15 ms·

New Zealand plunges into recessionary spiral

83 points by koyanisqatsi 4y ago

Waterluvian 4y ago
I'm sensing this tremendous tension and anxiety in Canada too. Hopefully our energy sector will buoy things a bit so they don't get too terrible.
- lostlogin 4y ago
  Is the energy sector mining, drilling, oil and gas? If that's the way out of financial strife, that's depressing.
  - Waterluvian 4y ago
    All of that and more. I just mean, a buoy that rises with rising energy prices to lessen the blow of an energy crisis. Indeed, it's pretty !@#$ing awful that that's the condition.
  - Tiktaalik 4y ago
    Tech industry in bc employs more people than all the mining oil and gas combined. The importance of the traditional resource industries feels like an out of date meme leveraged for political reasons. It's not the future for Canada.
    - fdsafdewe 4y ago
      You'd be amazed at how many "traditional resources" it takes to manufacture CPUs and other semiconductors.
    - soperj 4y ago
      BC's biggest exports is still Coal, and then Lumber. I'm sure Natural gas will be added to that list shortly.
      - lostlogin 4y ago
        That may be true, but at a significant cost. Skilled labour contributing to GDP is rather more useful than trashing the place and making a quick dollar. Just comparing the dollars masks this.
  - soperj 4y ago
    We're still a resource extraction economy in Canada. If it's not oil & gas, it's timber, mining, water, fish, food. You look at every major export from any province in Canada and it's mostly resources. Ontario is cars, which I'm not sure is any better.
  - cgh 4y ago
    I understand the hesitance to rely on oil and gas, but what’s wrong with mining?
    - Tiktaalik 4y ago
      it's enormously destructive to animal habitats, can poison water supplies. https://thenarwhal.ca/for-decades-b-c-failed-to-address-selenium-pollution-in-the-elk-valley-now-no-one-knows-how-to-stop-it/ https://thenarwhal.ca/for-decades-b-c-failed-to-address-sele...
- myth_drannon 4y ago
  They just posted the job numbers for October and it was +100k, blew through the roof. All this doom and gloom is to push the central banks to calm down and stop raising the rates.
- olliej 4y ago
  This is a standard pro business publication that posts sensationalist headlines with regularity, and believes the only way an economy can function is by not having taxes and letting businesses do whatever they want whenever they want. With that background we can see that they will always want to be able to run headlines like this, whether they’re right or wrong. So I wouldn’t worry about things based solely on headlines from organizations like this, any more than I’d put all my trust in economic forecasts from “The Marx Community Paper” :D I’m similarly wary of banks own forecasts given their track record of being opposed to any economic policy that doesn’t increase their own profit margin. Honestly I would kill for the big important government measures for inflation, etc to only account for say the 80-90yh percentile of tax residents.
- __turbobrew__ 4y ago
  I (Canadian) had to call our mortgage advisor about something unrelated to the rate hikes, but they said people are losing it because their 30 year mortgage now has a 40+ amortization period due to the payments on the mortgage staying the same but the rates going way up. If rates don’t stabilize it is going to be a bloodbath once peoples 5 year terms are up. You can easily see your monthly payments double.
- refurb 4y ago
  Canada is going to be hit hard. If you go on the Canadian financial subreddits, you'll see plenty of "Can my bank increase my mortgage by $1,500 per month?". The decades of continuing dropping interest rates mean a good chunk of the population don't even understand the mortgages they took on. Now imagine buying a home for $1.5M in GTA, then having your mortgages payment increase by 50-75% and the value of your home drop by 30%+. Winter is coming.
jamesvnz 4y ago
That's a rather sensationalist headline. Written by an Australian looking at graphs, rather than having a feel for what's going on. I'm sure he's a capable economist, but based on what I see, New Zealand is not "plunging". There's definitely a slow down - but I think most businesses are expecting a relatively soft landing. I guess time will tell.
- flog 4y ago
  Judging by my inability to get into any store at Westgate last weekend due to the crowds, I think we're still a while off "plunging". /anacdata
  - formerkrogemp 4y ago
    As it's been explained to me, we're in a demand shock with more or less normal supply constrained by logistics problems.
  - billforsternz 4y ago
    Similarly my anecdata is how hard it is to find a car park in the allegedly in decline Wellington CBD and then how difficult it is to find a restaurant that isn't overflowing with happy diners and consequently incapable of accommodating us.
- lostlogin 4y ago
  If you skim headlines it's much as you say. Interest rates rising (but still around historic averages), falling house prices and high inflation. https://www.rnz.co.nz/topics/business-economy https://www.rnz.co.nz/topics/business-economy
  - potatochup 4y ago
    > falling house prices Good?
    - john2x 4y ago
jeffbee 4y ago
Their consumer sentiment is only at -25 for major household goods? In the U.S. it is -35! https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=35h&d=ylch&f=pdf&k=c3244dd3400979beb0ae35163566af46e1dd90156bffe90dd287898f4c1827d9 https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=35...
- tenpies 4y ago
  There are a couple of Western countries that have combined a decade of terrible housing policy, banking policy, immigration policy, and every other government lever you could imagine; in order to generate an absolutely generation-crushing property bubble. New Zealand, Canada, and Australia will all be catastrophic lessons in the future. So when you see -25 sentiment in housing by Kiwis, it's much more severe than -35 in the US, because over 50% of the Kiwi economy is based on housing and associated services: https://figure.nz/chart/WRpSmBftC60lEu2q https://figure.nz/chart/WRpSmBftC60lEu2q Canada and Australia are similar stories. Canada is probably the worst in that it intentionally is using immigrants to try to prop its rental market and suppress wages. This works well if you are intent on starting a golden era for slumlords, but it's also going to absolutely demolish quality of life and send food/energy costs screaming. It's very likely we're at the apex of a golden era of incompetence in these three countries in particular, but the West broadly.
  - jeffbee 4y ago
    FWIW, housing sentiment according to the same survey is at -52, near the lowest level ever recorded, -60 in November 1981, and the same level as July 1981.
  - ameminator 4y ago
    The Canadian government just doubled down on immigration to attempt to bring in 500,000 new immigrants per year[0]. Note, this does not include other sources of immigration, such as students and other types of international work visas. Since most immigration goes to the major Canadian cities of Toronto, Vancouver and Montreal, there is a serious impact on housing and services. For reference, it's as if the US government committed to bringing in over 5 million immigrants per year and putting them in the 5 biggest metro areas, without any increase in housing development, education or health care. This is also probably why the health care system is collapsing, why educational quality is decreasing and why housing prices have sky-rocketed to some of the most unaffordable in the entire world. [0] https://abcnews.go.com/International/wireStory/canada-500000-immigrants-year-2025-92509002 https://abcnews.go.com/International/wireStory/canada-500000...
hn_throwaway_99 4y ago
One clarification if you're not familiar with New Zealand banking. The article states: > Last week, Bank of New Zealand warned that “things could well and truly turn to custard” as the global economy is plunged into recession. I read that and thought "Holy hell, central bankers in the US are usually extremely measured in their comments, they would never say something like 'things could well and truly turn to custard'". I misunderstood, thinking that "Bank of New Zealand" is their central bank. It's just another big bank, not "The Reserve Bank of New Zealand", which is their actual central bank.
- lostlogin 4y ago
  > Bank of New Zealand And here is the funny bit, it's Australian owned. If it's anything like the rest of the market which is dominated by Australian banks, it'll pay some old kiwiana type music when you are on hold and say 'Kia Ora' or similar at regular intervals. Kiwi as.
  - shakna 4y ago
    Similarly, the Commonwealth Bank of Australia sounds like a government bank, and in fact even began as one, but is actually privitised. They also happen to be the sole owners for New Zealand's ASB - So that one is also Australian!
  - thecoppinger 4y ago
    If I had a dollar for every time I’ve had to listen to Six60 while on hold, I’d be rich enough to start a bank.
    - dzhiurgis 4y ago
      Well my call to waka kotahi cost me 90 euros last week. 30 minute wait time and 6 minute convo. Turns out calls outside EU while roaming is priced at a whopping 2.5 eur a minute.
      - littlethrowaway 4y ago
mmazing 4y ago
Wow! That's a lot of variable rate or only temporarily fixed rate mortgages! I'm certainly no expert in all of this, how does that stack up with other countries data?
- zinckiwi 4y ago
  In my experience the concept of a 30-year fixed mortgage is uniquely (or close to it) American. Certainly in NZ anything beyond a two-year fix is rare.
  - ghaff 4y ago
    Which, as an American, seems wild. How many people are prepared to have their mortgage go up 2x to 3x just a few years--which doesn't even require an increase to especially outrageous rates from historically low interest rates?
    - jemmyw 4y ago
      Banks are supposed to stress test customers to that kind of rate. Not sure how successful that is. I know we thought about it and moved pretty far out in order to afford the home we wanted without stretching our budget to the limit. Most of our peers stretched themselves to the absolute limit they could afford.
    - Tiktaalik 4y ago
      Variable rates are bad in those rare years where rates spike upwards, but the data shows that in general, variable rate mortgages are more affordable than fixed rate mortgages (which are a premium), which is why they're pretty popular. The thing that makes them not painful in bad times is that often the payments stay fixed, and the extra interest is tacked onto the end (meaning that you are gaining more to pay). (you can get a mortgage where the payments do immediately change as the rate changes) That being said it is possible to hit the "trigger rate" where your fixed monthly payments are no longer even covering interest alone, and then the bank will give you a call to make your payments go up.
hedora 4y ago
Figure 9 looks dire: 95% of mortgage (by total value, not count) are going to have their rates adjusted in the next three years; 56% in the next year. In the US, that'd definitely lead to a housing crisis worse than 2008. Is there something different about how houses are purchased in NZ?
- twelvechairs 4y ago
  US has 30 year mortgages backed by government. New Zealand and Australia do not so the overwhelming number are either floating/variable or fixed for 1-5 years.
  - onlyrealcuzzo 4y ago
    The US and Belgium are the only countries in the world with a government subsidized 30-year fixed rate AFAIK.
  - voisin 4y ago
    How are they backed by government differently than say in Canada where CMHC backs most mortgages?
    - bombcar 4y ago
      https://www.freddiemac.com/about https://www.freddiemac.com/about and friends buy mortgages that meet certain requirements (called "conforming" loans) and package and sell them to investors. Since they will buy 30 year fixed loans, banks are willing to sell them, and investors are willing to buy the subsequent bonds created out of them because they're (likely) almost as reliable as 30 year treasuries from the US government itself. If you try to get a 30 year fixed loan outside of the US mortgage market, it's hard to find with rates as low. CMHC may not buy fixed rate loans in the same way.
- jemmyw 4y ago
  Mortgages in NZ are typically fixed for between 1 and 5 years, with most fixing around 3 years. So 95% of mortgages will always be rate adjusted in the next 3 years.
abeppu 4y ago
As an American I was struck by the graph of mortgages by fixed term length. I guess I've always heard that US home buyers are constantly benefiting from policies propping up 30 year fixed mortgages, and I knew that other places this wasn't the norm. But it's surprising to me that a majority of mortgage debt in NZ is fixed for less than 1 year. Even in years that don't see rapid interest rate changes, this must make it very hard to plan.
- rr888 4y ago
  The long term fixed term mortgage in the US rely on Govt regulation and the securitization of debt. In most countries when you get a mortgage its literally a loan from the bank, not sold on to bond holders. Floating rate makes sense, if inflation rises, rates rise and usually so the pay rises so you can afford to pay more. In the US I have fixed at ~2% for 15 years which is good for me but seems silly over such a long term.
- ztetranz 4y ago
  That's true. As a kiwi in the US, I was surprised by how many mortgages here are fixed term for a long time. When I last bought a house in NZ about 30 years ago floating rate (potentially changing every month) was the norm and "lock in your rate for five years" was advertised as an option you could take. My American father-in-law who is a retired realestate / financial industry professional seemed to have trouble getting his head around that when I told him. Not only that long term fixed rates were not available but also when you're in a short term (5 year) fixed rate, you can't easier refinance if the general rates go down. That seemed normal to me at the time because it's a gamble for both parties. If I sign a contract to pay X% for the next five years then it doesn't seem like I should be able to change my mind part way through any more than the bank can renege on the deal. That said, I never suffered significantly so that's easy for me to say. Likewise for deposits. It seems a lot easier to break a CD early (forfeiting some interest) in the US than it is to break a term deposit (like a CD) in NZ.
  - bombcar 4y ago
    The US market is greatly formed by the Great Depression - before that both sides could "call" the mortgage at anytime, basically (you could pay it off anytime you wanted, and the bank could call you and say "pay us cash tomorrow"). But nobody ever really DID either of those except from normal business (moving, missing payments, foreclosure, etc). And then the 1929 market crash wiped out the banks so they called in all their assets (loans). And so now the US Government steps in and says "banks you can't do that" and the banks said "then screw lending" and the government said "we'll buy and resell the loans with our guarantee" and the banks said, "oh really hmmm". You can get ARMs for real estate in the US, and they may become more attractive as rates rise; the rates were so low it wasn't really worth it to even consider, but they exist - here are some: https://www.bankofamerica.com/mortgage/adjustable-rate-mortgage-loans/ https://www.bankofamerica.com/mortgage/adjustable-rate-mortg... The average American holds their loan for something like 7-10 years before either moving/selling or refinancing, so an ARM can be a worthy consideration. But you must plan around what it could do "worst case".
pessimizer 4y ago
What do all these goofy polls have to do with a "recessionary spiral?" The only data in this is at the end, and it is not particularly interesting. NZ homeowners will be affected by rising interest rates.
vosper 4y ago
ITT: Lots of people from overseas wondering how New Zealand's mortgage and housing market works. This post is wrong, we're not in a recessionary spiral. Households (and banks!) are overall doing fine. Unemployment is at record lows, wages are rising faster than inflation, non-performing (ie in default) mortgages are at 0.2% of all mortgages (lower than GFC), mortgages are stress-tested to higher levels than we're seeing. Banks are extremely healthy (making money hand over fist). Consumer confidence is low, but it's low in defiance of reality. For more see here: https://thekaka.substack.com/p/incomes-are-rising-faster-than-prices https://thekaka.substack.com/p/incomes-are-rising-faster-tha...
jesuscript 4y ago
What are the chances the private sector wants to play up the possibility of recession to preempt government freebies? “Keep buying those mortgage backed loans”, for example “Keep those interest rates near zero” What do they have at stake?
damiankennedy 4y ago
It doesn't feel like a recession but something is wrong. Our "go hard, go early" approach to covid meant we avoided a lot of tragedy but the govt printed that money. Now we're having an inflation shock leading to an interest rate shock. The shrinkflation is insidious when the packaging hasn't changed. The thing is, unemployment is so low, it's like the whole country is running to stand still.

83 points by koyanisqatsi 4y ago

I'm sensing this tremendous tension and anxiety in Canada too. Hopefully our energy sector will buoy things a bit so they don't get too terrible.

lostlogin 4y ago
Is the energy sector mining, drilling, oil and gas? If that's the way out of financial strife, that's depressing.
- Waterluvian 4y ago
  All of that and more. I just mean, a buoy that rises with rising energy prices to lessen the blow of an energy crisis. Indeed, it's pretty !@#$ing awful that that's the condition.
- Tiktaalik 4y ago
  Tech industry in bc employs more people than all the mining oil and gas combined. The importance of the traditional resource industries feels like an out of date meme leveraged for political reasons. It's not the future for Canada.
  - fdsafdewe 4y ago
    You'd be amazed at how many "traditional resources" it takes to manufacture CPUs and other semiconductors.
  - soperj 4y ago
    BC's biggest exports is still Coal, and then Lumber. I'm sure Natural gas will be added to that list shortly.
    - lostlogin 4y ago
      That may be true, but at a significant cost. Skilled labour contributing to GDP is rather more useful than trashing the place and making a quick dollar. Just comparing the dollars masks this.
- soperj 4y ago
  We're still a resource extraction economy in Canada. If it's not oil & gas, it's timber, mining, water, fish, food. You look at every major export from any province in Canada and it's mostly resources. Ontario is cars, which I'm not sure is any better.
- cgh 4y ago
  I understand the hesitance to rely on oil and gas, but what’s wrong with mining?
  - Tiktaalik 4y ago
    it's enormously destructive to animal habitats, can poison water supplies. https://thenarwhal.ca/for-decades-b-c-failed-to-address-selenium-pollution-in-the-elk-valley-now-no-one-knows-how-to-stop-it/ https://thenarwhal.ca/for-decades-b-c-failed-to-address-sele...
myth_drannon 4y ago
They just posted the job numbers for October and it was +100k, blew through the roof. All this doom and gloom is to push the central banks to calm down and stop raising the rates.
olliej 4y ago
This is a standard pro business publication that posts sensationalist headlines with regularity, and believes the only way an economy can function is by not having taxes and letting businesses do whatever they want whenever they want. With that background we can see that they will always want to be able to run headlines like this, whether they’re right or wrong. So I wouldn’t worry about things based solely on headlines from organizations like this, any more than I’d put all my trust in economic forecasts from “The Marx Community Paper” :D I’m similarly wary of banks own forecasts given their track record of being opposed to any economic policy that doesn’t increase their own profit margin. Honestly I would kill for the big important government measures for inflation, etc to only account for say the 80-90yh percentile of tax residents.
__turbobrew__ 4y ago
I (Canadian) had to call our mortgage advisor about something unrelated to the rate hikes, but they said people are losing it because their 30 year mortgage now has a 40+ amortization period due to the payments on the mortgage staying the same but the rates going way up. If rates don’t stabilize it is going to be a bloodbath once peoples 5 year terms are up. You can easily see your monthly payments double.
refurb 4y ago
Canada is going to be hit hard. If you go on the Canadian financial subreddits, you'll see plenty of "Can my bank increase my mortgage by $1,500 per month?". The decades of continuing dropping interest rates mean a good chunk of the population don't even understand the mortgages they took on. Now imagine buying a home for $1.5M in GTA, then having your mortgages payment increase by 50-75% and the value of your home drop by 30%+. Winter is coming.

jamesvnz 4y ago

That's a rather sensationalist headline. Written by an Australian looking at graphs, rather than having a feel for what's going on. I'm sure he's a capable economist, but based on what I see, New Zealand is not "plunging". There's definitely a slow down - but I think most businesses are expecting a relatively soft landing. I guess time will tell.

flog 4y ago
Judging by my inability to get into any store at Westgate last weekend due to the crowds, I think we're still a while off "plunging". /anacdata
- formerkrogemp 4y ago
  As it's been explained to me, we're in a demand shock with more or less normal supply constrained by logistics problems.
- billforsternz 4y ago
  Similarly my anecdata is how hard it is to find a car park in the allegedly in decline Wellington CBD and then how difficult it is to find a restaurant that isn't overflowing with happy diners and consequently incapable of accommodating us.
lostlogin 4y ago
If you skim headlines it's much as you say. Interest rates rising (but still around historic averages), falling house prices and high inflation. https://www.rnz.co.nz/topics/business-economy https://www.rnz.co.nz/topics/business-economy
- potatochup 4y ago
  > falling house prices Good?
  - john2x 4y ago

jeffbee 4y ago

Their consumer sentiment is only at -25 for major household goods? In the U.S. it is -35! https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=35h&d=ylch&f=pdf&k=c3244dd3400979beb0ae35163566af46e1dd90156bffe90dd287898f4c1827d9 https://data.sca.isr.umich.edu/get-chart.php?y=2022&m=9&n=35...

tenpies 4y ago
There are a couple of Western countries that have combined a decade of terrible housing policy, banking policy, immigration policy, and every other government lever you could imagine; in order to generate an absolutely generation-crushing property bubble. New Zealand, Canada, and Australia will all be catastrophic lessons in the future. So when you see -25 sentiment in housing by Kiwis, it's much more severe than -35 in the US, because over 50% of the Kiwi economy is based on housing and associated services: https://figure.nz/chart/WRpSmBftC60lEu2q https://figure.nz/chart/WRpSmBftC60lEu2q Canada and Australia are similar stories. Canada is probably the worst in that it intentionally is using immigrants to try to prop its rental market and suppress wages. This works well if you are intent on starting a golden era for slumlords, but it's also going to absolutely demolish quality of life and send food/energy costs screaming. It's very likely we're at the apex of a golden era of incompetence in these three countries in particular, but the West broadly.
- jeffbee 4y ago
  FWIW, housing sentiment according to the same survey is at -52, near the lowest level ever recorded, -60 in November 1981, and the same level as July 1981.
- ameminator 4y ago
  The Canadian government just doubled down on immigration to attempt to bring in 500,000 new immigrants per year[0]. Note, this does not include other sources of immigration, such as students and other types of international work visas. Since most immigration goes to the major Canadian cities of Toronto, Vancouver and Montreal, there is a serious impact on housing and services. For reference, it's as if the US government committed to bringing in over 5 million immigrants per year and putting them in the 5 biggest metro areas, without any increase in housing development, education or health care. This is also probably why the health care system is collapsing, why educational quality is decreasing and why housing prices have sky-rocketed to some of the most unaffordable in the entire world. [0] https://abcnews.go.com/International/wireStory/canada-500000-immigrants-year-2025-92509002 https://abcnews.go.com/International/wireStory/canada-500000...

hn_throwaway_99 4y ago

One clarification if you're not familiar with New Zealand banking. The article states: > Last week, Bank of New Zealand warned that “things could well and truly turn to custard” as the global economy is plunged into recession. I read that and thought "Holy hell, central bankers in the US are usually extremely measured in their comments, they would never say something like 'things could well and truly turn to custard'". I misunderstood, thinking that "Bank of New Zealand" is their central bank. It's just another big bank, not "The Reserve Bank of New Zealand", which is their actual central bank.

lostlogin 4y ago
> Bank of New Zealand And here is the funny bit, it's Australian owned. If it's anything like the rest of the market which is dominated by Australian banks, it'll pay some old kiwiana type music when you are on hold and say 'Kia Ora' or similar at regular intervals. Kiwi as.
- shakna 4y ago
  Similarly, the Commonwealth Bank of Australia sounds like a government bank, and in fact even began as one, but is actually privitised. They also happen to be the sole owners for New Zealand's ASB - So that one is also Australian!
- thecoppinger 4y ago
  If I had a dollar for every time I’ve had to listen to Six60 while on hold, I’d be rich enough to start a bank.
  - dzhiurgis 4y ago
    Well my call to waka kotahi cost me 90 euros last week. 30 minute wait time and 6 minute convo. Turns out calls outside EU while roaming is priced at a whopping 2.5 eur a minute.
    - littlethrowaway 4y ago

mmazing 4y ago

Wow! That's a lot of variable rate or only temporarily fixed rate mortgages! I'm certainly no expert in all of this, how does that stack up with other countries data?

zinckiwi 4y ago
In my experience the concept of a 30-year fixed mortgage is uniquely (or close to it) American. Certainly in NZ anything beyond a two-year fix is rare.
- ghaff 4y ago
  Which, as an American, seems wild. How many people are prepared to have their mortgage go up 2x to 3x just a few years--which doesn't even require an increase to especially outrageous rates from historically low interest rates?
  - jemmyw 4y ago
    Banks are supposed to stress test customers to that kind of rate. Not sure how successful that is. I know we thought about it and moved pretty far out in order to afford the home we wanted without stretching our budget to the limit. Most of our peers stretched themselves to the absolute limit they could afford.
  - Tiktaalik 4y ago
    Variable rates are bad in those rare years where rates spike upwards, but the data shows that in general, variable rate mortgages are more affordable than fixed rate mortgages (which are a premium), which is why they're pretty popular. The thing that makes them not painful in bad times is that often the payments stay fixed, and the extra interest is tacked onto the end (meaning that you are gaining more to pay). (you can get a mortgage where the payments do immediately change as the rate changes) That being said it is possible to hit the "trigger rate" where your fixed monthly payments are no longer even covering interest alone, and then the bank will give you a call to make your payments go up.

hedora 4y ago

Figure 9 looks dire: 95% of mortgage (by total value, not count) are going to have their rates adjusted in the next three years; 56% in the next year. In the US, that'd definitely lead to a housing crisis worse than 2008. Is there something different about how houses are purchased in NZ?

twelvechairs 4y ago
US has 30 year mortgages backed by government. New Zealand and Australia do not so the overwhelming number are either floating/variable or fixed for 1-5 years.
- onlyrealcuzzo 4y ago
  The US and Belgium are the only countries in the world with a government subsidized 30-year fixed rate AFAIK.
- voisin 4y ago
  How are they backed by government differently than say in Canada where CMHC backs most mortgages?
  - bombcar 4y ago
    https://www.freddiemac.com/about https://www.freddiemac.com/about and friends buy mortgages that meet certain requirements (called "conforming" loans) and package and sell them to investors. Since they will buy 30 year fixed loans, banks are willing to sell them, and investors are willing to buy the subsequent bonds created out of them because they're (likely) almost as reliable as 30 year treasuries from the US government itself. If you try to get a 30 year fixed loan outside of the US mortgage market, it's hard to find with rates as low. CMHC may not buy fixed rate loans in the same way.
jemmyw 4y ago
Mortgages in NZ are typically fixed for between 1 and 5 years, with most fixing around 3 years. So 95% of mortgages will always be rate adjusted in the next 3 years.

abeppu 4y ago

As an American I was struck by the graph of mortgages by fixed term length. I guess I've always heard that US home buyers are constantly benefiting from policies propping up 30 year fixed mortgages, and I knew that other places this wasn't the norm. But it's surprising to me that a majority of mortgage debt in NZ is fixed for less than 1 year. Even in years that don't see rapid interest rate changes, this must make it very hard to plan.

rr888 4y ago
The long term fixed term mortgage in the US rely on Govt regulation and the securitization of debt. In most countries when you get a mortgage its literally a loan from the bank, not sold on to bond holders. Floating rate makes sense, if inflation rises, rates rise and usually so the pay rises so you can afford to pay more. In the US I have fixed at ~2% for 15 years which is good for me but seems silly over such a long term.
ztetranz 4y ago
That's true. As a kiwi in the US, I was surprised by how many mortgages here are fixed term for a long time. When I last bought a house in NZ about 30 years ago floating rate (potentially changing every month) was the norm and "lock in your rate for five years" was advertised as an option you could take. My American father-in-law who is a retired realestate / financial industry professional seemed to have trouble getting his head around that when I told him. Not only that long term fixed rates were not available but also when you're in a short term (5 year) fixed rate, you can't easier refinance if the general rates go down. That seemed normal to me at the time because it's a gamble for both parties. If I sign a contract to pay X% for the next five years then it doesn't seem like I should be able to change my mind part way through any more than the bank can renege on the deal. That said, I never suffered significantly so that's easy for me to say. Likewise for deposits. It seems a lot easier to break a CD early (forfeiting some interest) in the US than it is to break a term deposit (like a CD) in NZ.
- bombcar 4y ago
  The US market is greatly formed by the Great Depression - before that both sides could "call" the mortgage at anytime, basically (you could pay it off anytime you wanted, and the bank could call you and say "pay us cash tomorrow"). But nobody ever really DID either of those except from normal business (moving, missing payments, foreclosure, etc). And then the 1929 market crash wiped out the banks so they called in all their assets (loans). And so now the US Government steps in and says "banks you can't do that" and the banks said "then screw lending" and the government said "we'll buy and resell the loans with our guarantee" and the banks said, "oh really hmmm". You can get ARMs for real estate in the US, and they may become more attractive as rates rise; the rates were so low it wasn't really worth it to even consider, but they exist - here are some: https://www.bankofamerica.com/mortgage/adjustable-rate-mortgage-loans/ https://www.bankofamerica.com/mortgage/adjustable-rate-mortg... The average American holds their loan for something like 7-10 years before either moving/selling or refinancing, so an ARM can be a worthy consideration. But you must plan around what it could do "worst case".

pessimizer 4y ago

What do all these goofy polls have to do with a "recessionary spiral?" The only data in this is at the end, and it is not particularly interesting. NZ homeowners will be affected by rising interest rates.

vosper 4y ago

ITT: Lots of people from overseas wondering how New Zealand's mortgage and housing market works. This post is wrong, we're not in a recessionary spiral. Households (and banks!) are overall doing fine. Unemployment is at record lows, wages are rising faster than inflation, non-performing (ie in default) mortgages are at 0.2% of all mortgages (lower than GFC), mortgages are stress-tested to higher levels than we're seeing. Banks are extremely healthy (making money hand over fist). Consumer confidence is low, but it's low in defiance of reality. For more see here: https://thekaka.substack.com/p/incomes-are-rising-faster-than-prices https://thekaka.substack.com/p/incomes-are-rising-faster-tha...

jesuscript 4y ago

What are the chances the private sector wants to play up the possibility of recession to preempt government freebies? “Keep buying those mortgage backed loans”, for example “Keep those interest rates near zero” What do they have at stake?

damiankennedy 4y ago

It doesn't feel like a recession but something is wrong. Our "go hard, go early" approach to covid meant we avoided a lot of tragedy but the govt printed that money. Now we're having an inflation shock leading to an interest rate shock. The shrinkflation is insidious when the packaging hasn't changed. The thing is, unemployment is so low, it's like the whole country is running to stand still.