So, it's the big question. What are we seeing?
Does the sharp rise in non-performing mortgage loans now being witnessed tell us that the full extent of stress from the high interest rates is emerging and becoming fully visible?
Or is there much more - and worse - to follow?
Historical perspective is always valuable and so it should be stated at the outset that in the years after the Global Financial Crisis (2009-11) we saw the ratio of non-performing housing loans hit 1.2%, while the overall ratio of non-performing loans of all types topped out at 2.1%.
Our figures now are coming off a very low base, but are currently climbing swiftly, so, that as of January 2024 the ratio of non-performing housing loans has hit 0.5%, while the system-wide total of non-performing loans is up to just under 0.7%.
There's nothing in the developments to date that's any worse than the Reserve Bank (RBNZ) and the country's commercial banks have been expecting. But it's a very fluid situation.
For the sake of context the 'problem' here is that the RBNZ has raised the Official Cash Rate from just 0.25% as of the start of October 2021 to a current level of 5.50%.
Mortgage interest rates had been, in a historic sense, virtually non-existent. The banks pre-empted the RBNZ from the middle of 2021 and started rapid fire increases. So, rising interest rates have been a key story since July 2021 onwards.
Based on RBNZ-compiled figures detailing the 'special' rates banks offer on new mortgages, the low point in the super-low interest rate cycle was June 2021. At that time the average one-year fixed mortgage rate was just 2.2%. The average two-year fixed was 2.6%.
Trying to be as up to date as possible, I report that the most recently updated rate among the major banks at time of writing has been by BNZ. As of this week it is currently offering 7.24% for one year and 6.79% for two years - both of these are 'specials'. The one and two-year rates are used as examples because they are always among the popular options.
So, what's been happening with mortgage customers? What have they faced?
If we imagine a new mortgage applicant taking up a one-year term in June 2021, well then (assuming they subsequently renewed for the same term), their rate would have gone up from a 2.2% starting point to 5.1% in June 2022 and 6.9% in June 2023. Right now they could be looking at something with a '7' in front of it when they refix in June this year.
A person taking up a two-year rate in June 2021 would have seen their rate increase to 6.5% as of June 2023. What will they be refixing at in June 2025? Oh, that's a good question!
But what this quick example does tell you is that while people are rolling over on to new terms all the time, the point from the above is that the BIG increases should have kicked in for most people by now. The pain isn't getting worse, as such. But is it becoming cumulative in its damage?
For the record, RBNZ figures as of January 2024 show us that the mortgage pile was $355.7 billion as of the end of that month. Of this, $38 billion was 'floating', while $317.7 billion was on fixed rates. And of that latter total, just over a third of it - $107.8 billion - was due for refixing by July 2024. Right at the moment it looks unlikely that any of those people refixing within six months will get a lower rate than they were on. But as I say, most of the eye-watering jumps in interest rate sizes seem to be behind us.
That doesn't mean, at all, that the problems are behind us.
In its most recent, six-monthly, Financial Stability Report (FSR) issued in November 2023 the RBNZ, not unnaturally, (mortgages being a BIG financial stability issue), devoted a lot of attention to the current situation regarding the impact of much higher interest rates.
The RBNZ made the point that for many households that borrowed in 2020 and 2021, current interest rates exceed the 'test rates' used by banks to assess affordability, and "some may be particularly vulnerable to debt servicing stresses".
"While household incomes have grown strongly in recent years, further increases in interest rates may result in a larger rise in loan defaults. Banks report that the arrears which have occurred to date have largely been associated with unexpected individual events, such as illness or job loss, rather than hardship due to higher interest rates alone," the RBNZ said.
"However, there is a portion of lending still to reprice to higher interest rates and this will create more financial difficulties for some borrowers."
It's worth looking at that 2020-21 period, because it was nuts, and it may yet come back to bite us harder than we currently hope. It is our Achilles heel, I believe.
According to the RBNZ-compiled monthly new mortgage figures, in the two years spanning 2020-21 a grand total of $175.4 billion worth of new mortgages were issued.
To give some perspective on how nutty that was, the average monthly amount of new mortgages across those two years was a touch over $7.3 billion - which is actually a HIGHER figure than the previous record for ANY month prior to September 2020. As I say, NUTS!
In the previous two years, 2018-19 there was a total of just $132.5 billion worth of new mortgages, for an average of $5.5 billion a month.
In terms of growth of the overall mortgage pile, the outstanding mortgage stock grew by a whopping $52.4 billion (to $325.9 billion) in the two years ending December 2021.
In the two prior years it grew by just $31.94 billion.
Oh, and I know what you will say - "but mortgage sizes got bigger, so that's the difference, that's why the figures grew so much". Well, exactly! And that is the nub of the issue. Low interest rates fuelled our ability to take out mortgages of breathtaking size. I thought at the time many mortgages being taken out were just 'too big', regardless of the fact that the historically low interest rates was making them then 'affordable'.
I had a dig back through some of the statistics earlier this year, which made for interesting reading.
One thing to emerge from that was the fact that the average size of new mortgage in New Zealand increased from $230,000 in 2018 to $345,000 in 2021; an exactly 50% increase and all made possible by super-low interest rates.
That was the big binge. So, what of the post-spree hangover?
That November 2023 Financial Stability Report from the RBNZ contained projections from the big five New Zealand banks of likely rates of non-performing loans.
Alongside this (and utilising those same big bank projections) there was some RBNZ modelling on possible non-performing loan rates, which factored in the expected rate of unemployment as per the forecasts the RBNZ had made in its August Monetary Policy Statement (MPS) last year.
Not unsurprisingly, the RBNZ makes much of the link between rates of unemployment and difficulty paying the mortgage. So, what happens with unemployment is vital.
What did the big banks forecast then? Well, they forecast that the ratio of non-performing housing loans would hit 0.5% by December 2023, rising to 0.6% in June 2024 and 0.7% in March 2025. As of January 2024 the actual non-performing housing loan ratio IS 0.5%.
In terms of overall provisions for the entire bank book, IE including business loans etc, the big five banks projected that this ratio would hit 0.6% in December 2023, 0.7% in March 2024, 0.8% in September 2024 and 0.9% in March 2025. As of January 2024 the overall non-performing loans ratio IS already at 0.7%, IE the figure forecast to be reached in March 2024. So, actual results are tracking the forecasts.
The RBNZ's modelling in that November Financial Stability Report, including those unemployment forecasts, was for a slightly higher overall non-performing loan ratio, reaching 0.6% in December 2023, but then hitting 1.0% by the end of this year, 1.1% by March of next year and continuing to slowly rise to 1.3% by the end of the forecast window in September 2026.
What's very important to note about the RBNZ modelling though is that the RBNZ has subsequently revised down its forecasts for unemployment. It now sees peak unemployment (as per its February MPS) of 5.1% by June next year, versus a previous forecast (August MPS) of 5.3% by December of 2025.
This is important because the actual rate of unemployment is undershooting forecasts.
And yet, although it is early days, the rates of non-performing loans are actually going up pretty much in line with those earlier forecasts - in which unemployment was expected to be higher.
That's right, fewer people than expected have lost jobs - but the stressed loan ratios are going up at pretty much the same rate as was forecast with a worse unemployment position.
So, does this mean that despite not losing jobs, people are still in any case beginning to lose the battle to service the mortgage every month?
Remember, the pandemic period allowed a lot of us to build up good 'buffers' with savings. But it's possible these buffers are now wearing thin for some people. And in any case, it may be okay to meet higher payments for a while, whilst perhaps putting off things like dentist visits etc, but everything has a habit of catching up. Cumulative pressure.
Is it possible the sheer size of the loans is catching up with people regardless of whether they lose their jobs or not?
Another point worth raising at this stage is, what of people running their own business, but struggling?
I was most interested in a section of the latest monthly report from credit bureau Centrix, in which Centrix managing director Keith McLaughlin noted: "We’ve also observed an upswing in mortgage stress for a sole proprietor [of a business], with many needing to leverage their home equity to continue funding their businesses – a concerning trend that could spell trouble for these owners in the long term."
One of the, for me, more worrying aspects of the latest RBNZ non-performing loans figures is the very strong rise in the non-performing loan ratios of small-to-medium-sized businesses (SMEs).
In the period from January 2023 to January 2024 the non-performing loan ratio of SMEs has shot up from 0.5% to 1.1%.
But it's a bit worse even than that suggests - because it all effectively happened in the last six months of that period.
As of January 2023 there was $416 million of non-performing SME loans. By July 2023 that figure was $422 million.
Then, in the six months to January 2024 that figure shot up by 92.7% to $813 million. What are the potential ramifications of such an increase?
It's difficult sometimes to establish cause and effect convincingly. But we do know the housing market has got off to a very sluggish start this year and there's been a flood of houses listed for sale.
It is dangerous to make blanket assumptions about why people may put properties up for sale. And if people are under stress with their payments, or simply just getting cheesed off with the struggle and so want out, well, they are unlikely to say that's the reason. People are private. People are proud.
But you do wonder.
The RBNZ in its February MPS reduced its forecast of house price growth for the 2024 calendar to just 3.4%, down from a forecast of 5.2% in the November 2023 Monetary Policy Statement. Some bank economists have started trimming their forecasts too.
What do you think? I don't think it is looking great. We will have to see what happens.
Mortgage relief is not expected any time soon. The wholesale interest rate markets are currently pricing in about a two-thirds chance the first cut to the Official Cash Rate will be in August. But, okay, even if mortgage rates do start to decline in the second half of the year - how much will they decline by?
Someone who's gone from paying 2.2% for their mortgage in 2021 to maybe over 7% this year is not going to see it go back to 2.2% overnight are they?
Indeed, it's fair to assume that whenever the mortgage rates do start to come down, it will be slowly and rates may well ultimately settle at levels significantly higher (say maybe 4% to 5%?) than those historic levels we saw.
In the meantime, people need to carry on as best they can.
The situation is going to be well worth keeping an eye on. We need to see what happens to the level of housing listings - versus how many are sold and at what prices. And we need to see how the non-performing loans figures track in coming months.
And then there's those unemployment figures. If those do suddenly take a marked turn for the worst, well, not good.
So, there are many moving parts to this story and it is by no means clear which way it is all going to go.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
147 Comments
It's May 2021. Mortgage is coming off a 2 year fixed term. There's "emergency" interest rates ranging from 2.2%, to 2.9% (shortest to longest term). Do you:
A) Take the short term rate. It's cheaper, and surely the low rates will be lower still once the "emergency" is over in a year or two.
B) Lock in for as long as possible. They've never been that low, you could make the same repayments you always have, and the loan will be gone sooner. And stuffs pretty crazy out in the world, be good to have some certainty for the next 5 years or so.
Sounds like most mortgage holders went for option A.
Option B was the best option. I know plenty of people that are on 5yr at low 3% mortgages with 1-2 years to run. They are starting to look stressed as they get closer to reality. Reality being normal rates x house price crash from peak stupidity.
So there is still more pain to come. HFL.
Why were those people not overpaying their mortgages for 5 years?
Even if they kept up with 2019 era repayment amounts, with 2021 interest rates, they'd have plenty of buffer.
The fact the bulk of the population doesn't seem to be able to grasp some fairly rudimentary basics let's you know the system is able to do as it pleases.
I chose option B, for five years. I think it ends at the end of 2026. I also tripled the repayments, and directed any excess into a mortgage ready account. At the end of the term I will have paid 80% of the mortgage and will have 100k left to go. If interest rates are still high at that time, I will pay the balance. The low rates offered in 2021 were a once in a life time opportunity to set up to be mortgage free in a short period of years.
What Painter1 and most of us don't know is how many did pay down their mortgage when rates were ultra low, some bought toys so the toy sales will be a leading indicator of mortgage stress. Whatever refixing a 450,000 3% loan at 6.5% costs $15,750 more PA, how many have this level of discretionery spending income that can be diverted to mortgage repayments and increaseed unemployment will have a domino effect and the 90&70% discounts on sales value of commercail property in the US is - of course its always different in NZ - until it isn't - timing is the big unknwon factor but the clock is ticking!
Well done. I admire that. I took and average of 3.6% for two tranches at 3 & 4 year terms. First one ends this year. Aggressive payment during this time was not possible as we went down to one salary to have two kids. Opportunity was taken to have a family but not taken to pay down. Choices, choices.
Plenty of people telling porkies, almost no body went on a 5 year, this figures were out months ago on here, you couldn't even see the blue line so it was like 1% of the mortgage holders went 5 yrs so if you know plenty of people then you must know hundreds of people in total and lets be honest you don't get to see their bank accounts to prove it.
I took 5 year fixed for 2.99% in mid 2021 just due to the maths of it, if I fixed for 5 but interest rates went to 2% over the next 5 years I’d be out of pocket 0.99%, but inflation was picking back up past 4% at the time and was looking to go higher, central bank rates historically had to be near or higher than the rate of inflation to beat it, and stay higher even after inflation subsided for some time, my guess was rates may average 6% more than 2% over the next 5 years, at the time felt like an idiot though, couldn’t convince a single b****rd around me even with me stupid math gibberish, I guess I just got luck really, still don’t look forward to mid 2026 though 😭
At the time, many economists, especially bank economists, but also RBNZ economists, were predicting rates would stay low for years and inflation was unlikely to be a problem. Even banking staff were being encouraged to fix their own mortgages for no more than three years because rates may be even lower after that term was up.
Using argumentum ad odium style arguments to either a) show how wise one is, or b) how dumb other people are, is rewriting history.
ComCom has much work to do.
It's fair to say that in hindsight, many of the economists were making projections on a pandemic being much worse than it was (i.e. some sort of economic/consumer end of times), and very few people could see how inflationary COVID would be on business activity, and therefore consumer pricing.
Much of the commonly promoted discourse is based on extremely conventional understanding, and should be treated with caution. Very few (I'd say almost zero) professional economists actually know how money works.
It's a good thing I don't rely on quoting Socrates or dropping Latin to make financial decisions.
Much of the commonly promoted discourse is based on extremely conventional understanding, and should be treated with caution. Very few (I'd say almost zero) professional economists actually know how money works.
An argumentum ad populum and another argumentum ad odium.
You really can't help yourself, can you? (That's a rhetorical question, btw.)
I agree, we settled a purchase in May 21, longer rates were already on the move into the 3s by that time. The stats shows less than 5 percent locked in longer rates at that time. We staggered and have a third of our morgage for five years. We luckily had other liquid assets and offset the rest as the rollovers came up. One coming off this May was 2.79 percent for three years. You can see how temping that was compared with the five year rate for those locking on price alone. I expected rates to increase however I don’t think many thought they would rise at the rate they did. As a CA I have 380 clients and coupled with friends i know of no one else that locked in any for five years. We did it for only part of the loan thou.
Great article thank you. The slow growth of the unemployed is really interesting and important. I have a couple of theories from what I see.
1. Because it's been so hard to find and retain good employees, for so long. Businesses are be very reluctant to let people go before they actually run out of cash to keep them. Else if the market returns they have to go through the hiring pain again to rebuild.
2. employees that have low debt and are cashed up.. are working less hours to afford their employer to continue to pay others with big debt for more hours. Which suits everyone. Only a very small % of people actually borrowed big in the last few years.. others paid down debt. So there are two distinct groups of workers.
Number 1 has started dissipating. People aren't absent as much due to illness, and places aren't as busy. Oh and the borders are open.
Agree with Number 2. We now have quite a lot more fragmentation in people's fortunes since 2020. Mortgage pain is not felt universally.
Employment has changed a bit too. What do they call it? ‘Casualisation’ of employment or something?
so maybe a 20-something person works 2 jobs. They lose one of them, but still get 30 hours from their other job. The 30 hours still gives them significantly more than they would get on the dole
How about
3. How does a small business pay out a redundancy with current workplace rules? If you’re short funds and eating into home equity to stay liquid how can you pay out 6 months of salary for redundancy? You don’t. You stick your head in the sand until you go broke and everyone goes down.
Last I read, you only get paid out redundancy if it's in your contract - there's no legal requirement for any employer to have redundancy provisions for employees. Not sure how many small businesses have redundancy clauses in their employment contract, especially 6 months. Less than larger enterprises, would be my guess.
One factor that hasn’t been factored in is the additional costs to the household other than mortgage payments. House insurance (which is required to get a mortgage) just to name one has risen significantly. Then you have rates, other insurances, food, childcare… I live in mangere bridge and there are 59 properties listed for sale…that’s huge for this suburb.
Councils are monopolies.
They can pretty much do as they like so long as they spin it correctly.
E.g. present 3 options, all involving substantial rates rises, and be secretly thrilled that the one they wanted was 'chosen'. Basic game theory. Game theory is fascinating. Those that don't study it - get gamed by those that have.
Plus all sorts of dirty deeds behind the scenes like under a previous Ak major, the Councillors were lectured to by the Ak Council legal staff that if they didn't vote for the high rate increase options, there was a chance that the Council credit rating would be lowered.
Personally, if I was a Councillor, I would have called their bluff.
But of course none did.
If a credit rating was decreased, I know that the interest bill would become higher but more discipline would have had to be employed in their budgeting. Like most households do.
How is that possibly a dirty deed. It's the legal team's literal job to brief councillors on the consequences of their decisions. It's up to councillors to make those decisions.
Just because you would have made a different decision than the cllrs made doesn't make what the legal team did a "dirty deed".
It's f***ing pathetic how people bash public servants for doing their jobs.
It's just the aggressive and insecure mentality that's grown in this country. As you say, we bash the public servants. People bash the road workers for "leaning on shovels". Bash people for their voting preferences. Bash the "greedy boomers" and bash the "frivolous millennials".
I think we're well overdue for a war to remind us that the enemy is not the bloke down the street.
I walked into a kebab shop on Wed last week, small $15 med $17 Large $19
Went home and cooked Chicken Madras myself...... i just could not pass so much cash over for so little, I imagine takeaways are doing it real tough, the less they sell the higher the overheads as a %.
I imagine takeaways are doing it real tough, the less they sell the higher the overheads as a %.
Vietnamese family running a takeaway joint on the North Shore of AK. Typical greasy spoon selling a mix of Chinese dishes and white man batter dishes. Bank was aware their bank account has an extraordinary amount in it and tried to engage via an 'investment manager' to get their hands on some of the lucre. Vietnamese family not interested. Hard working, basic housing but likely to be far richer than your avge Kiwi h'hold.
Usually it's the flash Harrys who are the most indebted and don't really understand saving for a rainy day.
I know one similar, just took over one month off for a holiday, prices have been fairly good through the last couple of years. Can still feed the family around $7-8pp for a decent spread plus chips, always busy. Heaps of vege and meat.
Some will last, some will not.
I know one similar, just took over one month off for a holiday
Not similar. These people don't really take long holidays. And if any member does take time off, the business keeps running. It's all about the family and an emphasis on the kids' education and opportunity to move up the socio-economic ladder. I have the utmost respect for them.
A precarious situation that fits the predicted data. If property values continue to decline the outcome can be influenced by irrational decisions and emotion which is largely unpredictable in the modelling. The same elements that were overlooked on the remarkable credit fuelled upward spiral,
I've seen a few economic commentators mention that people built up savings buffers during covid. I have not met a single person who did this. Almost everyone I know carried out renovations, purchased vehicles or upgraded homes. Those without mortgages binged on Uber eats. Kiwis are spenders not savers. The RBNZ and Government were signaling to everyone to spend to keep the economy alive, and most did this.
Im prefacing this comment by saying - I googled this at some point, came up with a half pie theory and never applied actual figures i would be happy to be corrected on any of it;
It seemed to me at the time a lot of the economic actions were based on the quantative theory of money MV=PY equation. The assumptions were GDP (PY) would tank, and a huge amount of QE occured increasing amount of money (M) in the system.
When PY didnt fully tank, and with the relative increase in M, that equation when solved for V (i think) shakes out to appear as though everyone hoarded wealth. In reality (i think) the oversupply of money devalued the dollar relative to the increase and is yet to catch up.
Everything since has appeared to be a mad scramble to pretend running a country using wrong predictions entered into an oversimplified equation wasnt a huge stuff up. Saying people had savings is victim blaming and spiking OCR is a claw back on actions that shouldnt have occured.
We did it. Knocked 6 years off our mortgage in total by reducing the term of it every year we renewed it. We fixed annually due to illness and the likelihood that the life insurance would be paid out - thankfully that hasn't had to happen. This year we will probably keep the term of the loan the same and do maximum additional lump sum when we can.
I start off with a 30 year loan term. Figured we can always fall back onto 30 year repayments if we ever get into hardship.
Each year when the payrise comes along, increase my repayments by that dollar amount. Upgraded in 2021, currently at 20 years to be paid off, probably get it on track for 18 this year.
Things are going to get a lot worse before they get better. Depending on your perspective of course, and recognising a lot of people (especially on this platform) love seeing others in pain, so they can congratulate themselves for being smart / clever / wise / lucky(?)
Even if the RB wake up and recognise what’s happening, and cut rates, it’ll take 12-18 months for those cuts to fully work through the system to offer a lifeline to those in need.
I was fortunate enough to be working on the worlds largest trading floor during the GFC, for a bank who at the time held the greatest proportion of mortgage backed securities within our fixed income department… what I have learnt from seeing that and then watching this play out is that we seem destined to repeat our mistakes.
Markets (regulators, rating agents and central banks) can remain illogical longer than most people can remain solvent. I worked in exotic equity derivatives which are mostly highly leveraged complex products, which are great for hedging if you understand how to use them but dangerous in the hands of layman…. The collectively increased debt levels caused by NZ’s insane house prices exposes us all to exponential risk. I ask you all to consider how bad this could get, how deep this spiral could go and what can stop it?
I assume most people understand that the only safety net we have from the slow motion train wreck playing out as we look on is the out of touch reserve bankers and their antiquated ideas made worse by their out of date data.
The reserve bank held rates too low for too long. They are now doubling down by pushing rates too high, and holding them there for too long. It is absolutely unfathomable that they can not see the storm clouds they themselves are harnessing.
For those people considering timing the market, a cautionary word of warning… a senior trader on our desk who I respected immensely compared timing the market by buying into it like a surgeon trying to catch a falling scalpel. He might get lucky and catch it, but it’s safer to let the scalpel hit the floor and just pick it up afterwards.
ANZ perpetual preference share offer closed and issue margin set
ANZ Bank New Zealand Limited (ANZ) has announced that it has allocated NZ$275,000,000 of perpetual preference shares (PPS).
The Issue Margin for the PPS has been set at 3.25% per annum.
The Distribution Rate that will apply until the First Optional Redemption Date (19 March 2030) will be equal to the sum of the 6-year Swap Rate and the Issue Margin and will be announced later today via NZX.
The days of cheap capital are over... even for ANZ.
Lots of so called "Property Investments" no longer work, even with mortgage rates of 5.85% the investors will be topping things up until the debt is paid.
Any attempt to sell so called investments will require a substantial reduction in price so the new investor is cash flow positive.... even property apprentice know this....
Totally agree - you only have to read some of the posts on FB Property Investor groups to see some 'investors' may be starting to get it....maybe :)
With all the rhetoric on social/& in the media about ‘rich landlords’ and housing being so unafordable [aka ‘expensive’] I looked st the yields on my I.P.’s and they’re still sitting at a paltry 3%. I’m currently looking at a new ‘investment’ but again, the yield is only 3%. can someone remind me why I should bother when ’yields’ are so low and ‘capital gain’ is never guaranteed? I accept that there is always ‘risk’ involved in investing but I’m wondering why I should provide accommodation for strangers and get nothing for it. (not whining,honest - it’s a genuine question)
It's quite a toxic little echo chamber though isn't it? One minute people are crying that everyone hates them, next minute someone is asking how they can screw the tenant for the insurance excess on accidental damage while everybody else cheers "Just jack up the rent that'll teach them".
I think the problem is a lot of these "investors" have no other alternative. They're cash poor and equity rich.
The group is sprinkled with posts like this one just yesterday. Do you think they're going to instead choose term deposits? Take out a $1m mortgage and then chuck it in a TD?
Hypothetically, if I owned an OO property with heaps of equity and wanted to purchase a rental or three, my thoughts were borrow from the same bank so when interest deductibility comes back, my mortgage could be for 100% of the purchase price.
Hasn't made sence for some time. Cheap debt just masked reality. Banks also masking reality as they operate sinking headcount and close branches. Almost like they are actively reducing overhead in preparation.
As you correctly point out 3% yield is crazy. You can get 6% in the bank on deposit.
Let's see what happens next.
We need a healthy mix of DGM in our politics. A bunch of end-of-the-world predictors who can balance the irrational always-go-up rose-tinted politicians and policymakers in order to cancel out the highs and lows to give us a safe boring world.
It would also make Parliament TV a lot more exciting.
Not only is there a flood of listings but according to TAs survey a flood of appraisals as well.
Hence his view that things have stalled and are munted.
AC was on the OneWoof radio show, trying to sell the theory that suddenly a hoard of buyers will all rush in and the market will jump 40-50k suddenly. The guy is truely deluded. You could tell from the tone of the host that he was just going through the motions and collecting the OneWoof sponsorship cheque.
Lots of people are very stressed.
Good on em but how is it that humble tradies end up in elite suburbs, there's gold in trades too
In gold rush days many abandoned their post to find their fortune. Others just stuck to their business like Mr Levi Strauss.
I wouldn't consider even investing in gold, let alone actually doing physical prospecting. How about you
I do a bit of sluicing and panning in the Southern gold fossicking sites.
Its great fun and you can shovel all days no problem....get small gold in the first hour.
The detachment from the normal life is good for a few days!
If the economy hits the skids in all directions, could always invest in commercial and give it a go fulltime. No earnings promise though!
Its the total lack of ad targeting that NZ Herald print and linear TV have.... If I want to buy anything I google it... and paid placement ads are served. Search for anything on trademe and you will start to see ads for that thing in your online herald.or facebook page..... 90% of the revenue is going to google and meta because they have the landing page for your eyeballs. This is not going to change.
TV and Print media are dead. They cannot survive on 10% of the media advertising spend
It will be Stuff announcing layoffs next.
I suspect terms are being extended . What was 'nearly out the door'...is now stuck in the kitchen working to a new recipe.... those looking to jump on the ladder will be in a holding pattern waiting for significantly better rates or prices .... If the mortgage rates dont break they will be wanting the property prices to tempt them.... Minor drops wont cut it.......Significant
10% by xmas and another 10% next year... by then rates will be lower as well and the numbers work in a 6-7 multiplier, which will meet the RBNZs DTI metrics.
Anyone who has a excel sheet will be looking for this sweat spot. Until then and over a wet mouldy Auckland winter, hosing stock will continue to build up
Price by negotiation, but unwilling to negotiate.
Exactly this. Sitting on a healthy deposit and there really isn't much temptation to buy at the moment - ownership costs on as little as 30% LVR would still easily outstrip my current rent, and even if I thought prices were going to rise 5% this year - which I obviously don't - it would barely match what I could get in a TD. My guess is that the hype crowd all jumped in and maxed out two years ago, and mostly won't be in a position to buy again for years - so cynical people like me will be the ones that decide the floor.
If the RBNZ doesn't starter easing immediately, it's going to be as bad as the GFC, and quite possibly worse.
Consider the graph below. Use the slider to go back to 2004.
https://www.interest.co.nz/charts/interest-rates/ocr
Between 2004 and the GFC we had 4+ years of rising rates. I.e. people had 4 years to see what was happening and many would have 'cooled their jets'. And from a point before 2004 they were already 'high' by comparison to the 2009-2022 periods. (And mortgages were far smaller.)
Add in unemployment that had been climbing before the GFC ... And boom!
Between 2009 and 2022, some 13 years, we've had rapidly climbing mortgage sizes. Why? Because our imprudent RBNZ didn't have the tools in place to control mortgage sizes. And once they realised their problem, and the need for them (e.g. LVRs / DTIs), they pandered to the extremely slow implementation timelines the banks told them they needed.
Will the RBNZ ease in April? (They should have started in November 2023 IMO. And February 2024 was another option but probably too late.)
Remember the RBNZ are accountable to no one. Absolutely no none. They have vague economic parameters they are supposed to operate in but it appears they all too frequently spin these measures as they like. Further, they insist on using measures that are often 3 months out of date and refuse to predict anything except the most pessimistic of outcomes in the projections. And when they get it wrong, the 'nobody could have seen that coming' excuses get rolled out and lapped up by the public. No heads roll.
They'll be able to find all sorts of obscure measures of inflation (as they have been doing) as excuses to hold the OCR high. Further, they can use the 'just in case' and 'better safe then sorry' nonsense to hold the OCR high. And guess what? There are a lot of none too bright Kiwis that will think this is prudent central banking,
Another one of our 'institutions' failing us?
It comes as little surprise to me that our institutions are losing the public's trust. Especially as these central bank created boom/bust cycles only serve to make the rich even richer.
A big recession at high interest rates is exactly what the economy needs. Kill off the businesses that are unproductive fronts for siphoning cheap credit, leave behind the ones actually adding value.
Mitigating unemployment during this time is the job of the government, not the RBNZ. With our key future investments of health, education and infrastructure all stretched, there is little excuse for the government to stand by and watch unemployment grow. Hire, hire, hire - then the kids might finally be putting their labour into something that adds real value to their own future, not wasting it on making coffees for the landlord class.
A big recession at high interest rates is exactly what the economy needs. Kill off the businesses that are unproductive fronts for siphoning cheap credit, leave behind the ones actually adding value.
If you look at the central banks' actions outside of the interest rate slider, this is a large motivation of their behaviour over the last few decades. Each time they refine lending, casting off those closer to the margins, making the remaining debt holders supposedly more stable/secure.
Couldn’t agree more Painter, I look at some of the leveraged up businesses in my sector with more staff and infrastructure than they need (offering sub par service) and thank myself I never took on any debt or loans to grow the company.
It may even be an opportunity, not that I’d take much pleasure at the expense of good people loosing their jobs.
Good play, and probably more lucrative sticking to your knitting than expanding to be more things to more people.
Really difficult business environment the last few years, trying conditions to be productive, and segments of the economy booming and busting.
The sad thing from your story (which is rarer, but not uncommon), is the curtailed productivity growth in the medium term from not investing more into business, because of the conditions.
Agree with most of your comment. Had Orr been let go after leaving too low for too long while flooding the country with money we might have a bit more faith in the RBNZ. Instead he got 5 more years and double the pay while the rest of the country suffers for the RBNZ's foolishness and the rich continue to get richer.
Stupid high house prices and vast swathes of unproductive industry that is only profitable because of cheap credit, or capital gains due to cheap credit, or pinching a slice of other people's cheap credit.
The economy has always been made up of makers (labour, capital) and takers (rentiers of all forms). Cheap debt and a financialised economy just facilitates ever more taking and ever less making, it's at the root of our productivity and cost of living crises. We need a high OCR and strict DTIs to even start to correct this.
As they are already doing now - they'll need come to the market for additional capital.
They won't fail. They're "too big to fail" so the RBNZ treats them with kid gloves. They usually get what they want from the RBNZ (including cuts to the OCR).
That said, the RBNZ may be standing tough with the OCR at this level as they really need to get DTIs on the books. (The banks absolutely hate DTIs. I mean really hate them.) So NZ Inc. may be 'meat in the sandwich' while this battle plays out.
The RBNZ can and does change the rules to suit.
At the start of COVID, high deposit requirements went away for a time. So not out of character for DVI requirements to do the same, when things are heading south.
For us economies geared towards consumption, central banks and governments have little choice but to save the consumer.
Expect more to come.
Here was a story from 2023 where a guarantee that was given and the business subsequently fails.
https://www.stuff.co.nz/business/300828761/elderly-couple-lose-house-ov…
There were many mortgages where there were co-borrowers in order to meet debt servicing criteria, where the co borrowers are jointly and severally liable. Many co-borrowers may be unaware of the joint and several liability
https://www.stuff.co.nz/business/126379143/sneaky-lenders-sign-up-famil…
This stress was always going to happen for both big borrowers and the banks......
Bid major assets into the sky, far and above incomes and it has to collapse as some stage. It own DDDebt weight is so badly unsupported by income it just has to.
We are at best, mid-collapse.
40 to 50% Real drops (seeing this in Wgtn now) are now on the small side of likely losses.
AC on the OneWolf was indignantly angry at the thought of mortgage rates staying high and killing of his God given right to excess rentier profits.....
Total Tosspot.
He and the host were trying to have the FHBs stepup and take on the big debts.......pass the bag, got to keep the Ponzi alive.......
Already rolling back election and coalition promises, no wonder Chris Luxon is now less popular than Chris Hipkins. Worse National leader in living memory.
https://www.nzherald.co.nz/business/property-investors-to-get-slightly-…
Yeah god they are bad. Willis hasn’t a clue on finances, she got her numbers wrong big time and now they are back peddling.
Hopefully Labour can sort themselves out and become a competent centre-left party rather than a hapless, incompetent, centrist and woke one.
I am not holding my breath.
https://www.nzherald.co.nz/business/property-investors-to-get-slightly-…
Property investors to get slightly less tax relief than promised in National-Act coalition agreement
"...
The Government has decided not to give residential property investors as much tax relief as National promised Act in the parties’ coalition agreement.
Rather than start phasing out the interest limitation rule in the current tax year, as stated in the agreement, it will start being phased out in the year to March 31, 2025...."
I fixed for 3 years, i have managed to build a buffer by simple spending and living sacrifices. Nearly all my shopping is from Taobao, excluding food, I have boarders and BNB a room that can generate 900 a week on my OO with a morgage that was a modest 670k drawdown in 2021. All my saving go into offset accounts which is now some 200k.
Obviously a massive inflationary shock, like that launched by Reserve Banks during the latter stages of Covid-19, is going to cause households immense financial stress.
Everything costs more and households don't have more money. In fact thanks to taxation increases many people have less to spend than pre-pandemic.
During Covid the signals from the Reserve Bank were - heres cheap money house owners - please splash out and keep our country going - we are depending on you (ie forgot about the RBs day job)
2023 The Reserve Bank says - Hey guys, why are you guys spending so much? You're creating inflation! I'm going to punish you with high rates - sorry I made a mistake with our OCR - we are all over the place and don't know what we are doing - sorry about that
Interesting reading through the article and comments. I agree with most of the sentiment.
Not enough people thought for themselves acknowledged once in a lifetime low rates instead listening to the "professionals" who more than likely have bias due to multiple houses owned that we will have low interest rates for a long time.
We personally made our initial home purchase 16 years ago starting at 9.15% then upgraded renovated and always paying down more than we needed to as rates dropped keeping repayments the same or higher.
We got lucky and worked hard, read the writing on the wall regarding rises coming thick and fast and paid the remainder of our mortgage mid last year. Both of us on public servant wages (sub $100k ea). It worries me now though we did this but future generations won't be able to own in city centres and work in the public sectors which I find appalling. We have a paid off $1m+ property but I know not all of our wealth can be accredited to anything but buying when we did and the ladder is pulled up for people like us now in Auckland.
/Tldr make your own decisions based on the information at hand. Bias is prevalent and unconscious bias dangerous and hidden.
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