to mortgage rules, Kavcic wrote.
“No surprise there at all,” he said.

NO BRAINER .... told you so !!!

I wonder if there are any statistics on foreign buyers paying the tax?

Listen to the chatter - that tells you all you need to know

The Statistics have a serious lag time and will eventually provide what you are looking for.

If you were listening to the chatter you would have been "out" 12 months ago.
Alternately, you wouldn't be getting "into" the market
You don't wait for statistics - too late by then

Unless of course your interest is simply "prurient" - then, by all means, have at it

The lack of information on this possibly suggests that no sales have taken place?

I was just wondering if there have been any sales to foreigners since the tax was implemented.

Maybe they are all waiting to see what happens with this:

Class-action lawsuit filed against B.C.'s foreign buyer property tax

I've searched for information about this but cannot find anything.

There have been plenty of court cases between China's Banks and Vancouver Real Estate companies, where the Banks have come looking for their bogus clients. How did you think that all those Students and Home Makers were able to afford multi million dollar mansion houses in some of the most expensive cities in the world (Including here)! When obviously they had no income?!

Anyhow; Perhaps if China can finally do something to improve their air pollution, then their general population would be more willing to stay and not resort to such desperate measures.

BBC article: Beijing pollution: Police force to combat toxic smog
http://www.bbc.com/news/world-asia-china-38545649

you can see why they brought it in according to the graph, the dips I suspect correspond to the oil price drops, then outsiders have flooded in creating a bubble

Yes you're quite right Joe and it's going to be really interesting to see how much their newly introduced "Empty Home Tax" will have on their housing market as well. I would love to see that Empty Home Tax introduced here.

Vancouver hopes to cool off housing market with a tax on empty homes
https://www.theguardian.com/world/2016/nov/17/vancouver-empty-homes-tax