Written By: - Date published: 7:26 am, November 16th, 2016 - 21 comments
Categories: capitalism, cost of living, debt / deficit, housing - Tags: debt, economy, housing bubble, interest rates, mortgage, trumpocalypse
Our housing price bubble is sustained in part by lowish mortgage interest rates. We can borrow crazy sums (over long terms) and manage the repayments – in the short term – if nothing goes wrong.
There is every possibility that Trump’s economy is going to chuck a box of bricks on to this delicate balance. Here’s Bernard Hickey:
Opinion: 5 ways Trump could hurt us
Trump has also suggested he would renegotiate US Treasury debt, just as he renegotiated the junk bonds on his casino. If he did this, it would trigger a financial armageddon because US Treasury bonds form the foundation of the global financial markets and banking systems. Treasury yields or interest rates also form the basis of mortgage rates globally, so rising US Treasury yields would also put upward pressure on longer term mortgage rates here. …
A Herald piece:
The Economy Hub: How will Donald Trump influence our interest rates?
Donald Trump is set to have a profound effect on our mortgage rates.
Mark Lister, head of private wealth research at Craigs Investment Partners, told The Economy Hub he expects the Trump effect to see interest rates and inflation jump considerably.
“A lot of Trump’s policies are pro-growth, they will create inflation – it will mean higher interest rates and that will flow through to us in New Zealand,” Lister said.
Despite the Reserve Bank cutting the OCR to a record low of 1.75 per cent this morning, Paul Glass, executive chairman of Devon Funds, said it’s likely New Zealanders will pay more for their mortgages. …
New Zealand property market may be hit by Trump effect
New Zealanders can expect higher home loan interest rates, and more pressure on house prices, thanks to Donald Trump’s victory in the US presidential election.
ASB chief economist Nick Tuffley said how big the effect was would depend on how many of Trump’s policies he was able to enact. “There is no guarantee he will be able to do the dramatic tax cuts and spending he proposes.” But he said long-term interest rates could rise more quickly than they might otherwise, due to the potential for added inflation. …
With Trump In Charge Our Home Loan Interest Rates Could Increase
…there has been a massive spike in US bond yields. We do not know if this is a “spike” or a permanent change; however this will be a concern to the banks that are sourcing wholesale funds on the world market as it will mean they will need to pay more for the money, which in turn means they will want to lift the home loan interest rates here. …
And so on and so on. Several of those pieces also discuss the possible inflationary effects of a wave of rich Trump / Brexit “refugees” moving to NZ, see especially this piece in The Herald.
New Zealaders are drowning in debt (Kiwis have failed to learn the lessons of their debt gorging ways, and Debt to income ratios ‘at record levels’). We’re highly vulnerable – here’s a warning piece form 2015:
Fears first-home buyers could suffer interest rate crunch
First-home buyers who stretch themselves to the limits of their budgets could feel the pinch when interest rates eventually rise, it has been warned. Interest rates are at historic lows but New Zealanders are still spending near-record proportions of their pay packet on interest costs. Rising house prices mean those purchasing property for the first time are taking on significant levels of debt.
Financial adviser Robert Oddy said that was a looming problem. Wage growth has stagnated in many sectors due to the absence of inflation and Oddy said people were vulnerable. “People are borrowing up to the maximum of their income for a mortgage and interest rates will go up at some stage. A lot of people are going to struggle.
Economist Shamubeel Eaqub said it was the kind of problem that would build over time.
“I wouldn’t expect interest rates to start rising for another 12 to 18 months. But the amount of interest we are paying relative to income is near record levels, and that’s with record low interest rates. As soon as rates rise there will be a massive impact on household budgets.”
He said many people could not cope if interest rates were to rise sharply. “But I don’t expect a sharp rise for many years to come because of the high levels of debt at the moment.” …
The bright orange trigger for that sharp rise in rates may have just arrived.