- Date published:
1:30 pm, September 8th, 2016 - 16 comments
Categories: housing, same old national - Tags:
Already number 4 for housing unaffordability in the OECD, we’re now number 1 for house price rises, beating out 55 other nations!
You may not feel rich, but you literally have to be a millionaire1 to get an average Auckland house.
Some may even move to Masterton to escape the crisis, but surely we should celebrate this government’s fantastic achievement?
Or maybe they should have proceeded with some of Labour’s amendments to their Housing Crisis Bill yesterday. Because the coming crash is looking it will be their crowning glory…
1. Gross, not net.
I have a fair bit of personal experience in the real estate sector, primarily in overseas markets. In fact I owned a business that was dedicated to managing the effects of rapidly declining property prices (important to distinguish between value and price here).
New Zealand certainly occupies its own place in history and has its own conditions and imperatives driving the real estate market. The proportion of inward migration to the total population is fairly unusual but not unique and if you compensate for this factor in your thinking the rest of the real estate question is pretty standard stuff.
I am strongly of the opinion that anyone buying real estate at the moment, especially first time buyers that will be heavily leveraged (greater than 75% loan to value ratio) are foolish in the extreme. Were I to own real estate at present I would have it on the market with a view to selling it this week rather than next week.
When the bubble bursts, it is going to get ugly. In the USA, for example, the vast majority of mortgages are so-called non-recourse loans. The bank can foreclose on the loan (called mortgagee sales here) but that’s about it. If there is a shortfall between the proceeds of the foreclosure and the loan amount, the bank eats the loss. Most mortgages here come armed with the ability to pursue the now former property owner for any shortfall.
The bursting of the property bubble will not only destroy a whole bunch of perceived equity, it will create a whole new class of indentured slaves that will struggle to pay off their banks for years or suffer the indignities of bankruptcy.
Just remember that a couple points in rate hikes will, at today’s rates, likely increase your mortgage payments by about 50%. Not too many first time home buyers could financially survive that increase!
”Just remember that a couple points in rate hikes will, at today’s rates, likely increase your mortgage payments by about 50%. Not too many first time home buyers could financially survive that increase! ”
What is likely to trigger interest rate increases ?
A good question but one that is outside of my area of expertise. So, my uneducated guesswork:
Historically almost any crisis could lead to rates rising. My bet is that a few quarters of marked depreciation in prices/cost of living index would be enough to kick rates in the upward direction.
Given the nature of central reserve banks and the banksters they serve, I do not exclude the possibility of something of a manufactured crisis that will see a shakedown of the middle class and a massive diversion of their assets towards the banks and the 0.01% they serve. 100,000 mortgagee sales (a big but not impossible number) would see the most vulnerable of the recent home buyers driven back tot he ranks of renters where the landlord class can profit from their misery and the moneyed class could clean up financially by grabbing properties at mortgagee sales at prices that would allow positive cashflow at market rental rates. It certainly happened that way in lots of USA cities in the past couple real estate cycles.
What do you think would start to drive rates up here in NZ bw?
Auckland is the most vulnerable market by far I suspect. Down here in Dunedin house prices have only recently surpassed 2007 highs…
”What do you think would start to drive rates up here in NZ bw?”
I don’t know enough about economics to even guess tbh
“marked depreciation in prices/cost of living index would be enough to kick rates in the upward direction”.
Change the word “upward” to “downward”.
A steady decline in prices is the quickest way to kill trade in an economy. People stop buying and businesses stop investing because things are going to be cheaper tomorrow. That is why the target is, currently, an increase in the 1-3% range. Deflation is a killer. Britain tried to get such a result after the first world war. One of the results was that unemployment in Britain throughout the 1920s, as well as the 1930s, was above 10% throughout the period.
If we get into a deflationary spiral the Reserve Bank is going to cut the interest rate, not raise it.
I think the unprecedented (for current times) event of sustained deflation will cause a panic that could lead to contrarian events like raising rates. This is especially true if NZ sees deflation (say, due to low commodity prices) domestically while globally reserve banks start raising rates. I think conventional wisdom, i.e., drop rates when prices fall, is in a fragile state and the colossal size of a range of bubbles (don’t even look at the derivative market if you are not sitting down) will overwhelm NZ’s economy. So I stick by the assertion that a deflationary panic could result in banks calling in their loans and shrinking their exposure by raising rates in a manner contrary to previous experience. Add to this notion the fact that traders like our PM would make a KILLING selling us all short on that circumstance and you have a powerful motive for the banksters to do so.
Nothing short of a total meltdown of the international financial system.
Overseas the big central banks are manipulating interest rates not just to zero (so-called ZIRP) but into the NEGATIVES.
That’s how fucked the entire system is. In banks and bonds all around the world, not only will you get no interest from putting money in with them, they are now actually docking your money for keeping it with them.
“a couple points in rate hikes will, at today’s rates, likely increase your mortgage payments by about 50%”
Not really. It takes quite a big increase in the interest rate to do that.
If you had a $200,000 loan for 30 years at 4.99% your repayment would be $1,072/month.
To increase your payment by 50%, ie to $1,608/month, would require an interest rise to 8.99%
The bank sites all have mortgage calculators if you want to look at them. I used the ANZ one.
You are correct on a fully amortized loan. I should have said the interest portion of an amortized loan would increase 50% and interest only loans would increase by that amount.
“What I think with Labour’s announcements in the weekend which was so important it may well start to drive the behaviour itself, I mean I’ve certainly said to people I know in that house buying generation that rather than work longer hours to pay an excessively high mortgage and put their deposit out there in an overheated market that they would be better to invest their time and any additional money in helping Labour to change the government it’s a far better investment for them make in getting their first home than anything else. “
Laila Harre, TDB.
Funny, well not so funny actually – the only stories you see in the Guardian about New Zealand are about child poverty and our fantastic Auckland housing investment market.
You can thank that socialist reporter who lives in the socialist shit hole of Dunedin for that.
You can thank that cringe worthy pretender John key for making this country newsworthy internationally for all the wrong, negative & shameful reasons, you mean BM.
Its called journalism.
By comparison the nz msm is a combination of sky sports, bravo, csi and celebrity tattle to not risk waking up the sheeple to nz being sold out from under them.
What a rotten dishonest whiner BM is ……………John Key and his Nact government will probably make New Zealand famous for more of their disasters/achievements before they are through …….
BM used to whine about people noting and commenting how dishonest key was ……. so he has form in trying to protect false images regarding the Nacts ……
Such is BMs history that it’s apparent he has two troll modes ….. an obnoxious jerk-off like in this thread and which is his natural state ….. or malevolent dishonesty when he’s offering his ‘sincere’ troll advice …..
BM should bask in the reflected glory that his team sprays all over the place ….
Number 1 for domestic violence …………… John Key kept his nerve and held us on course to win that world trophy …. In masterly tactics he went ” nah fuck that ” and personally repelled dangerous suggestions to lower Alcohol abuse and the world title domestic violence rates that go with it …………….. jk and the nacts would like to thank all the women and children for helping us win this world beaters title.
Number 1 for quickest decline in water quality, world education rankings and standards regarding corruption and money laundering must also be titles the Nacts should take full credit for …….
Number 1 for New Zealands lightning fast climb into the tax haven club has keys personal touch all over it …..
Our money laundering facility and the rich criminals money it attracts play a big part in the unaffordability and housing crisis hitting honest poor working people, our young, and other New Zealanders …………. http://i.stuff.co.nz/business/money/83450345/Court-orders-forfeiture-of-42-85-million-in-alleged-money-laundering-case
“Related proceedings were initiated in December 2013 against Yingzi Zeng and Shui Yong Huang, who are associates of Mr Yan.
They were alleged to have assisted in money laundering and various property associated with them was restrained, including three Auckland properties, a Porsche and Maserati, and over $4.5 million bank funds.”