New Zealand plunges into recessionary spiral (opens in new tab)

> Bank of New Zealand

And here is the funny bit, it's Australian owned. If it's anything like the rest of the market which is dominated by Australian banks, it'll pay some old kiwiana type music when you are on hold and say 'Kia Ora' or similar at regular intervals. Kiwi as.

"Central bankers are extremely measured in their comments" is usually true, but it's a funny thing to say about New Zealand, because the reason the US and other countries have a 2% inflation target is almost literally because a New Zealand central banker made it up off the top of his head on TV once.

This works okayish but, you know, could be better. (Some more explanation at https://someunpleasant.substack.com/p/the-prime-directive.)

Assuming you are American, do you also get confused with Bank of America, or US Bank?

Most countries have a retail bank that uses the name of the country or region, even if they aren't the central bank.

Prior to 2012, there was also the National Bank of New Zealand which was also just another retail bank. Extra confusion haha.

Let's be clear, the federal reserve does not belong to the USA, and is not beholden to any direct representation to the people of the United States.

I'm not familiar with how the Reserve Bank of New Zealand operates, but if it's anything like our federal reserve, the country belongs to the bank, and not the other way around.

I'm not commenting if they're wrong in this case in particular, but Macrobusiness's business model is sensational/doomer headlines funnelling into their private newsletter.

They may look prescient if you read the last years publications, but they well and truly live up to the joke "Economists have predicted nine of the last five recessions."

Judging by my inability to get into any store at Westgate last weekend due to the crowds, I think we're still a while off "plunging". /anacdata

Macrobusiness is the Zero Hedge of Australia. They are permabears, often with a reasonable financial case for the claims they're making, but they definitely start from the premise that the sky is falling, then look for data that corroborates that perspective.

If you skim headlines it's much as you say. Interest rates rising (but still around historic averages), falling house prices and high inflation.

https://www.rnz.co.nz/topics/business-economy

In New Zealand, all mortgages are approximately at a floating interest rate.

You can lock in a rate for up to 5 years (with the majority choosing 1 or 2 years), but after that “fixed” period completes, you now renew your interest rate at whatever the current market is. Most mortgages are signed up for a term of decades (mine is 30 years, and I signed up at age 50), so although you might use “fixed” rates for a few years each, you end up with a stepwise approximation to the floating rate. My mortgage allows me to pay 20% more principal each month, which shortens to term to 20 years.

You can renegotiate terms, and you can cancel a fixed 5 year rate early, but the bank charges a fee, and the fee depends on how valuable the current terms are to the bank (they cover any downside risk to them). If you change mortgage terms, and it turns out the bank is “in the money”, they don’t pay you (they just pocket the profit).

I've read comments on Hacker News that adjustable rate mortgages are the rule rather than the exception in many countries (outside of the U.S.). Here's a comment saying that Canada ONLY does ARMs https://news.ycombinator.com/item?id=15185052 and another comment saying that they're very common in some European countries: https://news.ycombinator.com/item?id=30339845. I'm guessing this is how it is in New Zealand.

The banks are required to stress test those loans with somewhat stringent requirements. When the loans were granted they take the current retail interest and add around 3% and ensure that the loan recipient could still afford it. Last year there were stories in the NZ media around how banks were not writing loans because people were spending too much on Uber Eats etc. They were going over finances with a fine-toothed comb (there was a bit of backlash in the media, but turns out it was a good thing). NZ banks have quite a high capital reserve buffer requirement which was increased by the Reserve Bank of New Zealand a few years ago – with a lot of pushback from the banks at the time.

Mortgages in NZ are typically fixed for between 1 and 5 years, with most fixing around 3 years. So 95% of mortgages will always be rate adjusted in the next 3 years.

This is certainly bad, but if it will lead to a crisis like 2008 in the USA, depends on a number of factors. First, there was a lot of leverage and fraud in the US case. Then, there was lack of financial support for families that had no option other than default on their mortgages. The US government didn't anticipate the issues caused by ARMs and only dealt with the problem when it was already clear the total collapse of the mortgage industry.

> Is there something different about how houses are purchased in NZ?

The US government subsidizes long term fixed-rate mortgages as a matter of policy. This is not true in most other countries, including, apparently, New Zealand.

US has 30 year mortgages backed by government. New Zealand and Australia do not so the overwhelming number are either floating/variable or fixed for 1-5 years.

That's true. As a kiwi in the US, I was surprised by how many mortgages here are fixed term for a long time. When I last bought a house in NZ about 30 years ago floating rate (potentially changing every month) was the norm and "lock in your rate for five years" was advertised as an option you could take.

My American father-in-law who is a retired realestate / financial industry professional seemed to have trouble getting his head around that when I told him. Not only that long term fixed rates were not available but also when you're in a short term (5 year) fixed rate, you can't easier refinance if the general rates go down. That seemed normal to me at the time because it's a gamble for both parties. If I sign a contract to pay X% for the next five years then it doesn't seem like I should be able to change my mind part way through any more than the bank can renege on the deal. That said, I never suffered significantly so that's easy for me to say.

Likewise for deposits. It seems a lot easier to break a CD early (forfeiting some interest) in the US than it is to break a term deposit (like a CD) in NZ.

The long term fixed term mortgage in the US rely on Govt regulation and the securitization of debt. In most countries when you get a mortgage its literally a loan from the bank, not sold on to bond holders.

Floating rate makes sense, if inflation rises, rates rise and usually so the pay rises so you can afford to pay more. In the US I have fixed at ~2% for 15 years which is good for me but seems silly over such a long term.

They just posted the job numbers for October and it was +100k, blew through the roof. All this doom and gloom is to push the central banks to calm down and stop raising the rates.

I (Canadian) had to call our mortgage advisor about something unrelated to the rate hikes, but they said people are losing it because their 30 year mortgage now has a 40+ amortization period due to the payments on the mortgage staying the same but the rates going way up. If rates don’t stabilize it is going to be a bloodbath once peoples 5 year terms are up. You can easily see your monthly payments double.

Is the energy sector mining, drilling, oil and gas? If that's the way out of financial strife, that's depressing.

Canada is going to be hit hard. If you go on the Canadian financial subreddits, you'll see plenty of "Can my bank increase my mortgage by $1,500 per month?".

The decades of continuing dropping interest rates mean a good chunk of the population don't even understand the mortgages they took on.

Now imagine buying a home for $1.5M in GTA, then having your mortgages payment increase by 50-75% and the value of your home drop by 30%+.

Winter is coming.

This is a standard pro business publication that posts sensationalist headlines with regularity, and believes the only way an economy can function is by not having taxes and letting businesses do whatever they want whenever they want.

With that background we can see that they will always want to be able to run headlines like this, whether they’re right or wrong. So I wouldn’t worry about things based solely on headlines from organizations like this, any more than I’d put all my trust in economic forecasts from “The Marx Community Paper” :D

I’m similarly wary of banks own forecasts given their track record of being opposed to any economic policy that doesn’t increase their own profit margin.

Honestly I would kill for the big important government measures for inflation, etc to only account for say the 80-90yh percentile of tax residents.

There are a couple of Western countries that have combined a decade of terrible housing policy, banking policy, immigration policy, and every other government lever you could imagine; in order to generate an absolutely generation-crushing property bubble.

New Zealand, Canada, and Australia will all be catastrophic lessons in the future.

So when you see -25 sentiment in housing by Kiwis, it's much more severe than -35 in the US, because over 50% of the Kiwi economy is based on housing and associated services: https://figure.nz/chart/WRpSmBftC60lEu2q

Canada and Australia are similar stories.

Canada is probably the worst in that it intentionally is using immigrants to try to prop its rental market and suppress wages. This works well if you are intent on starting a golden era for slumlords, but it's also going to absolutely demolish quality of life and send food/energy costs screaming.

It's very likely we're at the apex of a golden era of incompetence in these three countries in particular, but the West broadly.

In my experience the concept of a 30-year fixed mortgage is uniquely (or close to it) American. Certainly in NZ anything beyond a two-year fix is rare.

Most countries don't have long-term fixed-rate mortgages. The US does because the federal government subsidizes them as a matter of housing policy.

The UK s similar.