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Trump and the NZ housing bubble

Written By: - Date published: 7:26 am, November 16th, 2016 - 21 comments
Categories: capitalism, cost of living, debt / deficit, housing - Tags: , , , , ,

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. …

Stuff:

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. …

The Mortgage Supply Company:

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.

21 comments on “Trump and the NZ housing bubble”

  1. We live in interesting times.
    Who would have believed that a person like Trump could sweep to power and then we hope that he doesn’t have too much say in what happens to New Zealand; however in the times of a global economy there will no doubt be some effect here.

  2. adam 2

    I see Bernie is talking.

  3. adam 3

    Bernie Sanders: Now More Than Ever, It’s Our Revolution

  4. Draco T Bastard 4

    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.

    There’s actually a real simple solution to possible negative effects – Sovereign Money. Stop basing our money upon that of another nation. We have our own resources, our own skills – our own economy.

    And if every nation did that we could eliminate the poverty that is a result of the present system.

    • Henry Filth 4.1

      I’ve read “Sovereign Money” a couple of times, and whilst I can see how the model works at the national level, I’m having trouble understanding how international trade fits into the model.

      Do you think you could expand on this a little?

      Thanks

  5. AB 5

    Low interest rates are fuelling bubbles – housing, share-market. Virtually free money for anyone with existing assets as collateral (i.e. free money for the wealthy).
    This cheap money is supposed to go into productive investment that creates economic activity & real jobs. But that’s hard work and very last-century – now it’s much easier to chase tax-free, speculative capital gain.
    Meanwhile prudent savers who set aside something of their income from labour are trashed.

  6. Gosman 6

    Why would Trump renegotiate Treasury bills so that he has to pay higher yields on them? Surely he is only interested in reducing his costs not increasing them.

  7. Enough is Enough 7

    Although the state of the world economy scares the shit out of me, the Trump effect is exaggerated in my view.

    8 years ago we looked forward to the change that was coming to America as a result of the election of Obama.

    Today we fear the change that is coming to America as a result of the election of Trump.

    The hope that we had back then turned into nothing as result of the Washington machine.

    The fear we currently have is much the same.

    America has a true separation of powers. That was bad for Obama’s aspirations but will be good for curtailing Trump. Notwithstanding the Republican dominance of government, he will still struggle as he is in essence an independent and the career politicians on Capitol Hill will not simply roll over for him.

  8. Michelle 8

    enough is enough you cant blame Obama for not making the changes he promised the American system is set up so the rich and powerful white men maintain there power if you have the house and the senate you have to have a majority in both to pass legislation. Obama did not have this luxury and now we have the republicans who have an out right majority and we will see more inequalities in the USA under Trumpet who has blown his trumpet and it worked. To the poor whites that voted for him hard luck your gonna be poorer and worse of and to the stupid shallow American women that voted for him you have stepped back a hundred years so much for womens rights you have poo pooed on all of the gains made by women globally nothing to be proud of a very sad day but oh well Americans have spoken and as the saying goes you made your bed now you have to lie in it.

  9. Infused 9

    If you did the tiniest bit of research, you’d find the LVRs have kicked in some time ago and no, you can’t borrow large sums of money.

    If people were dumb enough not to think that interest rates will rise, then that’s their problem.

  10. Red 10

    Dow at record high contrary to prediction a trump win would crash the stock market, obviously investors and business are not that worried The chicken littles or Paul’s of this world should just settle down, sure something’s will go wrong some things will go right, the delusion is thinking one man can control it, trump is a capitalist, he has overseas interests, sure he will pair back a few things, try to deal with some inequality issues but he is not going to throw the baby out with the bath water, for all his bluster and rhetoric trump is no fool and I suggest he will go down a better president than Obama, who was a president who wanted be a celebrity vs trump who is a celebrity and wants to be president

  11. greg 11

    luckly i payed off the mortgage 2.5 years ago
    let the fun begin

  12. Nic the NZer 12

    This is very confusing, here are some relevant facts to orient from (with related quotes),

    “Trump has also suggested he would renegotiate US Treasury debt, just as he renegotiated the junk bonds on his casino.”

    Wouldn’t make too much of this. The US government largely owes its debt to itself that includes 16% Social Security investments, 13% Other us govt entities and 12% the Fed (which rebates its profits to the govt). That’s 41% of the US govt debt it simply pays itself the interest on,
    http://www.forbes.com/sites/mikepatton/2014/10/28/who-owns-the-most-u-s-debt/#5e2ee4ba1907

    “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.”

    Notably in many countries it has become obvious there is a link (dominated by the central bank) between cash rates and the interest rates on govt securities. Actual re-negotiating then could be enforced by the central banks dominating the interest rates on govt debt downwards anyway. In Japan investors pay the govt to borrow, because of a negative central bank rate. In the US the govt already pays extremely low rates due to the very low cash rate set by the Fed. In practice its easy to understand (imagine your a bank or financial institution), govt debt is a savings account, the cast rate is the current account. If the central bank sets a low (or negative) rate on your current account then the rate at which its better to put funds in the savings account changes (which effects the rate govt pays on its borrowings). Its also worth noting you buy US securities with US$ and they pay back US$, so if there is an effect it becomes diluted by traversing the Forex markets.

    “New Zealanders can expect higher home loan interest rates,”

    Ever noticed that loan rates in NZ pretty much track the OCR (with a margin)? Its not by accident its the essence of RBNZ policy. The 90-day rate is the rate NZ banks lend reserves to each other at.
    http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-90-day-rate

    Later on there is some additional description incorporating this fact better,
    “But he said long-term interest rates could rise more quickly than they might otherwise, due to the potential for added inflation.”

    So the higher interest rates are something the RBNZ might impose in NZ given the higher inflation rate rises. The correctness of that prognosis fundamentally relies on how accurate the forecast of added inflation is of course.

    Shamubeel Equab is more clear on this,
    “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.””

    eg if the RBNZ doesn’t want mass defaults its unlikely to raise the OCR to begin with. The forecasts of central bank interest rate rises and ‘normality’ have of course been going on for many years now. In Japan they have been going on for decades actually.

  13. UncookedSelachimorpha 13

    An awful lot of analysis…

    I think it misses a crucial point – since when did Trump have a policy? He says stuff, then he says other stuff, and sometimes opposite stuff. Suggesting he is likely to do something in particular, is a bold prediction. He will promote Trump and his Trump relatives, that seems likely, but beyond that I don’t think you can be confident in anything!

  14. Murray Simmonds 14

    Somwhat oblique or off-topic, but there is a very interesting article on The Kondratieff Wave on this link:

    http://charleshughsmith.blogspot.co.nz/2016/11/now-is-winter-of-our-discontent-our-era.html

    The article is reposted on Zero Hedge this morning.

    Essentially it summarises cyclic rises and falls in the war-peace cycle since the American Civil war – periodic cycles of discontent of about 50-60 years. Trump presumably is a result of the fact that we seem to have hit a new trough.

  15. greg 15

    the other side of the coin is savers have been subsidizing borrowers .
    those that are over there heads cant say they weren’t warned debt should always be treated with respect and we have all heard the stories of homes being used as atm machines , rampant speculation sounds like the piper is knocking. 2008 gfc was a warning the bailout and low rates bought us time to pay down our debt.

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    BeehiveBy beehive.govt.nz
    5 days ago
  • Support for resilient rail connection to the West Coast
    A $13 million investment from Government will create jobs and improve the resilience of the rail connection between Christchurch and the West Coast, Infrastructure Minister Shane Jones and Regional Economic Development Under-Secretary Fletcher Tabuteau say. The funding comes from the tagged contingency set aside in Budget 2020 for infrastructure projects ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Major investment in safe drinking water
    The Government is investing $761 million to assist local government upgrade under-pressure water services across the country, Prime Minister Jacinda Ardern and Local Government Minister Nanaia Mahuta announced today.  The announcement was made at the site of the water bore that was found to be the source of the fatal ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Supporting stranded seasonal workers to keep working with more flexible options
    Recognised Seasonal Employers and migrant seasonal workers stranded in New Zealand will be able to continue working and supporting themselves with more flexible hours and roles, says Immigration Minister Iain Lees-Galloway. The time-limited visa changes are: Stranded RSE workers will be able to work part-time (a minimum of 15 hours ...
    BeehiveBy beehive.govt.nz
    5 days ago
  • Relief for temporary migrants, employers and New Zealanders who need work
    The Government is making immediate short-term changes to visa settings to support temporary migrants already onshore in New Zealand and their employers, while also ensuring New Zealanders needing work are prioritised, Immigration Minister Iain Lees-Galloway says. We are: Extending temporary work visas due to expire by the end of 2020 ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Freshwater commissioners and fast-track consenting convenor appointed
    Professor Peter Skelton CNZM has been appointed as Chief Freshwater Commissioner and Alternate Environment Court Judge Craig James Thompson as Deputy Chief Freshwater Commissioner for the newly established Freshwater Planning Process (FPP). Environment Minister David Parker today also announced the appointment of Chief Environment Court Judge Laurie Newhook as the ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Appointment of Judge of the High Court
    Auckland Queen’s Counsel Neil Campbell has been appointed a Judge of the High Court, Attorney‑General David Parker announced today. Justice Campbell graduated with a BCom and LLB (Hons) from the University of Auckland in 1992. He spent two years with Bell Gully Buddle Weir in Auckland before travelling to the United ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Feedback sought – Commercial Film and Video Production Facilities
    The Associate Minister for Greater Christchurch Regeneration, Poto Williams, is seeking feedback on a proposal to better enable the development and operation of commercial film and video facilities in Christchurch. The Proposal, developed by Regenerate Christchurch in response to a request from Christchurch City Council, asks that powers under section ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Govt launches bold primary sector plan to boost economic recovery
    The Government has launched a bold plan to boost primary sector export earnings by $44 billion over the next decade, while protecting the environment and growing jobs. Prime Minister Jacinda Ardern today released Fit for a Better World – Accelerating our Economic Potential, a 10-year roadmap to unlock greater value ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Wellbeing of whanau at heart of new hub
    A new approach to prevent family harm that encourages greater collaboration across government and community groups is being celebrated at the opening of a new facility in Auckland. Prime Minister Jacinda Ardern today opened the Multi-Disciplinary Family Harm Prevention Hub Te Taanga Manawa in Lambie Road in Manukau. The facility ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • New Report on Auckland Port Relocation
    The Government has released a major new report on the options for relocating the Port of Auckland’s freight operations while deferring any decision on the issue. “That decision needs to be informed by policy analysis that is still to be completed. As a result it will be up to a ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Dual place names for Te Pātaka-o-Rākaihautū / Banks Peninsula features
    The history of Rāpaki is being restored through the inclusion of te reo in thirteen official place names on Te Pātaka-o-Rākaihautū / Banks Peninsula and around Lyttelton Harbour/Whakaraupō, the Minister for Land Information, Eugenie Sage, announced today.   “I am pleased to approve the proposals from Te Hapū o Ngāti ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Government and Air New Zealand agree to manage incoming bookings
    Bookings for seats on Air New Zealand flights into New Zealand will be managed in the short term to ensure the Government is able to safely place New Zealanders arriving home into a managed isolation or quarantine facility, says Housing Minister Megan Woods.  “Last week Air Commodore Darryn Webb and I ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • $80 million for sport recovery at all levels
    Grant Robertson has today announced the first major release of funding from the $265 million Sport Recovery Package announced at Budget 2020.  “Today we’re setting out how $80 million will be invested, with $54 million of that over the 2020/2021 financial year for organisations from community level through to elite ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Keeping ACC levies steady until 2022
    The Government is maintaining current levy rates for the next 2 years, as part of a set of changes to help ease the financial pressures of COVID-19 providing certainty for businesses and New Zealanders, ACC Minister Iain Lees-Galloway says. “New Zealanders and businesses are facing unprecedented financial pressures as a ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Extended loan scheme keeps business afloat
    Small businesses are getting greater certainty about access to finance with an extension to the interest-free cashflow loan scheme to the end of the year. The Small Business Cashflow Loan Scheme has already been extended once, to 24 July. Revenue and Small Business Minister Stuart Nash says it will be ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New investment creates over 2000 jobs to clean up waterways
    A package of 23 projects across the country will clean up waterways and deliver over 2000 jobs Prime Minister Jacinda Ardern and Environment Minister David Parker announced today. The $162 million dollar package will see 22 water clean-up projects put forward by local councils receiving $62 million and the Kaipara ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Speech to Labour Party Congress 2020
    Tena koutou katoa  Nga tangata whenua o tenei rohe o Pōneke, tena koutou Nau mai, haere mai ki te hui a tau mo te roopu reipa Ko tatou!  Ko to tatou mana!  Ko to tatou kaupapa kei te kokiri whakamua  Tena koutou, tena koutou, tena tatou katoa   Welcome. I ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • PGF top-up for QE Health in Rotorua
    The Provincial Growth Fund (PGF) is investing $1.5 million to ensure QE Health in Rotorua can proceed with its world class health service and save 75 existing jobs, Under Secretary for Regional Economic Development, Fletcher Tabuteau announced today. The PGF funding announced today is in addition to the $8 million ...
    BeehiveBy beehive.govt.nz
    1 week ago