New mortgage borrowers are stretching themselves much less thinly than they were, according to the latest debt to income ratio figures produced by the Reserve Bank.
The latest figures are probably not surprising, given the way mortgage interest rates have risen sharply and the fact the housing market has turned.
Notwithstanding that though, the latest data will undoubtedly come as some relief to the RBNZ, which has been watching the debt to income ratios race higher and higher over the past few years.
People have been taking on more and debt relative to what they earn as house prices have raced higher. The super low interest rates that we saw up to a year ago helped to make that possible - since the interest servicing costs were actually coming down even as the levels of debt being taken on reached eye-watering levels.
Now, with mortgage rates substantially higher, the tide has turned in a big way.
The figures for June 2022 show that the debt-to-income ratios for new borrowers have dropped very sharply over the last quarter to now be at their lowest levels in around two years.
The RBNZ had sought for some years to get a debt servicing restriction, probably a debt-to-income measure, included in its 'macro-prudential toolkit' - which already included such things as the loan to value ratio (LVR) restrictions. Having finally received government approval the bank is working toward having a debt servicing framework ready by the end of this year so that restrictions could possibly be brought in next year if needed.
Having earlier moved with some urgency on the issue, the RBNZ now doesn't appear to be as urgent - and the latest DTI figures would tend to indicate why.
The RBNZ keeps a close eye on borrowing that's done on DTIs of over five - in other words where the amount borrowed is over five times the annual income of those taking out the mortgage.
The most heavily geared borrowers are typically the first home buyers. And the debt to income data has shown that in recent times well over half the monthly amounts borrowed by FHBs have been done on DTIs of five or above.
The June figures show, however, that for the first time since late 2020 under half the amount borrowed nationally by FHBs in that month was done so at a DTI of five or more. And it has been a sharp fall, with the percentage of +5 DTI borrowing for FHBs having dropped from 53.9% in March to 46.9% in June. In June 2021 the percentage was at 57.5%. That percentage actually got a bit higher than that, reaching 58.3% in both September and December last year, before starting to drop this year.
The Auckland FHB figures are, commensurate with the expensiveness of Auckland houses, still markedly higher than the rest of the country, but also now dropping sharply. In June 2022 the percentage of over five DTI borrowing was 60.3%, down from 67.7% in March and 71.3% in June 2021.
I suppose the big question might be how much more the RBNZ would like to see these figures falling by. But presumably the central bank will be satisfied at seeing the general downward direction.
The debt-to-income data has been gathered and produced by the RBNZ since 2017. It is monthly, but released quarterly. Generally speaking the data between 2017-19 showed a falling trend, from quite high levels, before beginning to rocket. And now the figures are coming down again.
As we've done since the start of this data series we are comparing the latest month's figures (June 2022) with the last month from the previous release (March 2022) and we are also comparing both these with June 2021.
DTIs of above five are regarded as getting up there, so we highlight the percentages of total mortgage money that is borrowed by both first home buyers and other owner occupiers at DTI ratios of five and above. Our calculations in both tables here exclude the (small) amount where the DTI size is unknown.
The table below shows the percentage of new mortgage money for first home buyers and other owner-occupiers that is on debt-to-income ratios of over five times:
| Group | Jun 22 | Mar 22 | Jun 21 |
|---|---|---|---|
| FHBs nationwide | 46.9% | 53.9% | 57.5% |
| Auck FHBs | 60.3% | 67.7% | 71.3% |
| Non-Auck FHBs | 34.5% | 41.9% | 45.7% |
| Other owner/occ nationwide | 38.3% | 44.1% | 44.9% |
| Auck other owner/occ | 49.6% | 57.2% | 57.7% |
| Non-Auck other owner/occ | 28.4% | 34.2% | 34.2% |
Okay, that's the FHBs and the owner-occupiers. Then our next table looks at the investor and those owner-occupiers with investment collateral. For this table we choose a more bracing DTI level and look at the percentages of those with debt-to-income ratios of over seven times.
The next table shows the percentage of new mortgage money for both investors and owner occupiers that have investment collateral that is on debt-to-income ratios over seven times:
| Group | Jun 22 | Mar 22 | Jun 21 |
|---|---|---|---|
| Investors nationwide | 16.8% | 26.4% | 36.5% |
| Auck investors | 23.0% | 35.7% | 46.8% |
| Non-Auck investors | 9.9% | 18.1% | 24.4% |
| Owner/occ + investment collateral nationwide | 14.7% | 26.2% | 37.4% |
| Auck owner/occ + investment collateral | 17.7% | 34.8% | 48.7% |
| Non-Auck owner/occ + investment collateral | 12.2% | 19.1% | 27.7% |
So, there we have it. A very sharp easing from very high DTI levels is under way. How much further has this current trend go to go? Well, we will certainly be keeping a close eye, and you can bet the RBNZ will be too. But the RBNZ will for now be happy that fewer people are taking such fearful risks with the amounts they are borrowing relative to what they earn.
118 Comments
Are they "gearing themselves up much less" or are the banks not *allowing* them to gear up as much?
It would be sensible in the face of rising interest rates to leave more of a buffer but history would seem to suggest that, left to their own devices, borrowers are inclined to borrow as much as they can.
FHB are no better off financially, house prices would need a massive fall to offset the rising rates. Less of them are getting into mortgages, buying the cheapest houses around fear of continued rate rises and not extending themselves as far. There is a real unknown as to how high the rates could go at this stage of the game.
Affordability at an all time low despite lower house prices. I believe next year will present better buying opportunities, but I am becoming less sure that the downturn will end next year. I keep asking myself, what would it take to turn the market around?
Statistics can be looked at whichever way you'd like, but from what I've observed from RBNZ statistics is that the reason FHB are not leveraging as high is because only very high income FHB are able to enter the market. The average (useful as is a controlled group, lol J.C I used an average!) FHB income is ~140k at the moment, one and a half times the median household income. How many of those FHBs are there? How many are waiting? The market seems to be squeezing the last drops of unaffordable housing still, the higher interest rates go, the higher stress tests go, the more unaffordable things get, the bigger the swing.
I doubt that RBNZ will hammer the OCR back into the floor come 2023, and even if they did, FHB may still be waiting for a better buy as both house prices and interest rates could continue to fall. Would you try fluke pick the bottom of prices, the peak of rates, or the peak of affordability or some other measure?
FHBs far better off?...
Interest rate pain: Higher incomes needed to buy cheaper houses
https://www.nzherald.co.nz/business/interest-rate-pain-higher-incomes-n…
Intelligent FHB's will be far better off....not the average FHB...but we had this conversation the other night.
The unintelligent FHB has possibly lost their deposit already because they purchased last year.
The intelligent FHB still has all of their deposit and the house they want to buy is now significantly cheaper - and its possible they will be mortgage free 10 years earlier than those who got caught up by FOMO and purchased 12-18 months before them.
"Still spouting that BS..."
Quality counter argument Nifty!
Well the FHB's I know still have the deposit they have from 12 months ago (its actually bigger now from another 12 months saving!)...and the house they were looking at buying is now 20% cheaper, so they now require 20% less debt from the bank. So the higher interest rates make no difference to them.
All it means is that they now will have 20% less debt to service over the next 30 years (or perhaps more now if they wait until next year...it could be 30% or more).....which means a far better outcome for them. They might be debt free in their early 50's as opposed to 60's if they purchased last year.
Actually doubling down - if the house is 20% cheaper and the FHB is sitting on that 10% deposit from last year, that deposit could be 12.5% now and the amount of debt the FHB has to service has dropped by 22%. If the FBH had a 20% deposit, they now have a 25% deposit and the amount of debt they need to service has dropped by 25%.
Plug that into a mortgage calculator, what would have taken 30 years to pay off now takes 17-18 at the same weekly payment because of compound interest on the loan.
Edit: Should point out this is based on averaged out 5% interest rate because, as we all know, interest rates in NZ are on fixed term. Nobody fixed 2% for 30 years.
You seem to be forgetting that interest rates have increased 100%+... so their repayments on that cheaper house are likely to be more.
Not to mention the more difficult bank affordability assessments for lending including CCCFA, test rates... they may find they can't get approved for what they previously could.
Please give us an update when they go back to the bank for an approval and let us know how they get on...
Will do - just note that on average (hypothetical case study) if they were looking at buying a $700,000 starter home in 2021 and had a $200,000 deposit and that home is now only worth $550,000.....the mortgage they require has reduced from $500,000 to $350,000. But they've also saved another $15,000 in the last year so they now only required a $335,000 mortgage.
So the amount of debt they require has reduced substantially to buy the same home. Run that debt level across the next 30 years and the financial outcome between a person who buys in 2021 vs late 2022/2023 could be very significant by the time both groups reach retirement.
Would you rather be the FHB who doesn't quality for borrowing today and can't buy, or the one who acted sooner and bought at peak?
The problem we have is property prices (and many other assets) are inversely correlated to interest rates, but are significantly lagged. The RBNZ are currently pushing OCR rises out the door as fast as they can and prices are taking their time to react. While we are living in this lag, everything looks expensive while we wait for the other shoe to drop.
‘Would you rather be the FHB who doesn't quality for borrowing today and can't buy, or the one who acted sooner and bought at peak?’
I wouldn’t choose to be either…hence my original comment being the intelligent FHB who doesn’t fall into either of those categories…And hence why I wasn’t encouraging people to buy last year.
But apparently that is BS if some FHBs don’t…
The smart money didn’t buy at the peak and can buy at a discount when prices fall while their deposit grows and because of their wages have no problem with the new lending standards.
Read the same thing in an article from a mortgage broker on weekend saying that FHB better buying 6 months ago as rates were lower? Sounds perfect if the rate was locked in for 30 years. Otherwise, it sounds like desperate nonsense from those who depend on the industry! We have all these over leveraged FHB's with up to 3 years of a nice low rate before hiking up to the new much higher rate with a huge amount of debt.... Sounds nothing like the sub prime mortgage situation at all does it??
Yes this isn't the US where you can fix for 30 years.
The buyers who purchaesed in 2021 and the buyer who purchases in late 2022/2023 will experience the same interest rate environment for the vast majority of the life of servicing that debt (25 years or even 29 years if people only fixed for 1 year at the outset).
If you start with 20-30% less debt at the start, you are so far ahead of those people who just purchased before you. You return on investment on paper will also be substantially better assuming prices continue to drop from here for another 6 months or so.
But apparently this is BS!
Dotcom and 08.
There's obviously bargains to be had in a crash, but persistence/inclusion pays better (on average) than trying to time things, or holding off till things seem right.
Anyone who bought and kept a house right before the GFC likely ended up doing pretty well. Anyone that over leveraged or couldn't afford their debts obviously didn't.
How did people fare who purchase property in Japan in the late 1980's? Do you keep in touch with them?
I'm sure they might tell you a story about not buying at the top of a property frenzy. Likewise a few people from California.
But then there will also be people from California who didn't buy in 2007 but waited and purchased in 2010/2011 with much better results.
People who have only lived in NZ and only have corresponded with other NZ'ers about property I find to be stuck in confirmation and recency bias. They assume the past 30-40 years of returns is normal. They also think that the 10% drop we experienced during the GFC is the worst case scenario. I find that to be terribly naive. But I'm sure that isn't you (right?)
Making analogies with other countries can be fairly problematic.
Japan hit a peak in the late 80s right across the board (not just house prices), and will likely never bounce back from it. Is that us? You'd be taking a stab but we have more differences than similarities to Japan's position.
California I would say is more like NZ, culturally and being newer nations. People that make astute purchases seem to fare ok in any market. Distressed sales are always bad, how much of that comes down to smarts or luck, hard to say.
You were talking more about FHBs I believe. Maybe some people could wait with the benefit of extreme hindsight, but generally if you factor in everything, including the rent you pay not owning, ever increasing costs for new dwellings etc, hard to argue against buying a house sooner than later.
If you bought last year, so long as you don't lose your shirt in the short term, you should be fine.
Pretending that you can buy at what might be the peak of a market that has been as manic and frenzied as what our has been and that everything will work out just fine can also be fairly problematic. Why? Because there are many examples in history of it not working out.
But I also get your point.
Time will tell huh.
Correct Pa1nter, I went all in back in 2005. The house may have dropped a little in 2008 and went flat for years after that then one day I remember waking up to news that my house was earning more than me a week, some $1500 at the time. Its not rocket science you simply buy and hold.
Take it easy, IO. I generally agree with your sentiment, but calling FHBs who bought last year 'unintelligent' is unhelpful. I bought a house a year ago, and while I've always been aware that this is a colossal bubble, my circumstances made it make sense. My income is comparatively extremely high (>500K), and, frankly, I was sick of renting. Would I change anything now, knowing what's happened? Honestly, probably not. How many more years would I be renting before I'd be happy with what prices had fallen to? I love my house and what I've done with it so far, and financially am doing just fine.
Its not intended as an insult if it has been received that way (my apologies if it were).
The intention is to make a point that there can be superior times to buy which was being considered impossible by the opposing view. They assume that anyone that could buy would have purchased by now and therefore nobody is on the sidelines with large deposits and high incomes....which isn't true.
And sometimes to bring the truth to the surface you have to offend a few people along the way (for which I apologise if you are one of these).
Such gluttonous hierarchical arrogance!
Many a work colleague mid-late last year raced in to unlock the FHB achievement based on factors at the time:
- OCR rising. (Good time to lock in 5 years at -+ 2.5%)
- Been told by the keyboard economists since 2017 that this housing bubble is about to pop. "Popcorn"
- When pre-approval loan dates lapsed, changes in stress testing with more scrutiny applied to personal outgoings would mean hundreds of thousands of bucks less than the last pre-approved loan.
- Chats around the work printer centering on how our council rates are going up 23% because "my house has gone up 200k! in three years".
For the most part, I doubt intelligence had much to do with those that were sitting on deposits as at december 21.
Probably more dumb luck as they bid low on houses while factoring in the price of the ford ranger and an Iphone Ultra XIV plus each.
You keep trying to make this point, but the logic just doesn't hold up. Someone who borrowed more money back in 2021 at 2.5% couldn’t lock that rate in for the duration of the loan.
Someone who buys today, will pay less, and be paying the higher rate immediately. But over the lifetime of the loan the are better off than someone who borrowed higher amounts @ 2.5% and was bumped up to paying 5%+ within a year or 2.
But the prices do have further to fall to realign with current interest rates.
Yes if property prices are 20% down (say in Wellington) then those buyers, with the same deposit by not buying last year, now will need 20% less debt from the bank.
That is hundreds of thousands of dollars less debt, which when applied over a 30 year term, is a huge amount of less interest paid.
The US's system seems far better to me in most situations - the borrower borrows, the bank gets finance at a set rate for hte full figure and has a margin on top of that over 30 years. In NZ your bank presumably has a single cost of providing your mortgage as well. If that's true any increases in interest rates look like windfall gains - is this why banks keep getting such massive profits, or are they raising money off short term loans?
Yeah but they are getting into trouble in the USA fast because they have a system called "Refinancing" which obviously provides short term relief to clear some debt or buy a new car at the expense of suddenly going on a long term rate of 6%. Some people never learn and simply cannot pull their heads in.
My understanding is that the 30-year fixes in the US are only viable because the originating banks can onsell them to fannie and freddie. In markets without that backstop, banks can't offer them on terms that anyone will take. But certainly they're appealing from a buyer's perspective, not having to worry about the contingency planning in 2-5 years time if rates have increased.
No better off? Come on!!!
As opposed to FHBs that bought at the peak. And now have a giant mortgage to go along with the increasing rates? And even BIGGER monthly payments for the same house bought just one year ago...
Those increasing monthly costs were always coming. Anyone waiting from last year and now buying now starts with a lower mortgage.
I have issue with comments and analysis that assume rates stay stagnant over the course of the loan. But as we know, over 30 years this will likely fluctuate widely.
Not really, the fact that you even consider his sarcastic remark as having some chance of eventuating is insightful. To entertain you though IO, if it ever possible to buy a "renovated 4-bed Ponsonby terrace for $20k", it's almost certain you would be homeless, scraping limpets of rocks to survive all the while trying to avoid not being eaten by the starving mobs murdering and looting.
Just to be clear I was replying to Nifty's comment and not Pa1nters - certainly that is in fantasy land...
But a return to 2016 prices isn't necessarily in fantasy land - which appeared to be Nifty being sarcastic to say that it is impossible
And in the last week you have said that you think a 50% fall in prices is quite possible in certain areas....so it would appear that you might also be in disagreement with Nifty's sarcasm.
So perhaps you should take this sarcasm up with Nifty and not me :-)
But insightful nevertheless that you would call me out on this while also disagreeing with Nifty's sarcasm.
Yes agree that central banks have gone rogue...but I've thought that since about 2013 when we continued to extend more and more debt to a housing market and cheaper and cheaper rates and thought this would be a good way to recover from the GFC....
All its done is created massive financial and social instability.
A higher interest rate environment the last 10 years would have been a far better option and reduced speculation in assets with debt/leverage.
Chickens do come home to roost so I guess we will have to see how this experiment is going to work out. It could get far more extreme than a lot of people think (i.e. the assume the last 10 years has been normal...but when inf act its been extraordinarily abnormal).
I don't think that there has been too much noise about what has really made 40,000 homeless in NZ which is the outrageous reality of having an average house prices that was more than $1,000,000. So please, Te Kooti, don't be so thin-skinned because the fantasy that you talk about may not be as bad for many people as the reality that we live now.
I'm with you Nifty1 the DGM's only like to cheer from the sidelines. If house prices went down 50% in the next 6 months they would still be waiting for 60% falls. You are either in or your out and "Waiting" for years and years has already been proven to be a very dangerous game.
Carlos if you are a true investor, you are cheering Orr on like he's John Walker in the final straight. He has scarred the young buyers for the rest of their lives. Not only will many now avoid buying and be happy renters their entire lives, he is going to bring prices back so we can add more to our existing portfolio's. Together with the banks (who probably cannot believe their good fortune), we should knight him. Also, we have had the interest deductability ring-fenecd on our existing portfolio's, you couldn't make it better for us at the expense of younger generations.
Note that when I criticise him, I am doing so from the average persons perspective.
Those of us who just want the craziness to end are cheering too - I expect there'll be some serious scarring in the investor community as well if we keep going. Hopefully enough to put off a whole generation from investing in property just like 1987 scared a whole generation off shares.
You may have put your affairs in order to weather a big equity hit, but not all investors are so cautious.
That's why I used the term "True". Most investors will be fine, it's the land-banked/developer types who bought over-priced city blocks who will do it tough as they generally have little to no income coming in while the cost of construction soar's - that's where the pain will centre. I know a number of resi investors and they are looking to buy - just not yet....
All those negatively geared and IO landlords will feel the pain. They are a real source of instability in the market. And they have accounted for a stupidly high percentage of property purchases in the last 5+ years.
Removal of the LVRs was just the cherry on the top of the sh#t sundae that is the NZ property market. A ton of "investors" took out big loans when the lvrs were removed.... and not 1 in 100 of them would have had a decent exit plan or plan for dealing with interest rate rises. The market is much more unstable than most people realize.
I absolutely disagree with the idea that "most investors will be fine". Most investors are clueless.
No clue, eh?
And the property accountants too! Shocking lack of risk awareness.
I think it may be partially due to the mystique that has built up around property investment in NZ. It has just been assumed for a long time now that property investors are "clever" and that leveraging up to buy property is the "smart" thing to do. People thought that property investment was a sure fire bet... all you need is the big loan, and you are an automatic "winner".
Nobody read Taleb. Nobody accounted for risk... or even thought about risk at all.
https://www.interest.co.nz/property/113230/new-reserve-bank-debt-income…
Yes if anyone attempts to claim that predicting that NZ property (and Australia and Canada and China and Hong Kong) might absolutely tank as some point given what we've just witnessed (rampant speculation, excessive debt/leverage), it would be ignorance of the highest order.
We might be at the part in the story where the boy cries wolf and the wolf consumes the flock.
The people think the boy a liar but who was telling the truth all along and the people weren't wise enough to tell the difference. 'There are no wolves here because there never have been'.
Hasn't everyone piled into the opportunity you are referencing under the conditions of FOMO?
So the opportunity you reference is the risk (i.e. everyone buying property with great mania and speculation) - but perhaps you can't see that.
Don't confuse opportunity with risk.
Create a speculative bubble in property and calling it an opportunity is fine...but just don't get caught with your pants down is all I can say by holding too much debt at the wrong time.
No.
There is risk in, well, everything. Just being able to identify a risk doesn't mean it will happen, or that it will happen in the time period you think it will. If I had listened to the people braying for a crash in 2015 I wouldn't have bought my house and be far better off.
Also, thanks for editing your last comment so mine looked nonsensical.
Apologies - noticed you had posted after I updated (my bad). I generally avoid editing posts if somebody has replied to me.
Yes so be grateful that it worked out well for you and perhaps sympathy for those who purchased last year and are now in negative equity.
Its a double edged sword huh....people took the advice of those said property prices never fall, and now they have, and it could seriously impact their financial well being.
You ignored people who said prices might fall and its worked out well for you.
But everyone assumes their own personal experience will be true into the future for other people...and all i'm saying is that this could be a fallacy.
We may soon have a generation of very cautious property buyers if they see tens of thousands of FHB who experience years of negative equity during a bad recession.
For years the townsfolk herded their sheep, sold the wool and profited greatly. They ignored the boy who cried wolf and one day they lost their flock, at this point they were rich but now had no sheep.
Meanwhile one of the townsfolk listened to the boy and never bought any sheep through fear of the wolf. They are now poor and have no sheep.
Touche!
Goes to show we don't know what might happen, but its important to determine believability. People assumed P8 and his cohort of property investor assocation bulls were right because they experienced 30-40 years of exceptional property prices rises and convinved buyers they would experience the same. FHBs took this advice last year and purchased and now find that they are in negative equity and might lose their jobs in a recession...
As 2022 points out, the pendulum swings and avoiding over confidence is important.
Absolutely, people need to balance risk vs reward.
Nobody knows what will happen and I have plenty of examples I can show of being burnt in my own investments. If FHB's have done their homework and crunched the numbers they will be fine. It'll hurt for a while (mainly on paper) but they will be far better off in the long run.
After the wolf ate the sheep, he came after the rich fat townsfolk who had over leveraged on lambs and cheap debt. The wolf was hungry for blood, and the portly townsfolk were just too damn slow. They cried and screamed for the mayor, that he “should have done something”, and that it “wasn’t their fault”. Well, maybe the mayor should have done something, but the wolf didn’t care. All the wolf cared about was that he was hungry, feverishly hungry, and all the rich townsfolk were just so deliciously juicy.
The wolf was now satisfied, and the poor, much faster townsfolk were happy and glad that they could feed their family with an affordable DTI ratio. The poor, happy townsfolk said never again would they allow sheep farmers to become fat and own too many sheep, but maybe they should look into cattle as, who knows, there could be an opportunity there.
Moving on from giving very bad nutritional advice to giving very bad financial advice eh Carlos?
The dangerous game is listening to clowns on the internet giving their reckons about it being great idea for FHB to buy close to the top of one of the most ludicrous housing bubbles ever seen.
Most of those that did so last year are too ashamed to even show their faces here anymore.
2016 levels?… depends where you are talking about.
Akl prices were pretty flat 2016-2019 - so some are back to selling in that range.. but most just aren't selling - it's still a standoff between vendors wanting peak prices and buyers not stupid enough to pay them.
https://homes.co.nz/address/auckland/parnell/72-tohunga-cr/jDxNx
Bought Dec 2017 - $2.9m
Sold April 2022 - $3.1m
Most of these sales go unreported… agent’s like to hide the numbers if it's not a good news story.
The neighbouring property sold for $3.6m in 2018.
A couple of months ago they wanted $2.7m. It didn’t sell, and moved agency.
Has since sold - not sure the amount.
If I heard "DGM's" on here suddenly buying a house, then they have not been having close enough attention.
Why would anybody buy a house today, common sense dictates that you would hold off with the historic conditions and current rate of price drops.
Maybe once velocity eases, people might give it some thought, until then, the intelligent option is, short the market while the buffoons in office figure out how to clean up the mess they've made.
There are no real indicators to justify entry apart from blind faith.
If you follow the links you can see more data and do your own comparisons.
I expect the difference is that investors routinely borrow money at DTI levels that most FHBs wouldn't be allowed to, so the interesting point to monitor is somewhat higher. This is worth remembering every time someone with vested interests or just a lack of curiosity claims any DTI restrictions would only affect FHBs when the numbers show it is almost laser guided towards investors.
https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/residen…
Yes, you can look for yourself (as my second statement shows I did).
My point is that investors relative levels of leverage, vs other market participants, is being deliberately obscured here.
It seems morally wrong to me that we will allow an investor to borrow more on their income that we allow FHBs for essentially the same item. Now, of course, relative to the debt their income will be lower (if drawn from rent, say) - but why do we allow people who couldn't afford the house by themselves more leverage than those who can?
Not sure about deliberate, the difference is spelt out in the text but I guess a cursory glance might deceive.
The moral issue is easily solved with DTI restrictions, hopefully we will see them next year. Could even go the other way and have more relaxed restrictions for FHBs to encourage the social good of home ownership and reduce the social bad of excessive property investing at the expense of productive investing.
What has been morally wrong is allowing investors to release equity in one property to buy even more properties.
Should have been cash deposit only for investment properties - so they were on equal footing with FHB's who had to do exactly that...
Equity release in a rising market simply has a positive feedback loop to prices and demand for existing housing, which turns a market into a ponzi scheme that risks collapsing if prices stop rising.
Funny how this always triggers you there Yvil!
If you think property investment (of existing homes) during a home affordability crisis (where even landlords claim there is a shortage of housing) is an ethical investment then we're at 180deg on our moral positions.
if that makes me morally superior to you through some ethical framework...then great but that doesn't solve the problem, nor do I take any joy from that.
Do you think property investors have a morally superior position - if so, which ethical framework would you like to use to view the various perspectives of this behaviour?
We could use any of the following frameworks:
1. Utilitarian
2. Rights-based.
3. Common good and duty, or
4. Virtue.
Which framework would you prefer to discuss property investors pricing FHBs out of the housing market using equity in previous properties?
Are you less virtuous than say Jesus or the Dalai Lama? And do you think they believe that they are morally superior than you because you sin and they do not?
(this probably goes completely over your head....so to clarify....it is possible to have a view on something using an ethical framework, without believing that you are morally superior to another person....its simply that you have an opposing view on what is right. I disagree with you, but I don't believe I am morally superior to you because I perhaps am less ethical to you in another perspective of life).
Imagine a famine in NZ. Food supplies are running short. People are getting hungry.
One sector of society buys a large amount of food, to hoard it. In fact they take out loans and get into debt so that they can buy more food to hoard. They then sell small amounts of the food to the populace, at inflated prices.
Many of the food hoarders make enough money from this venture that they are able to stop working, and live fully off the food hoarding profits. Many of them use their profits to buy even more food.
Occasionally a food hoarder will comment publicly about the laziness or general worthlessness of the hungry sector. Some will refuse to sell food to people who are not working, or who had children outside of marriage, or who have failed some other moral test.
The food hoarders will consider themselves intellectually and morally superior to the people who are short of food.
Food hoarders will often sell inferior food to the hungry, or food that is past its use by date. But they wil charge full price for it. Take it, or leave it, they will say. Supply and demand, they will say.
MSM here is so censored, you have to resort to the internet to get what is going on. I know more about what is going on in the USA than here and over there they are currently maxing out all their credit cards. This is not going to end well for sure, 2023 will get ugly.
The beauty of DTI restrictions is they really start to act hard when interest rates are very low. Imagine if we'd had the foresight to implement them a few years ago, most of the Covid property pop wouldn't have happened.
We were discussing the design of the lock for years while investors and FHBs were busy piling through the door.
Nice, but there is a lot more to reduce the risk of stupid levels of debt in the system. Look at the US because where they go we have to follow. Rates are rising to combat out of control inflation from printing and dumping trillions into the system. As rates rise its increasingly clear the US the US cannot afford itself. While the article link below is probably not narrative independent, the graph is telling.
Realistically what can they actually do...?
https://www.zerohedge.com/economics/its-game-over-fed-expect-monetary-r…
Yes agree. This chart is a great one...
https://cms.zerohedge.com/s3/files/inline-images/Fed-is-trapped-600x368…
And you can see the high correlation between debt and asset prices (be it bonds, property, equities). The Fed has essentially created the everything bubble and its been brewing away since the late 1980's.
If inflation decides to be persistent above the 3% band then asset prices are going to come under real pressure this decade.
Meanwhile, trying to tighten the economy in an attempt to make the dollar worth more. What's that $30t worth in a recession in which the FED cannot ease their way out of? Hard to tell what will happen, but possibly a sharp recession with a lengthy tail before things start to kick off again.
Yes the Fed has potentially created the conditions for a worse depression by avoiding a depression in 2020!
It could be a wild ride these next few years.
But I also think that it could be similar to the 1940s- early 1950's where we have big swings in inflation to deflation because of the war like debt loads that nations like the US are carrying...and with a very fragile global geopolitical and supply chain situations occurring.
Well realistically we've only just raised the rates so the hikes havent yet worked through the system, waiting a year for those refixing is pretty reasonable.
Nifty is just mad we aint buying the "dip"
I doubled my house deposit by investing in big tech last year, good thing i didnt buy!
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.