Many households could see their mortgage interest rates double when they re-fix their mortgages, according to property data company CoreLogic.
CoreLogic's chief property economist Kelvin Davidson has warned that household debt is relatively high to income.
"To some extent the debt has only been sustainable recently because of low mortgage rates," he said.
"However, OCR increases and rising home loan interest rates mean households are going to have to adjust their finances fairly quickly to ensure they stay on an even keel, with the lending environment changing for everyone.
"All borrowers are having to face up to the reality of significant mortgage rate increases, with a further rate hike expected to be announced in February's review.
"While any further rate increases could be smaller and slower than those experienced in the second half of 2021, we can't overlook the fact that about 60% of existing loans need to be refinanced in the next 12 months.
"Anybody who fixed for a year in about April/May 2021 could potentially see their mortgage rate double when they review mid-this year, which could have a significant impact on household budgets," he warned.
CoreLogic data was already showing that sales activity was slowing as the market reacted to previous mortgage rate increases and changes to lending and tax rules.
Davidson said that when property sales slowed, prices generally followed.
"Some areas are probably a little more vulnerable to outright house price falls than others, but in general anyone hanging out for a major bargain may be disappointed," he said.
"With unemployment still low, the story is more about much slower growth in prices than meaningful falls."
The other trend to watch in 2022 is housing construction.
"It's probable that we may see new dwelling consents tail off a bit this year," he said.
And Covid could cause further disruption to the property market.
"However, despite this, we suspect that by mid-2022 the balance of power could tip towards buyers," Davidson concluded.
The comment stream on this story is now closed.
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174 Comments
Read all about it:
"Interest rates in going up, as well as down, shocker!"
Look for two decades interested rates have been very favourable, people have had ample opportunity to make hay before winter comes.
Correct for pensioners. Not so correct for anyone under the age of 40.
What worries me is rising rents!
Landlords have heaps of excuses to raise rents in 2022. And the chronic shortage of good-quality rental houses continues unabated.
TTP
Yep, these rising mortgage rates could see rents rise. Remember how much rents fell by over the last few years thanks for falling mortgage rates?
Some landlords if over leveraged could find themselves loosing their little empire. And investors and speculators will have to take a haircut and a number of them could go bankrupt. This is all going to add into housing crash how much just depends on inflation ,rates and NZD which is still taking a tumble. This market has had a good run people have made huge amount of money but party’s over and only the drunkest can’t see it.
A small tumble....theres a long way to 0.39
There have been a huge number of purchases over the last 12-24 months and a premium being paid in most cases.
Not sure if all of them would agree they should now suck up rising interest rates going forward?
In every economic cycle there are some winners and some looser's. Are you proposing the rest of NZ and its economy should be crushed by the tsunami of endless inflation to protect the financial interests of the this small (compared to every house hold in NZ) group?
Not at all we all know the crazy house price rises have to stop or slow... however if those who have had to go way out on the over inflated limb (to get onto the ladder) get squeezed out... not sure if that's the best way forward?
The irony of a convicted price fixer being worried about prices.
The landlord is very welcome to sell at the point where his social conscience prevents him being able to charge the rent indicated by whatever market conditions may prevail. This is very likely to assist the market in a downwards direction and help a first home buyer into a home.
They could also just maintain the rent at a manageable level for their tenant.
So many options available to a landlord to help renters / first home buyers. It's almost like they're the primary ones who could make a difference in this messed up situation we find ourselves.
Hi Solve_it,
In my experience, many (if not most) landlords only think of themselves.
Their primary focus is on capital gain and rental increases.
Social conscience appears not to loom large in their psyche.
TTP
Which contradicts your first point i.e. that they'll push rent rises only because their costs have increased. But if they could increase rents they would already have done so.
That is the case for everyone not just landlords. How many people have offered to increase their rent, so landlords can cover the increased cost of rates, maintenance, insurance, interest. I have not increased my rent in I think the last 10 years, and surprisingly (sarcasm) my tenants have not offered to pay extra of their own volition, even if they had a pay rise.
The fact is we ALL usually put ourselves first.
Are you vaccinated? Did you say no because there are people overseas that are in more desperate need of a vaccine, of course you didn't, if you believe that the vaccine will help you will take it. Where are the protest to send our vaccines to Africa?
Also I am concerned about the increased regulation pushing out individual landlords in this regard, as its my property I can choose to think of the tenant, but if I was managing someone else property, either as a property manager or the CEO of a large company it would be unethical not to make the maximum amount of money possible, since my first obligation would be to the property owner or the shareholders.
You need "regulations" to curb companies profit making need otherwise slavery would be back on the books. The obligation to shareholders to maximise profit and all that.
The thing about rising rents, that's included in CPI and will push inflation rate even higher. It makes RBNZ have no choice but rise OCR to an unsustainable level. You are probably looking at the double digits. It's lose lose situation for everyone, except for people who are holding heaps cash. Do you think the government would allow that happen? They will have to put a rent control in place.
No. They let tourism burn to protect the majority against cv19 worst effects.
They'll let the RE industry burn if it protects the dollar and inflation. A crash of 40% only really affects you if you've bought in the last 3 years. The vast majority have not.
Correct if 10% of the people have been stupid and raised their stakes at auction to buy houses because they got greedy, then 90% do not have to suffer. The rates will be raised to curb the inflation because 90% need to be saved.
The other 10% who paid a lot to satisfy their greed should just reap what they sow.
Anyone who bought with brains will not be impacted anyway.
Shame we can’t use this 90/10 rule in relation to vaccines and restrictions.
A crash of 40% only really affects you if you've bought in the last 3 years. The vast majority have not.
Disagree. If the wealth effect is real, then a crash of 40% is likely to affect everyone through less spent into the economy. Falling revenues, profits in the non-housing sector arguably feeds into property bubbles. Then you have what is called a negative doom loop.
Any person with good grey matter that wealth effect thinking they are rich on equity is a mirage.
So people need to make decesions based on what they can earn by working hard and not by holding coat tails of economy.
If they are basing their decesions on coat trails of economy, then be ready for rooler coaster ride too.
The Chief economist at the reserve bank Yuong Ha believes the wealth effect thinking. Could be the reason why he's leaving.
Reserve Bank says house prices falling would be 'worst-case scenario' for NZ's economy | Newshub
Two unasked questions, as Reserve Bank builds costly housing hopes | Newsroom Pro
This govt likely to just cover the cost. It puts a floor on prices via accommodation subsidy.
TTP your right, after a four year onslaught by the current Government who steadfastly refuse to heed industry advice
Landlords now have been crimped to far ....
Picking a 10 % year on year increases ??
Hope I'm wrong but 30 yrs in the industry steers me this way ......
We’ll see anarchy in the streets before we see a 10% annual rent rise. People are already stretched beyond what they can afford.
Social unrest will become way more evident this year. People are sick of hearing about the struggles of the Kiwi slumlord.
have you missed the last few years -- plenty of areas had 10% rises in single years -- hell Wellington student digs went up over $55 last year alone -
take a lot more than that for NZ to even protest far less move to anarchy
They won’t protest, they’ll just move to Australia ASAP.
The government should start building housing for people who cannot afford to pay rents as some landlords are sucking people dry a huge amount of people living in cars or two or three family’s living in one house. You can see crime rates going up quicker than inflation ,society will crumble if government doesn’t tackle this issue.
Sadly, society IS crumbling. Naively I once believed that all governments were their to protect and uphold the well-being of all its citizens, particularly the most vulnerable. From what I have seen of past governments this is far from the truth. John Key and Jacinda Adern both campaigned on reducing house prices and look what we have. I have completely lost faith in our government and will certainly not be falling for any more lies or campaign promises. 2022 could be a very interesting year. Positive change will have to come from the people, government is not capable of turning this mess around.
There is one country that does exactly that, Government ensures every married couple has a house to live in at no cost to them, and it gets upgraded to a bigger one at no cost when the couple has kids.
That country is North Korea.
What confused me, (though I'm not very smart ;) is that with so many FHBs entering the market, (thus moving out of rentals) and so many investors buying properties to rent out, then you would expect a big increase in rental properties...
"In 1991, 61 percent of people aged 25 to 29 years lived in an owner-occupied home. By 2018, this had dropped to 44 percent. Similarly, for those aged in their late 30s, the rate dropped from 79 percent in 1991 to 59 percent in 2018."
https://www.stats.govt.nz/news/homeownership-rate-lowest-in-almost-70-y…
And those numbers are to 2018....add the latest surge and you are looking at rapidly declining ownership rates.
True, which increases the number driven to rent instead of own...thus increasing demand for rentals.
Investors sell the sob story that requiring healthy rental homes or applying any tax at all (like working folk pay) creates the problem. But in actual fact it's been the coddling and driving all capital into housing as an investment that has driven many would-be FHB out of ownership and into competing for rentals, so despite the fact more and more investment properties have been bought and rented it's never been enough.
A microcosm of the same can be seen every time city investors hit a small town: prices go up, more locals can't afford to buy their own home and are driven to compete for rentals, and more folk fall out the bottom of the market. Investors were the problem for the town not the solution.
There will always be a mixture of tenures but incentivising massive buying up of houses for speculation has not helped.
credit and greed...dangerous combination when unconstrained
That's the thing really, if rates double, that puts them where they were only a few years ago, this mostly affects new mortgages over the past 24 months.
Yes people who purchased last 24 months will be hit hardest if the market in your area went up 45% over 24 period you will probably see it go down to same level as 24 months ago. But if rates go higher than 24 months ago a bigger drop will happen this will take around 1 or 2 year depending on rates and inflation as people just try and hang on. A number of realestate agents are going to fighting over something to sell.
sadly not as i think 20% have rolled in teh last few months and another 60% this year --- even those who took out first loans four or five years ago are facing significant rises -- and many will of course adjusted their lifestyle when rates dropped --
probably teh only people not quaking in their boots are the property investors -- with larger portfolios and high equity - or boomers who are at the end of the mortgage cycles -- and can probably clear whats left anyway
This is just sewing the seeds of the next recession. Those who hang on through the round of rate rises (that will last until supply pressures ease) will enjoy higher incomes and a lower debt burden as a result. n
Interest rates will get cut again and life will go on.
The narrative (TM) being pushed seems to now be that house prices are unable to fall because unemployment is required to rise. This isn't necessarily true.
It should be interesting to see how the narrative holds up in the face of the inevitable mortgage rates starting with 6s and 7s...
It will to be far cheaper to rent, than to rent the money from the bank. Current prices are simply not sustainable when a lousy 800k mortgage starts costing $1000 a week in interest charges alone.
should be interesting to see how the narrative holds up in the face of the inevitable mortgage rates starting with 6s and 7s...
BL spin. Dont believe a word
I'm not sure why that's so hard to believe? When I got my first mortgage in 2008 the rates had 8-9's on the front of them.
I was buying a pretty low key 2 bed unit in what was the outskirts of town with a 140k deposit from my grandfather and a loan that was less than 4x my gross salary at the time (300k sale price). How people these days with kids etc manage to buy is beyond me.
I am under the age of 40. These scenarios are not some commenters sci-fi horror fantasy, they are actually still recent memories for even relatively young people.
Check it out for yourself, if you will:
https://www.rbnz.govt.nz/statistics/b20-new-customer-average-rate
You've got to remember, that was a different time. Interest rates were high because inflation was running rampant, as high as...4-5%...wait a minute....
The RBNZ has put itself in a no win position where now the dollar is dropping and energy prices are increasing, that on top of all the other inflation pressures. They either risk an inflationary recession or a housing correction with the consequential loss in consumer spending from less descretionary money to spend and the loss of the wealth effect (which is ponzi induced anyway).
The safest way to navigate is to increase interest rates and preserve peoples spending power and standard of living.
I fear however that we will let inflation run and that will eventually kill everything including housing, we cant just copy the US because we dont have the worlds reserve currency.
That's what I am concerning about too. If we let inflation to run, RBNZ continue to play its drag and catch-up game. It will kill everything include housing. Retail interest rates won't stay low either. Imagine if inflation rate is sitting at 7% every year, do we think banks will hold their retail interest rates the same even if OCR stays same? No. They will have to cover their cost, pass it to customers and increase their retails rates.
Two year fixed rate is currently around 4.15%.
Inflation is running rampant and at least 200 basis points worth of OCR hikes is coming down the pipeline by mid-2023.
I believe in arithmetic.
Do you?
SBS 2.29% 1 year fixed plus cash contribution for FHB.
I agree that there will be a substantial increase to interest rates, but I think that the most likely scenario is an increase by between 250 basis points and 300 bps by mid-2023, rather than just 200 points. Swap markets and bond markets are already pricing an OCR peak at around 3%. The idiots at the RBNZ have truly completely missed the target, and history teaches that, once you have to play a catch-up game with an increasing level of inflation, rates have to go much higher than otherwise would have been necessary.
Expect an OCR peak at 3.5%, if not higher.
Yet we should belive you? Why..what's your counter argument H?
When I bought my house in 2014 I had interest rates from 5.95% to 6.25% on the fixed rates and 7% on the floating rate. The 8-9% rates were just a matter of years before then. Even these rates are low compared with the 80's.
Other than recent house purchases, provided people have not continued to increase their borrowing they should be in a better position to cope with the interest rate increases. Many have just let the interest rate cuts reduce the mortgage payment and give themselves some space in their cashflow. So watch the interest rate increases put a damper on spending in the economy, but not create cheap housing being dumped on the market.
2014
"Nationally, the median house price rose to $440,000,"
https://www.stuff.co.nz/editors-picks/9930524/New-record-median-house-p…
kiwibank standard 5yr rate 6.00 ANZ is 5.85% have to say i am a believer!
Well, you should be getting a discount off the carded rates. E.g. I locked in 4.95% with ANZ last month, which was a 0.9% discount.
The narrative (TM) being pushed seems to now be that house prices are unable to fall because unemployment is required to rise. This isn't necessarily true.
No, just most of the time.
Everything is probability, anyone can be excused of the mindset of backing less likely but more preferable outcomes, but this usually results in sad faces.
As biden said, inflation is a good asset, MORE INFLATION
whats going on here is much bigger than NZ
It's interesting to look at the effects on debt servicing costs due to interest rate rises in 2008:
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-household-debt
Oh the humanity. People should have used cheap debt to hammer their mortgages. Many doubled down instead and with interest only. Next couple of years is going to see the speculator lobby groups in full swing. Remember capital gains are only christalised when you sell. Otherwise they are just theoritical.
Remember capital gains are only christalised when you sell. Otherwise they are just theoritical.
Tell that to your average share investor
It takes me about 10 minutes and costs me 0.3% to take the gains on my shares, couldn't be simpler.
9 minutes of that being pc boot up time. Upgrade due.
That's exactly my point. Housing and the associated debt cannot be unwound in that fashion. Especially in a deflating bubble moment.
Lol they did.
Hammered those mortgages all the way to seven figures
How can any economist look at this situation and say, with a straight face, prices are unlikely to fall. For prices not to fall from here would take some sort of miracle, i.e. suspension of the laws of physics and mathematics.
Or an over abundance of buyers with enough existing capital.
I'm sure they exist but they only occupy one demographic, and it's not mine.
And they probably should have hooked their kids up by now.
I’m that group, but I’m not buying at the peak of the market! Hopefully people realise that just because they can buy, doesn’t mean they should.
You would think these type of people can read the tea leaves, increase inflation, increase in mortgage rates, increase in lending regulation, taxes etc.
I fear there is an effectively limitless demand for property assets in supposed safe havens like NZ. And it still looks like a bargain compared to PRC shoebox towers, notwithstanding current woes. Demand comes from PRC mainly and can easily get here via Singapore and of course permanent resident relatives and friends.
I tend to agree and think this will get even more so over the coming decade(s). For this reason we need to look at LVT otherwise local working folk will end up subsidising more and more people from wages that simply don't keep up.
HOUSING PIÑATA a house shaped object beaten by blindfolded children( Politicians)
This housing market has been beaten with so many different sticks,is it some unburstable Piñata?
How many sticks ,recent and previously,can we count, especially in Auckland market as it leads the country...?
Way back...1)chattels and building depreciation eliminated,but healthy homes requirements on top,2) Overseas buyer ban....Interest non-deductibility..3)Rising interest rates.... Tightened credit requirements( esp.since December).4).."3 -per-lot" subdivisibility as of right".. yet to be legislated ,but we did have ...unitary plan allowing 400k more sections in Aucks,..5)200k new homes nationally in 5 years at current build rate ...6)decreasing population.( You do the real sums of arrivals less departures from passport control stats at the border..we are already looking at minus 50 k a year..and7) Aucks has more people moving out ,than in. ..headwinds in the economy( 8)inflation eating into discretionary spending and hence debt serviceability..9).decreasing pool of mortgage capable fhb's.... Decreased kiwisaver balances this week ,therefore,less deposits in gross available to 'raid' for house purchases.10) brightline tests and their extensions. 11) anti- money laundering rules and the effective restrictions
Please add your counts .
This housing Piñata is gonna pop.
Been a property trader through three cycles ,lost my shirt and skin on the GFC crunch,not currently propertied due to capital eliminated ( and divorce ,and every other shytie thing that can possibly happen in life) but i am sure this one is more loaded and strained than any previous bubble.
Could take 3 years,but it's going be nasty for many.
I think it's already starting, property bubbles don't pop, they decrease over months.
I think it's already starting, property bubbles don't pop, they decrease over months.
In the case of Japan, it was over years. House prices were still heading lower 20 years after the bubble.
Ireland's bubble collapse was quite fast.
I don't think you should compare the NZ bubble with that of Japan and Ireland.
We look quite similar to Ireland in some respects. Namely, the complete national obsession with housing. Go to any high street in NZ, and you’ll see real estate offices everywhere. At least Ireland was actually building throughout their bubble, not just musical chairs with a few townhouses at the edges.
Surely only by supposing that the RBNZ and government will take any action necessary to try to prevent house prices falling?
not convinced that they have the ability or the means and tools --- or that they would even intervene in time if they knew how to
track record is spectacularly poor in every single area bar Covid -- And its all been done having inherited the best financial situation of any new government in teh last 30 years -- budget surplus and structural surpluses and a massive borrowing program -- so woul dnot hold your breath if you are thinking they can stop the panic once it starts
And a health sector run under austerity in the last decade despite an aging population, in fairness - a big infrastructural deficit there. Not sure running up massive household debt through encouraging rampant house price inflation over the last decade-plus is 'best financial situation' either. It's a very big part of the mess we are now in, that and failing to foster productivity.
I'm still not convinced we will see interest rates rise significantly higher. Lots of virtue signaling from the FED and of course the RBNZ thus far as expected, but little action. We will get one or two OCR rises this year as a signal to the plebs they care about inflation then that could be it. The powers that be don't care about a loaf of bread going up 10%, they are all rich and like asset prices pumping. We are addicted to cheap debt and the cost of servicing must remain somewhat low or the country will implode. They know this and no one wants to be in power (govt or RBNZ) when it falls apart. They will kick the can as long as possible.
Agreed. Not enough weight is given to the fact that we're actually in this situation. If it actually mattered, someone would have already done something about it by now.
Not only are we in this situation, I'm convinced we are living in a simulation will all the bs that happens these days!
Doesn’t matter because costs will blow out elsewhere via inflation. The damage has been done and the impact will occur wether via interest or other. Its like whackamole know.
Exactly. Although we might get 3 OCR rises. Very very few hold our view VTHO!!!
I think we will get at least a couple by April/ May, and maybe a 0.5 lift in February. The RBNZ will want to 'get them in' before the economy really starts weakening.
Then it will be a 'hold and monitor' and quite possibly cuts by year's end.
I think you underestimate the seriousness of an inflation cycle of the economy. It takes more than just some signals to curb inflation. Once the inflation is in the wages and people losing confidence in NZD, RBNZ will have to rise OCR to a significant level to bring inflation down. It's no joke. We are not far from this. Check what Paul Volcker did in 1980s to end the great inflation, just to give you some ideas. I am not saying we need to raise OCR to that high, but be prepared for much higher rate than what we expected.
In my opinion, along with the impacts of the CCCFA, lingering covid malaise and ultra high prices (nothing better than high prices to reduce demand), it won't take many more OCR rises to suck a lot of demand out of the economy. I think by the time the OCR reaches 1.5 we will have been seeing a lot of its impact being realised.
A whole lot of our inflation is supply side which the OCR has no influence on.
That certainly didn't stop them dropping rates when the deflation was supply side!
But they were incredibly worried about the demand-side impacts of covid, as were many people back in early-mid 2020.
So the OCR cuts were pre-emptive.
I tend to agree, movements in the interest rate will have some influence over inflation, but there are a crazy amount of circumstantial elements at play.
- higher domestic consumption from closed borders
- higher wage inflation from closed borders
- massive supply chain interruptions
- sunset aspects in property investment (removal of interest deductibility, healthy homes, brightline testing)
And many others, which will play out over the coming months/years.
Yeah.
But I suspect your first factor at least is going to be nuked by higher interest rates and wide spread of omicron.
Don't want to disappoint you, but supply side of inflation and high pricing of products has been caused by low interest rate too. It could take years to get it fixed.
Current supply-side inflation is largely generated by covid disruptions, which increasing the OCR will have very little impact on.
Current inflation is triggered by that, but it's more than just supply side inflation. Large proportion of inflation was due to money oversupply (causing weaker NZD), lacking of investment in traditional industry. As inflation is getting embedded into wages, inflation expectations, signals of raising OCR wont curb inflation. Only actions do.
But it's already been a raised a bit and retail rates have been raised quite a bit.
We import our inflation in the main via energy, int. funding, goods and manage it as we can via the exchange rate. Our OCR is a good device for managing the exchange rate.
I expect to see the CPI manipulated again with the weighting on rent reduced, much like the OCR the CPI is also managed as part of the multi-factor toolset of the government.
I think all costs will go up without exception and to the point of other commentators some of this will get backed in via salary increases.
I also think the OCR will need to hit 3% to get in front of the upward re-enforcing circle of inflation and that action will cause a significant lowering of demand for housing, queue building industry collapse and bank rescues. Not to mention so poor FHB's being stranded going bankrupt. Going bankrupt was a common occurrence in 2009 for builders, this time the FHB's will join them. It's not the end of the world but it will be incredibly stressful.
A lot of early posts this morning.
"To some extent the debt has only been sustainable recently because of low mortgage rates,"
Wow, next they're going to tell us that water is wet!
You know water isn't actually wet right?
The wetness is transitory?
"Liquid water is not itself wet, but can make other solid materials wet. Wetness is the ability of a liquid to adhere to the surface of a solid, so when we say that something is wet, we mean that the liquid is sticking to the surface of a material."
Yip, just like oxygen isn't flammable.
Well some people spent the last two years actually paying down the debt knowing this was always on the cards, so no surprises to a lot of people. But those that did the opposite, better hope they get a good wage increase with inflation giving them the double uppercut. But I doubt that will happen if Omicron starts to impact the PnL of the company you work for.
Great for people who were in a position to do this over the course of one of the biggest changes to civilian life in the post-war era, I guess? Doing this doesn't mean you have super special powers of foresight, it just means you were actually in a position to do it.
No I'm just the average joe, but plenty people on here predicted it.
Why not both?
I know people that went balls deep in AirNZ shares in April 2020, "buying in the dip", which is normally decent investment thinking, but of course they didn't understand the true ramifications of covid on air travel.
when interest rates were cheap, I put every spare cent i had into paying down my mortgage while my mates kept borrowing to buy rentals and kept getting richer with capital gains and rising rents. I often questioned myself and wondered if I was the mug doing what I'd always been taught to do.
Now the tables have turned somewhat and I'm mortgage free, but I still feel my mates have done much better than me with their chosen route. Even if property drops by say 20%.
This is why nz is rooted. The bwankers have been encouraging poor behaviour.
Yes, our system rewards risk taking or, to use another word, gambling. Often gambling with other people's money. I'm not sure that is the best system to be honest or something to praise.
People tend to praise those that have made leveraged gains, and look down on people where they made leveraged losses.
And praise those who live off other people's money when they're property investors but not when they're other sorts of beneficiaries.
Similar situation here, hammered mortgage over last few years and are mortgage free, any spare cash into shares. I know what you are saying re property but my angle is that over the last several years if I am not working I am out living my life fishing, kayaking, skiing, sailing, spending quality time with my family etc etc. My phone isn’t ringing from tenants, banks, contractors, tradies etc and life is stress free. Wouldn’t change it for all the unrealised capital gains in the world 👍. Ps shares don’t phone me at 9pm complaining about a blocked sink!
One good thing to come out of the PRC's Chairman Xi "houses are for living in, not speculating on" or words to that effect.
This is an extremely good mind-set and very true. The stress of all those interactions on top of a day job is real and looking back not worth it. Well done, I take my hat off to you.
No. You have options to take advantage of the situation if / when the bubble pops.
What you going to rush out and buy a rental now?
Well all eyes should be on the RBNZ in late Feb. This is plenty of time for them to see which way this is heading, the direction is already clear to a blind person. If they don't raise rates by at least 50 points then you know they are trying to drag their heels. Not sure they can drag this out all year until everyone has their mortgage refixed, or would that be the aim ?
The first year of our mortgage of $560000, we were paying $2910.50 a month with around $950 being interest when we had the 1 year fixed at 2.09%.
From February, we'll be paying $3665.78 for our 5 year fixed 4.89% with the same expected end date, so while the interest rate has more than doubled, we're not paying double interest in $ terms.
I'm sure someone here can explain why.
Paid down 60k + and/ or extended the term?
Many more might be extending the term ,than paying down in lump sums,one supposes. Lifetime mortgage on 70 to 120 year old existing house of sticks,boards,roofing iron..,no thanks.
For the first year you were paying around $950 in interest and around $1800 in principal, from February you're paying around $2,200 in interest and $1,450 in principal. Rough numbers but your interest cost has more than doubled, your total payments haven't because you're paying less in principal.
With the only thing that's staying the same is that the mortgage will still have 29 years to go.
They also have to deal with general price inflation. So the money that is left covers less.
The risk will be for those that leveraged their increased equity in their homes to finance some improvements, or a new car or boat. Adding an extra $100000 to your mortgage may not seem like much when paying 2~3%, but you'd certainly notice it when you're paying 4~5%.
Great point
This kind of thing will be pulling discretionary spending out of the economy in 2022.
Im waiting for the cheap yachts when people have to liquidate. Cant wait.
And Lo leverage and over indebtedness as risk is rediscovered
And the cheerleader and Pollyanna brigade go quiet
Assuming RBNZ and government welfare don't ride to the rescue again. However they might think up ways of doing so.
It seems it should be inevitable that some overshoot occurs and that house prices exceed their actual value during a period of exuberant buying and very low interest rates. People did seem to go a little crazy out there. It should be natural that at some point money is lost.
Also one has to ask the question, was it wise to borrow so much during a period of history like this? It certainly appeared risky to me.
We don't know yet what will happen but we cannot let ourselves feel too concerned for people if they knowingly took these risks. People also took a risk by not investing or by cashing up and subsequently lost money. We don't tend to feel sorry for those people do we? Actually we tend to deride those sort of people.
Exactly! It’s time the prudent were rewarded rather than derided. If people who’ve acted foolishly aren’t made to bare the natural and predictable consequences, we only make a bigger rod for our collective back. Markets behave like small children, and sometimes a bit of discipline needs to be dished out for the good of the future.
I think a lot of people thought they couldnt lose. Plenty of like minded idiots out there to support their opinion. Ahhhh I remember the good old days of share parties in the 80s, very reminiscent of the better bbq stories today.
Interesting to read the piece in the Herald this morning on Forsyth Barr's bearish views on house prices.
When does the investigation into the RBNZ begin?
February 23rd 2022 when they don't raise the OCR.
Even though I am in a very small minority that hold the view that the OCR won't be raised much this year, I think they will raise in February, and possibly by 0.5 to make statement and get that out of the way before the brown thing in the economy hits the fan.
I guess there is a chance that widespread omicron spread by then makes them hold. But they and all the economists predicting big increases to the OCR this year knew omicron would come right??? It's simply no surprise and should be factored in to their forecasts
Housemouse, RBNZ by their own doing are in a situation : Be damned if you do and damned if you don't and no more will the be able to kick the tin.
Another doomsday predection in nzherald.
https://www.nzherald.co.nz/business/meaningful-drop-conditions-in-housi…
I agree that RBNZ are backed into a corner. Based on psychology I think they will raise rates. If they don't raise rates and the low NZ dollar leads to a recession the RBNZ will be blamed for not doing enough. They don't want to be told a recession was their fault. If they do raise rates and a housing correction leads to recession they can say "not our fault - we had to follow international rates rises; you should blame the real estate and lending industry for this mess."
Agreed. If they don't raise it it shows they are being lead by other interest than the NZ Taxpayer. Three dollar petrol may be the least of our problems.
Probably once covid is a thing of the past, and there is enough data to assess central bank responses to external crisis.
Working party group go brrr
Now they are talking about civil disobedience ....Why Now and If they are talking about it now, means situation is extremely bad and this is just the beginning ......worse is yet to come when interest rate actually starts going up, tapering starts and all form of asset class goes for a toss.....stock market has started and housing market is waiting on the door........
https://www.newshub.co.nz/home/money/2022/01/social-service-says-rising…
Who is to be blamed :
1 : Coronavirus ( Gave excuse to people in power to unleash their....)
2 : Mr Orr (For his LEAST REGRET policy and going overboard ignoring all data and signal to unleash their.....)
3 : Jacinda Arden ( For allowing to reach to a point where people are talking about revolting to unleash their...)
4 : All of the above.
Not to forget Fourth Estate who were playing in the hand of government by not raising concern and being yes man for government and RBNZ (The term Fourth Estate or fourth power refers to the press and news media both in explicit capacity of advocacy and implicit ability to frame political issues.)
Icing on the cake, Opposition wich is must for democracy is no where to seen as we have bunch of politicians who are so busy with infighting for their own survival.
Result we have mummy PM who is dictating her whims and fancy, all in the name of advice by chosing what suits and ignoring other - cherry picking
The Fourth Estate seems to get most of its advertising revenue from the FIRE sector. No wonder at all that they raised no objection to wealth transfers from have-nots to haves via two-tier welfare and RBNZ policy.
Hopefully the civil disobedience will be targeted… such as a rent strike.
Hopefully should be peacefully.
If it happens Jacinda Arden will go down in history for ........
What happens to her image overseas that has been potrayed.....
Plenty the poor and those who had their wealth transferred to asset owners could do. Rent strikes, disruptive protests outside auction rooms, disruptive marches, technological protests / disruption. I'm frankly surprised we haven't seen real estate hoardings treated the way that political hoardings are during election times.
The government might be forced to finally confront the issue of housing and upwards wealth transfers.
Our response to this impoverishment we've driven through the last two years' upwards wealth transfers can be either First World or Third World. A Third World response is to increasingly hide in gated and guarded communities from the mess we are creating, rather than addressing the problem.
Or a blacklist.
I'm amazed how many of these articles ignore the elephant in the room. Investors. Home owners may not sell due to rising interest rates, provided they keep their jobs. But if we are talking about interest rates doubling, and 40% of investors are on IO terms, that means their mortgage payments double. Combine this with the slow phasing in of interest deductibility changes there will be plenty of people who have over leveraged their portfolios who are suddenly in a terrible cashflow position.
So if prices DO start to fall, suddenly those IO terms are not going to be renewed, and changing to P&I suddenly worsens the cashflow position further.
The real question for 2022 is what lengths with the RBNZ and government go to prop this up? Will they repeat 2021 and throw open the lending taps, or will the RNBZ actually fulfil its intended purpose and tame inflation. Will the government actually listen to the 80% of the population who think prices are too high, or will they try and prop things up further? I suspect the only people who can actually predict house prices in 2022 are those that know how the RBNZ and government will react.
And the RBNZ and Government probably struggle to determine how they are going to react more than about 2-3 months out.
Well put. I totally agree that there's an over-focus on the impact of increasing interest rates on owner occupiers versus investors. A significant number of investors will be getting out, and a fewer number will be getting in.
Equals less demand and more supply, equals....
So my answer is they will try and find a halfway house that might have a bit of impact on inflation at the same time as limitting the damage to the economy.
So raising the OCR to 1.5-1.75 max.
They could bring out housing corp loans at 3% for FHB or non-rental property owning owner occupiers that find themselves in distress, think of it as some sort of apology for taking a generation for a ride.
Then ratchet up the OCR and let the free market sort out the investors.
Yes they could and should do that.
The OCR will need to come up to stop our currency deflating and our inflation then hitting double digits.
Love that idea.
The other thing that's fab about this idea is that it cuts the commercial banks lunches.
Love it from every angle.
OCR will not get to 1.75% max its going higher and every month that goes by with inflation as it currently is it just goes up and up. The OCR is lagging so badly now they will have to over do it so they can reign in inflation and then possibly cut it slightly. The longer Orr ignores it the worse its going to get. There is going to be one hell of a lot of pain for those refixing mortgages this year. Perhaps Orr is just waiting for the FED to move.
Well, I guess we'll see in time, Carlos.
As per usual there are a number of comments from Boomers in relation to this article which I again feel I need to comment about. I am a boomer who bought his first house in 1984 for $70k with a $45k loan. Our first home was debt free in three and and a half years as we both worked during that time period. In 1987 we bought a $135k home with a $45k loan. In 1996 we bought our current home for $500k with a $100k loan. That home is now worth over $3million and is debt free.
Us boomers have had it easy. My biggest loan was $100k and it was easy to service notwithstanding the higher interest rates and smaller incomes. We never needed two incomes to keep it all going. My highest rate was around 22% per annum but it did not last long there as after the 87 crash they came down as Central Banks dropped their interest rates to help economies recover.
Today the first home buyers have it incredibly hard. How do you save $200k to buy a house in Auckland and service a $800k loan and live and have children. Two people have to work hard and long. No one can get sick, die or lose their job. In my day I went to work and came home to a calm house as I was the only one working. My wife could have worked but she did not need to. Us boomers had it hard! That is a fallacy. We had the best of days and today many of us have assets that todays generation can only dream about.
Good comment. Older folk I know also acknowledge how much govt effort in the post-war decades went into making home ownership affordable for average Kiwis on average wages. The problem has been greedy, self-enriching governance in the most recent decades as those who got in cheap changed housing from home ownership for average Kiwis to a financial investment for themselves and a replacement for productive investment.
I agree with this and also note that wage inflation back then was very high too, so that inflated away the real value of debt. Real interest rates should be used to make a fairer comparison.
But the other point is that unemployment rate was materially higher back then too so, on the face of it, less job security than today, notwithstanding some hidden unemployment lurking in various other benefit schemes and shady measurements.
Lets be honest, some people always have it easy. My father was given a house so you would think only an idiot could screw it up from that point onwards, however I have seen it with my own eyes, you can give someone a house and they still end up with nothing. Expectations and lifestyle choices are totally different now and even houses built now are not comparable to those built in the 1970's. It's not always all about how much money you earn but what you do with it.
Thank you for saying this.
Thank you for your honesty and speaking out with integrity. This puts those who try to convince younger generation to accept their fate and live a life like slaves to shame.
Great comment. Yes, a very different world. If only we had more people with your sense of perspective. Or houses. Either way, the world would be a better place.
GV I want to make it very clear. My family has only had three homes. We bought our first one in 1984, sold it in 1987 and bought another family home which was sold in 1996 as we bought the family home we are still in. I prefer commercial real estate and equities for investment. I have never owned a residential rental.
Can’t appreciate this comment enough. Thank you so much for spelling out this gaping disparity loud and clear… for the less sentient Boomers in the back.
I think what they fail to acknowledge here is that while interest rates were low I would like to hope that many people increased their mortgage payments and not just paid the minimum amount or is that just me? I did it to try and repay quicker while low interest but keeping the payments high as if I was paying a higher interest rate. This also gives me an added benefit when I need to refix I am probably not going to see much difference.
Be interested to know if any stats could show this over the last few years with low interest rates, if people kept the payments the same or increased when they re fixed to lower rates
I would be interested in people's anecdotes about their projected consumption in 2022.
I have just got back from a trip which was lovely and much needed but has eaten into my reserves. That follows a whole lot of catch up consumption over the past 2 months, which means we are all pretty good now for clothing, household stuff, kids gear etc. We have also been out to restaurants a lot more than normal.
So for me and my household it's time for spending pull back for the rest of 2022.
I imagine this would be quite common? And if so might be a bit of a hangover for the economy?
When interest rates or inflation, economy or Dooms day articles are continually talked about what seems to be everyday in the media people will naturally tighten their belts.
If this economy tanks which it could very well do so in the next 18 months starting off with the housing market, high inflation, increase of interest rates, SME's go under, loss of jobs, no immigration we will be back in recession in no time thanks to the government.
I have tried to make the most of the situation these last two years and save as much as we could while we didn't have to pay for petrol, eating out, memberships etc etc and have a good balance behind us if and when we start starring down the barrel of the next recession
I tried to do the same, creating a buffer that I can use now to help when prices really start to rise. I think a lot of people did this where they could and maybe this will maintain some momentum in the economy, I certainly hope so.
The more you save with a bank the more they create and inflate, devaluing your savings and purchasing power.
"... anyone hanging out for a major bargain may be disappointed." - Kelvin Davidson
That's the takeaway.
Be quick!
Now another media report suggests that house prices will still grow in 2022 and coming year, only will be below 10% (single digit).
So all data and information indicating fall is Bullshit and despite rising interest rate, falling economy, bank restriction.....House price boom will still continue.
https://www.newshub.co.nz/home/money/2022/01/property-price-growth-like…
Another media expert suggesting doom :
https://au.finance.yahoo.com/news/market-turmoil-easy-money-ends-235556…
Who the F$#@ is correct.
Koukolas is dreadful. Goes where the wind blows and mindful of who's paying his income.
Indeed. Apparently it would take the fabled "black swan event" for change to happen.
So is that a global pandemic? Is it a global supply squeeze? Is it China and the US, and Russia and the US posturing conflict? Is it rampant global inflation? Is it mass worker shortage? Is it the destruction of a significant tax and income sector (tourism)? Or does it require all of those at once...?
If that's not enough then everyone go donkey deep into debt and lets start sway rot boxes for $10m, or $20m...
I would take CoreLogic's forecasts with a grain of salt. For one I don't rate their analysis. Secondly, they have a lot of vested interest in the status quo.
I would take CoreLogic's forecasts with a grain of salt
The best and brightest do not work for Corelogic.
Thats my prediction, less than 10% for the whole of 2022. Could be a very volatile year and the number will not be clear until the end of the year. Many people are expecting falls, don't see it happening because inflation is going to let rip. Not interested in the "Real" increases either that people on here rave on about after they take out inflation, a rise is a rise.
If I had a dollar for everytime I've seen an article over the last 2 years with a similar picture to this one suggesting a house crash I'd be rich. The news is full of it, economists are full of it,. Orr is full of it. House prices just keep going up to the sky
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