The figures tell us that Kiwis weren't ready for mortgage interest rates to go up in 2021. But they sure as heck were ready for rates to start coming down in 2024.
Boy, were they ready. And waiting.
The key question now rates are easing again is just how quickly they will fall. But more significantly, when will people feel the benefit? And that last sentence is the tricky bit.
For example, Reserve Bank (RBNZ) figures showing the returns the banks were getting from existing mortgages paint an interesting picture. The effective rates people are paying were still rising as recently as June 2024.
What the figures show is the average bank mortgage yields bottomed out at 2.83% in September 2021 as the historically low interest rates that we saw for a number of years found a bottom - before then starting to rapidly rise. As of June 2024 the returns were averaging 6.25% - and were still actually rising, even if advertised new mortgage rates have been easing now for some time.
It's to be assumed that the yield figure will start falling fairly soon now, if indeed it hasn't already starting dropping. But the big question will be how soon will lower rates start to make a significant impact for people?
I've been having a bit of a crunch of the RBNZ's data sets again and what's very clear is the extent to which the country's mortgage holders were lining up waiting for the the RBNZ to cut the Official Cash Rate, which it did on August 14.
We know from tracking the monthly figures on what duration people are fixing for that the trend since the start of this year has been for people to go shorter and shorter. This has, in a way, completed the cycle.
To go back a bit, when the RBNZ began the OCR hiking cycle in October 2021 it appeared to me that a very significant proportion of mortgage holders were caught out. Even though interest rates were at historically low levels, whether you were looking at one-year fixed rates or five-year fixed rates, most people favoured short duration fixing. This appeared to stem from a widespread and erroneous view that because interest rates had been low for so long they would remain low. Whoops. Caught out.
To take the low point of advertised mortgage rates, June 2021 as an example, according to the RBNZ's monthly data series that shows the times to next repricing, 45.6% of the total mortgage monies outstanding as of June 2021 were either on floating rates or fixed rates for six months or less. Some 78.4% of the total was either on floating or for fixed terms of one year or less.
So, in layperson's language it meant that any rises to interest rates were going to have an impact on over three-quarters of the mortgage money in a year. Therefore, once the RBNZ began hiking it got a good 'bang for its buck'. People were quickly affected by the higher rates because their mortgages were soon up for refixing.
Making the adjustments
There was a swift adjustment. By June 2022 folks were going 'longer'. At that time just a third of the mortgage money was either floating or fixed for less than six months, while just 56.5% was due for re-fixing in a year. Quite a change.
However, as we got into 2024 and so the expectation grew of OCR cuts, then so, mortgage holders began swiftly repositioning.
By June 2024 we were very ready for cuts.
Of the $361.106 billion mortgage pile outstanding as of the end of June 2024, some 48.1% of it was either at floating rates or fixed for six months or less. Remember, before the OCR started going up the comparative figure was 45.6%.
So, we might have been caught 'short' when the OCR started rising, but we weren't going to get caught 'long' once the OCR was on the way down!
What this means is that something like half the country's mortgage holders will be able to start getting the benefit of mortgage rate reductions before the end of this year.
It's significant. But how much better off will they be, if at all?
To take just the popular one-year fixed rate as an example: If we go back to June 2021, according to the Reserve Bank's monthly averages of new 'special' rates, the average new rate was just 2.21% (those were the days!)
By June 2022 this had shot up to 5.11%.
By June 2023 it was 6.88%.
By June 2024 it was 7.06% (down from a peak of 7.30%).
How soon will they fall?
As I write this the average one-year rate is 6.65% and falling on a just-about hourly basis, so frenetic is the activity among the banks. They were ready for OCR cuts too - and of course their mortgage rate reductions preceded the first OCR cut.
If we were to take a hypothetical home buyer from back in June 2021 and assume they took out a one-year fixed rate and then re-fixed it for one year on each subsequent occasion, well, it will not be till next year that they would start to get 'relief'.
And how much? Well, that's the question, isn't it? So far the falls we've seen, while undoubtedly being welcomed, won't yet make much difference. So, how much more relief might be in the pipeline over the next 12 months?
So far the RBNZ has dropped the OCR by 25 basis points - to 5.25%. In its August Monetary Policy Statement the RBNZ forecasts suggest the OCR could be about 4.50% by June of next year - so, a further 75 basis points lower than now.
But that's just the RBNZ's forecasts, which it tells us we shouldn't regard as gospel.
The ever-eager financial markets have current pricing that suggests the OCR could be about 3.50% by June 2025. This sounds a little optimistic.
Certainly, though, there's some economists who reckon the RBNZ might now do a steady 25bps cut per review from here on the way down.
And there's five more reviews between now and June of next year. So, that might suggest 125 bps of cuts.
How much of that would translate to mortgage cuts?
Well, the banks are pretty keen to get things going down so far.
If we talk again about the one-year fixed mortgage rate, on average this has already dropped around 65 basis points from the peak level of 7.30%.
If we got say 100 basis points of reductions to the OCR between now and next June (taking the OCR to 4.25%) and this was all - and perhaps a bit more - passed on to mortgage rates, we could see one-year rates of 5.5% by the middle of next year.
Not much relief yet
Interestingly though, to look back again, a 5.5% rate would still be much more than double the rate someone was paying in June 2021 and would still be more than what people were paying (5.11%) in 2022.
We know that during the 2020-21 pandemic period a lot of kiwi households built up good savings buffers. And a lot of people got ahead with the mortgage payments. We don't really know to what extent the consistently much higher mortgage rates over the past two years have now eroded the financial positions of households - and therefore how quickly these can recover.
Non-performing mortgage figures have risen, but not extremely so. Really though, we know from past experience that in times of some hardship households always prioritise meeting mortgage payments. It's other spending that falls by the wayside. And with the country having experienced negative GDP growth in four out of the last six quarters, and the RBNZ forecasting negative GDP again for both the June quarter (not yet reported) and the September quarter, we can see that things have ground to a halt. The housing market's been going down again too.
When are people going to 'feel wealthier' again and start to properly spend again? And therefore get the economy moving again?
One thing to very much bear in mind is that according to the RBNZ only about a third of the population have a mortgage. So, those without a mortgage will not be so constrained.
Another thing to keep an eye on is the other side of the interest rate equation - the deposit rates.
During the very low interest rate period household term deposit balances sharply diminished and then bottomed out at $80.67 billion in September 2021 and, hey, I can remember what a waste of time TDs felt like at that time with one-year rates offering only around 1.00%!
Since then though the money has poured in, with over $50 billion extra being locked up in TDs. As at June 2024 there was a grand total of $133.958 billion in TDs.
With deposit interest rates now falling again, at what point do people start to decide it's no longer 'worth' having money in TDs? I think we are probably some way away from that yet, given that at the moment rates of over 5.5% are still available for the popular six and nine month durations.
Where will the money go?
That will change though. And when money leaves the TDs, where will it go? Well, we know from previous experience where it tends to go in New Zealand - into houses.
And it is worth having some idle rumination about the impact the extra $50 billion that's found its way into TDs in the past three years could have if it redirects into the housing market. If it was put into 30% deposits it could fuel the purchase of well north of $150 billion worth of houses. Quite a splash.
And by extension, such a spurge would also see something more than $100 billion worth of mortgages advanced. The banks would like this. Oh yes.
In the first six months of 2024 there was just $32.808 billion worth of mortgages advanced. Now that is up on the super-low $28.522 billion in the same period in 2023, but down on the $36.24 billion in the same period in 2022 and trailing in the wake of the supercharged $50.381 billion we saw in the first six months of 2021.
So, there's two interesting aspects to the falling interest rates. How quickly will we see households with mortgages get back spending as they were before? And how quickly will money that's been locked up enjoying higher deposit rates move out and start, well, being spent?
This is going to be one of the keys to how quickly the economy recovers from the trough it is in.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
113 Comments
Funny how there is no inflation yet rates and insurance costs are going up so fast
for confidence to return to NZ we need to see job market recover, right now hundreds applying for seek jobs most not even getting acknowledged or reply yet along interview.
re the housing market it will fall this summer but stabilise next as by then it will be around 18 months from the first cut and rates will be about 5% the bottom in any non crisis, still this will help farmers and business a lot
the housing markets biggest problem here is people cannot buy what they cannot afford
Also note that we are yet to see the full scale of disruption to our productive economy from high energy prices this season, dragging down household sentiments.
Add to that the ongoing woes in the construction sector, which is the largest sector in NZ by employment and a major contributor of indirect jobs in manufacturing, logistics, technical services, finance, etc.
Absolutely, it’s a viscous circle, companies won’t hire unless business confidence is high, spending won’t occur with the job market in the toilet.
That’s why the govt need to start spending on critical projects, drop RFP’s into the market and froth up confidence.
It could be too late by then. The supply side of the market won't be able to sustain for another 10-12 months without a set pipeline. The skills and talent will be long gone by then, probably overseas, and any new spending at that stage will therefore be inflationary (similar to the Covid era) rather than support long-term recovery.
That's not what N Willis said when she delivered her first budget. She said the operating allowance (i.e. new spending) for Budget 25 is very small. And since he said that, it got smaller because the new cancer drugs were bought as a pre-commitment on next year's operating allowance.
The operating allowance is being squeezed by the interest bill from Labour's big debt-fueled binge. The Government won't really 'splash out' until Budget 26, to boost it's electoral prospects later in the year (as all Governments tend to do).
Ministers decide the operating allowance as part of the budget. Willis set a tight operating allowance. Also worth noting that Govt receives as much interest / dividends as they pay out.
I would have thought that if someone had enough money to buy a house their Jarden wealth manager could find a much better yield then term deposits, or rental yield with a diversified corporate bond fund etc instant availability no tenants etc
I do not believe houses are term deposit alternative’s as they are low liquidity way higher risk
Could be big problems if TD holders decided to plough into physical gold ...Could it be that some are already ? Where would banks be if TD holders refused to be servants to a mortgage monopoly ? Gotta be a reason gold is on the move presently....a solid move to Gold could throw house prices into the sewer and break the chains banks have over TD's.... not too mention give the BTC holders a scare..... likely any regulators worst nightmare... (+20% in 6 mths) hard not to notice somethings going on.... Can physical enslave crypto and digital ? Time will tell... I suspect regulators know the dangerous beast physical gold is if it escapes and will throw the kitchen sink at it to contain it....nobody likes the real thing... fantasy land must be maintained ...lol
Gold and silver...I've heard that tall story from goldbugs for years, but the truth of the matter is...have any of you ever met a rich goldbug?
It's a terrible investment - no dividend, costs to store, or dangerous to store at home, mostly uninsured unless you tell your insurance company you own it, and easily stolen.
Houses have a dividend, you can rent them out or live in them.
Gold does nothing, it's deader than a dead dingo's donger. If it was any good I'd own a mutual fund that speculated or geared up gold, but I don't.
Did you know that an asteroid, 16 Psyche, which has quintillions of dollars worth of gold, is going to be visited by a spacecraft in a few years? It's on its way. How long before they mine it?
The Dow Jones has thrashed gold. Especially with dividends re-invested.
Considering costs of getting mass into orbit, ie, the rocket fuel to get the mined gold back to earth, let alone the cost of getting machinery and personnel out there, and the 6 years it's taking the probe to get to the orbit, I'd class that as a very very speculative gold play.
Also, you might want try to find a credible source for that claim it's loaded with gold, considering it's density is about half that of a nickel-iron asteroid, there's probably going to be a lot of rock to break up to get to whatever gold is there.
Wish I converted to PMGOLD:ASX (perth mint GOLD shares) outperformed many sectors like NZ property in recent years .
You are learning young Jedi. Yes, PMGOLD is special. For a brief time, we also had PMGT - Perth Mint Gold Token - which was on a blockchain. Discontinued for lack of demand, but exchangeable for PMGOLD or physical.
Not sure how popular it is in China but theres some articles say GEN Z in China are hooked on buying 'beans' which weigh roughly 1 g ..also speculation that China is looking for something other than the USD . Other evidence its all about getting around sanctions (Russia) and rumour that BRICS may lean towards gold std ... not sure how valid the gold beans stories are as some evidence they may be priced 10-30% above the spot price or have purity issues.... Interesting times....
What is it about Jardens that you like so much?
You must work for them.
https://www.rnz.co.nz/news/business/453523/jarden-securities-censured-f…
when returns from rentals start overtaking TD returns
This is the first time I've seen a Spruiker acknowledge TD returns ever overtook rentals. On a risk weighted basis, rental returns should always be way higher than less riskier TD's anyway. In the past, capital gains were factored in to investor purchase decisions and therefore taken for granted.
During covid I thought, where do I want to be in 5 years time and that was not having to work, (although I enjoy working), I am well underway to achieving my goal. CGs were not part of the equation, just an income, CGs would just be the icing in 10 or so years time when I might consider selling. Property investment is a long term thing. Yes, had I put money in the bank 3 years ago, I would have done better from TDs but now I think I am on the break even (return about 5% after all costs) and it will only get better going forward. I am not a spruiker, I am just making sure my future is comfortable for my family and I. With diligent choices I have made, I have tripled my wealth with debt taken off over the last few years which I can garantee you would not have happened if I had followed the advice of the majority here.
Lost me after this after the seventh reference to "I". The chap in no infrastructure and flood prone west Alk has similar overuse of this letter. Insiteful comments re wider sector and finance plse. Overusing reference to self just looks like classic narcissism.
Perhaps spec prop investment and that are correlated?
I am just making sure my future is comfortable for my family and I. With diligent choices I have made
My point is, you make out like everyone could have done the same when clearly your choice has been simply to deny others shelter ownership of their own because you could. Others were born later, you left them nothing.
No no no no, that's where you're wrong. They're "providing" shelter to people who cannot afford to buy their own, below market rate too of course. It's a noble act.
I kid....the crowding of the market by Landlords just created a self-serving solution to a problem that wouldn't exist if most just left the market alone. Which ones you might ask? The ones that couldn't otherwise afford to purchase a rental without 100% leverage would be a good start.
To be fair if there were government social housing there would be a very small private landlord market. Usual problem of skewed incentives(tax loss, /capital gains).
perhaps this is the pubic/private partnership in action, after all that can only lead to higher costs for the end user.
On top of the yield, you also get the following with property:
- Rent inflation
- Capital inflation on the property price (and the banks money). I don’t consider this capital gains, it’s just the house retaining its value in real terms, you should be able to assume this will occur in line with the OCR
- Free debt (write the interest off as an expense)
- Leverage
i don’t have investment property, but if you do it right you can still make really good money even if house prices stand still in real terms. With a TD you are losing money after tax and inflation.
This current market needs mortgage rates of 3.5 to 4% minimum, to merely stabilise or show any of the prodigal "green shoots" that the Comb has promised were budding, since the beginning of 2023.........
How the Comb, still gets any airtime, anywhere, just beggers absolute disbelief.
Given the current mortgage track down, is just going to go glacially, I see no chance of a respite from falling home values, until late 2026/2027.
Any faster rate cuts and inflation will gallop up, which it may even do regardless, then mortgage rates will need jacking up higher to recrash inflation again.
Big electric bill, price increases, could be the next BlackSwan to King Hit the NZ economy.....
Buyers active now and into 2025, are taking large risks and will have to like the taste of feline carrion meat, as dining on the second or third course of the markets dead cat bounce, must be a liquefying and rancid meal now?
Tone the Comb, Angry Ashley's Church, have both been eating the dead cats and rats, often since 2022, their advice has proven as financially deadly as Wingers, TTPs / MPTs.......
Electricity prices are just a seasonal problem but higher gas prices are here to stay because NZ is running out of gas.
Just under half of NZ households use gas as reported by EECA earlier this year, predominantly for cooking and heating water, many for heating their homes in winter. Expect higher energy prices to take a big bite out of household budgets.
That's before considering the thousands of high-paying industrial job losses across the board stemming from this gas shortage (Methanex, OMV, Todd Energy, etc.).
Rate cuts would need to be 50bp or greater consistently for that to happen, but yeah that would froth the spending. Agreed, it’s looking glacially slow though, so will be a while before gains are made on housing.
There will be zero gains on high density builds and townhouses for the next 3-5years which will skew the data. If your home is a cookie cutter, low spec and not in a good school zone, expect nothing on your investment for a long time. My advice to FHB’s is to pick carefully, and go for something unique where you can create wow factor. There is a lot of crap out there.
Black Swan on energy prices, we have had enough warning on that so I won’t be a black swan unless the dammed lakes get zero rain for a month or two. Coming into spring/summer it’s much easier for households to drop consumption of kw, which will crimp demand.
"This current market needs mortgage rates of 3.5 to 4% minimum, to merely stabilise or show any of the prodigal "green shoots""
Agreed 1% lower rates won't make much difference. But significantly lower rates are coming, and faster than many expect. Why ? Not because I say so, but simply because of how sick the NZ economy is. I stand by my big call that the OCR will be 2.5 - 3% by August 2024. There is no rule that says the OCR needs to be dropped by 0.25% increments, and looking at past tough times, the cuts have indeed been in bigger increments.
even OCR drops to 2.5%, it means we are back 2015. I think the mortgage rates back then were around 5.5 - 6%. it still a high interest rate comparing precovid period.
I don't see house prices have big jumps any time soon. it'll stabilize and increase gradually along with incomes, more likely.
Here's how the effective mortgage rate (avg yield) has moved with the OCR during previous episodes of falling OCR. As you say David, it looks like the OCR will need to hit around 3.5% before the total mortgage interest cost starts to reduce. We would probably need an OCR of 2% to get the average yield down 100pts to 5.25%. This would potentially release about $3.6bn of disposable income into the economy (1% x $361bn). Also worth noting that once settled, the average yield tracks the published one-year fixed rate mortgage closely.
ALSO many went into this high interest environment with shorter then max term mortgages, and as rates went up they increased the length of their mortgage terms to try and hold payment levels down, many of these same smart people will simply increase the weekly payment as the OCR falls, sure they may keep a bit but the extra $$$ in hand per week is not going to instantly flow through to the wider economy that fast. so an 18month lag on the OCR transmission 18month lag... so about July 2027most will feel a bit better as long as they still have a job and not been made redundant or offshored (International corporations are massively focused on maintained earnings to expenses rations and earnings are falling here).
Its what I have always done during my life, held mortgage payments as a certain % of income and just let the terms change, easy if you have smaller mortgages though and do not structure your lending in 1 large package.
and
And when money leaves the TDs, where will it go... into houses.
Important to be clear here given that our economy runs on mortgage debt. The money does not go 'into the house' (under the bed or in a box in the walk-in wardrobe).
When people pay a deposit from their TD, that money and the bank-printed mortgage money are credited to the seller's bank account. What matters is what the seller does with their newly gotten gains.
How quickly our housing ponzi economy ticks over depends to a large extent on how much of the money the seller (a) saves into TDs etc, or (b) spends into the real economy - e.g. on a refurb, building new houses, paying for aged care, buying a yacht, meals out in Ponceybee.
The more savings are withdrawn for deposits and the more mortgages are agreed, the more money gets spent into the real economy by house sellers. This spending creates and sustains jobs and company profits. To be crystal clear: the spending of bank-printed mortgage money is the primary driver of our whole bloody economy. When that mortgage credit flow slows down, our economy crashes (like now).
On export to GDP, NZ sat lower in international rankings than Indonesia in 2023 and just above India. We have an oversized domestic economy compared to every other small OECD nation. So, without all that cheap debt sloshing around, we have no other means to pay for our first-world lifestyles.
It is more concentrated than that. Food and fibre makes up less than 13% of all jobs in NZ and contributes 68% of our total exports. So the bulk of NZers work in inward-facing jobs.
Yes, a combination of increasing private and Govt debt are required to offset our trade / current account deficit (and satisfy our domestic savings). You can see this clearly here. If more people understood this and articulated it clearly, perhaps we could have some more sensible conversations about our economic strategy.
"What matters is what the seller does with their newly gotten gains."
Indeed. And I'll suggest that in an increasing number of cases, the proceeds will be used to reduce the net mortgage Debt that multi property owners have accumulated. That's the last thing The System was designed for - Debt being retired. But as the population ages, those who have spent 40 years constructing a property portfolio will look to reduce the Debt first. In fact, as price fall and collateral shrinks, the Lenders may even insist on it.
Yes, I have been playing with a model of what will happen if we continue to see falling levels of private debt (aka net money destruction). It's not pretty - basically a never-ending economic contraction. This is why house prices can't fall without some very active Govt intervention to transition the economy.
But net money creation via property is not just a function of house prices, it also depends on the number of new mortgages. If house prices stay at current levels there are not going to be many new mortgages, so you could just as well say that house prices can't stay high without some very active government intervention to transition the economy. There's no way to win.
So isn't the real underlying problem holding back net money creation the viability of the debt itself? In other words we are reaching (or have already overshot) the limit of safe borrowing, i.e. borrowing that can be backed by a strong likelihood of future value creation to repay the loan.
So house prices can stay put or crash - either way the private debt-driven economy is going to shrink. The question is do we try to create something else to replace it, or just try to cope with a smaller economy with fewer nice things?
The economy is driven by the pursuit of growth to enable the payment of return....we have financialised it through the use of debt (credit), and that debt can be public or private (or both)...however the model requires growth, whether that growth is in real output/assets or monetary. We appear to have exceeded the ability to physically grow so financial growth is now the option...unfortunately 'money' is linked to 'real' output.
Remove growth and the model ceases to function....where we find ourselves today.
Agree that the houses prices / number of mortgages combo is what matters. As does the rate of debt (and not forgetting business debt).
It is possible now that we have private debt down to 140% of gdp our economy to keep on ticking on with 2% OCR, 5% house price growth, 4% private debt growth, and 3% GDP / wage growth. Until the next crash.
most advanced economies has the 'wealth<->money sponge', for NZ it's the housing market, for US it's the share market, for UK it's the housing and share market. so the 'sponge' itself is not a problem, as it pushes the economic activities.
the problem is how efficient the economy is, and how much wealth it generates during the process. I feel NZ is lack of real wealth creation. we don't manufacture cars or phones like Korea, we don't provide finance services like Switzerland, we don't even produce humans like India does.
The World is waking up to the social and economic disaster we have all created by turbocharging Private Debt, backed by residential property speculation. New Zealand won't stand alone from the global fallout. And if we have any sense, we'll get out ahead of it whilst we still can.
"The Chinese steel industry was facing a “harsh winter”, one that would be “longer, colder and more difficult to endure than we expected. The main culprit is the floundering Chinese property market and the millions of homes left unfinished, unsold or vacant across the country - and no sign that President Xi Jinping will mount a large-scale rescue effort."
https://www.smh.com.au/world/asia/china-s-harsh-winter-spells-turbulent…
Yes they estimate upto 80 to 100 million housing units overbuild in China!
An astounding run up based purely on capitalistic housing speculation, akin to the rampant financial market speculation in the Western world, leading upto the 1929 crash, then depression.
Middle class to wealthy Chinese, all believed housing was a surefire bet to riches and owning 3x houses was the way to go.
The Chinese Crash has not even fully unrolled the first scroll......a mighty long winter has certainly begun!
This could trigger worldwide selling by financially stressed Chinese, along with carry trade weary Japanese, of built up assets, worldwide.
Thanks Y and T...... such high, back hand praise from the mid-tear spruiker class.
The original Scroller got close, as the floating got near 9%
Not really a Shakespearian follower, just really be stating the obvious.
What unfolds in Crashing China and much lesser the uncarrying Japan, will send waves all about the Pacific.
We are sooo tied to China, any big waves will likely flip us and send the already holed, good ship NZ, to the abyss of Davy Jones' locker.
An overbuild means that many undesirable houses won’t be considered as liveable and be left to rot.
It’s like the dating market. The undesirable aren’t considered as options so they should never be in the data. There is always plenty of demand for the top half though.
If it happens here, say good bye to townhouses in outer suburbs. They will be the incels of the housing market.
The key question now rates are easing again is just how quickly they will fall. But more significantly, when will people feel the benefit?
High rates restrict credit, low rates stimulate it? Nope. After years of zero rates & QE, even Fed had to admit banks weren't lending just like other times in history w/low rates. Why do "we" still get interest rate backwards? That's what the Fed needs. https://youtube.com/watch?v=F-IiVe Link
Where are the net future buyers going to come from for whatever it is we think have to sell to them?
"Around 1900 the global population began growing exponentially. The increase was driven primarily by falling death rates and reflected improvements in sanitation and public health....Around 2000 a global transition in the opposite direction became increasingly visible: birth rates started to fall below death rates, which began setting the stage for shrinking populations and rising dependency ratios. Almost all high-income and middle-income countries now face these prospects....An important factor is the dependency ratio, which compares the “dependent” population of youth (zero to 14 years of age) and older adults (aged 65 and older) to the working population between the ages of 15 and 64. In 1980 China the ratio... In 2020 was...44 per 100. The coming bulge of older adults, however, will push the ratio up to a potentially socially destabilizing level—as much as 89 per 100 around 2085..."
https://www.scientificamerican.com/article/chinas-population-could-shri…
what do you think the average age of these future net buyers are
OneRoof analysis of data supplied by credit bureau Centrix shows the average age of first-home buyers taking out a mortgage has risen 2% from a five-year low of 35.7 years in Q4 2021, when house prices were peaking, to 36.7 in Q2 2023
Households have never able to clear the debt from the run up to the financial crisis of '08 but nor was there substantial incentive to do so:
https://www.rbnz.govt.nz/statistics/key-statistics/household-debt
To go back a bit, when the RBNZ began the OCR hiking cycle in October 2021 it appeared to me that a very significant proportion of mortgage holders were caught out. Even though interest rates were at historically low levels, whether you were looking at one-year fixed rates or five-year fixed rates, most people favoured short duration fixing. This appeared to stem from a widespread and erroneous view that because interest rates had been low for so long they would remain low. Whoops. Caught out.
Hmm... Where did that view come from?
Oh. That's right! From the RBNZ themselves and amplified by the retail banks.
Worst. Central. Bank. Ever.
The figures tell us that Kiwis weren't ready for mortgage interest rates to go up in 2021. But they sure as heck were ready for rates to start coming down in 2024.
Boy, were they ready. And waiting.
I'm an NZ born Kiwi, a bank customer, yet I personally would prefer rates never dropped like they did and also am in no rush to see them fall since we haven't made other changes to the property landscape to make it about homes for people to live in.
Hope for property investment as a strategy is the last thing this country needs.
I’m not sure how high interest rates make it easier for people to buy a house? Sure the purchase price is lower, but the interest costs are higher. I guess the deposit is less, and they get better returns while they save the deposit; but if the economy is in a rut they may not even have a job.
Can I fix that for you, wingman?
"If you buy a scarce, productive asset using credit when interest rates are high, the capital gains will way exceed the extra interest when rates drop.
You're right, it's risky, but that's how people get rich (while people get poor buying things that used to be scarce based on past conditions)."
IMHO houses now (see my comment below) are neither scarce, nor that productive.
Take care.
Good quality houses, that don't require a considerable amount of maintenance, that aren't in a noisy area, that are in a relatively safe locality, that aren't in high traffic zones, that don't leak, that have satisfactory heating, good access, that have good school zones, are healthy, have good plumbing and ventilation, are fairly thin on the ground.
"... since we haven't made other changes to the property landscape to make it about homes for people to live in. "
As a matter of fact, we have changed the property landscape. Quite dramatically so.
The nationwide introduction of higher density zoning started way back in 2016 when Auckland Council's new Unitary Plan came in 2016. (The ChCh rebuild also helped 'set the stage' for higher densities.) Since then it been followed all over NZ. Add to that we had the MDRS, the NPS/UD and now we have the coalition demanding Council's must constantly have 30 years of supply on the books.
These are big changes.
I get that most on this forum are not builders, architects, property developers, etc but they really need to bone up on these changes. They have a huge effect on the potential supply. Prior to these changes, housing supply, was restricted and the inevitable happened ... House prices took off beginning 20-30 years ago. These days are gone ... probably for another 20-30 years. Yes, that is how much potential supply has been added. Only by opening the immigration floodgates can this potential supply be consumed faster.
Like I said, I get that most on this forum are not builders, architects, property developers, etc but they really need to bone up on these changes. If they don't, they'll make dumb 'investment decisions' that'll result in them and their families missing out.
In every comments section where the word 'houses' are mentioned I make the same observations and receive the same silence. Ho hum. Those that don't study history are doomed to repeat it. Hopefully, a few will get it. Clearly most don't.
I've owned lots of properties.
Councils are standing in the way of housing developments, and the massive 1,800 house project at Riverhead is one of them.
The cost of producing a document like the one for Riverhead would cost millions. In the meantime thousands of houses aren't being built.
It's just a matter of doing your homework, getting a subdivision through Council can take years, and millions of dollars, and that's one of the main reasons house prices are going up.
It took me 7 months to get a plain vanilla house project approved.
https://www.aucklandcouncil.govt.nz/UnitaryPlanDocuments/06-pc100-app-4…
I think you're largely proving my point here, wingman.
I.e. with all the other changes that have been made, why do we need yet another large subdivision so far from the bulk of amenities, providing even more empty sections for large standalone houses when there are so many available already but people can't afford them? In the past (pre-2016) stand alone houses were the only game in town. Now (post-2016) that's changed dramatically with more dwelling options available at more price points.
We had the unitary plan, and prices went crazy in 2020-2022. Thanks to ultra low interest rates. Which might happen again.
I agree with you that, all things equal, prices will not rise as much with a more enabling planning framework. I do think you exaggerate its likely influence, though.
I think the unitary plan + low interest rates + strong expectations of continued population / price growth led to a building boom in Auckland. Then COVID came along and the population decreased - making rentals affordable for a short period (until inward migration blew the rent back out again in 2023). We can't rely on developers making the wrong call on to get temporarily cheaper rents.
Saw this article on RNZ the other now (now on 1News): https://www.1news.co.nz/2024/08/25/economic-recovery-is-this-time-diffe…
What do people think of the view that things will quickly return to normal as all the big money is just 'sitting patiently on the sidelines?' Personally I am not sure that a supposedly 'engineered recession' will bounce back magically quicker than any other one.
We had 'the recovery' first this time - the once for several generations Covid response. 'Recovering' from that is going to be what's differs. The Recovery will be back to prices etc of a decade ago; before we shovelled so much Private Debt into our System.
"the current hole in economic activity occurring because that activity already occurred two years prior, having effectively been borrowed from the future due to extremely low interest rates and stimulatory fiscal policy. That view essentially implies that there is no 'missing' activity now that might be caught up in coming quarters..." (From the same linked article above).
That Future Debt has already been borrowed, spent and captured; locked up in current asset prices. Getting it back out is what the focus will be.
I'm not young.
I've heard all kinds of loony predictions in my life - prophecies of crashes, a worthless USD, gold US$50,000 because all currencies will be worthless, World War 3, Great Depression 2, hyperinflation, deflation, economic collapse...it's all BS.
Goldbugs are the worst perpetrators of spreading this nonsense as they polish their tiny bits of metal they're hiding in the ceiling, buried in the garden or concealed in the garage, ready for the great meltdown.
This time we aren't coming from below the graphical line to get back on trend - which is often what recovering from Recessions/Depression is usually all about, we are coming from above it. Whilst we all had work to do after 2008 to rebalance 'things', 2021 left that in the shade.
And because you aren't young, you'll remember 1985/6 then - when the NZ$ was floated and Rural Subsidies were scrapped. It's not as important as to why that was done, but that it was. It was done because the economic and financial system we'd had in place for decades was no longer fit for purpose. So...we changed it. And like as not, something similar has to be done today. When? We'll know the day after it happens.
Nothing stays the same forever. Nothing. And the longer unsustainability goes on, the closer we are to another change.
I think a run of the mill recession is the most optimistic outlook...it could develop into a financial crisis, depression or systemic collapse.
The indications are that the current system is at the end of its useful life....we may be able to keep it on life-support for another round but I suspect that would be its last. The previous cycle managed around 15 years.
I certainly do remember all that. If it wasn't for Roger Douglas I don't know what would have happened to NZ, we were like East Germany. Da gubbermint ran almost everything.
CKD (completely knocked down) cars were assembled in Thames, Nelson and Lower Hutt, and they were absolute crap.There was a scandal when new Toyota Starlets assembled in Thames started rusting within months of purchase. People drilled holes in their cars and filled them with fish oil to prevent them rusting.
I was single until I was 40, the banks wouldn't lend me money because I wasn't married, so I got it from the building societies.
Customs duties were extortionate, so if you wanted a stereo, you got one on holiday in Fiji. Smuggling was just an accepted practice. If you went to Aussie you always came home with a toaster or some other household appliance.
66c in the dollar taxes, 23% interest rates, and the country's best brains working on loss-making tax avoidance schemes. Everything was done with cash. OMG!!!!
It was all that idiocy that got me interested in property.
About a month ago I dumped all my overseas assets and returned them to NZD, which as it turns out was a good decision, the NZD has gone up ever since. I've been in offshore stock market mutual funds for years, along with tinkering with a few Aussie shares.
I won't waffle on about it, but by the time the taxes and fees are subtracted are mutual funds really worth it? Maybe if they're risky and you get it right.
My current assets....I would say 70% property, 30% bank deposits. All NZ.
Bit of a nonsense headline, do you really think the banks care about higher interest rates?
They made massive profits during the rise with wider spreads....! they do not care as they make money either way, the margins actually shrink with lower interest rates
The real issue is reduced new loans
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