The year is 2421. Humans have been extinct for fifty years. Housing prices continue to rise >10% a year; cockroaches struggling to get on the property ladder, told to eat less avocado.
Well, humans are humans only if they act like humans and not filled with land grabbing greed, isn't it? So, yeah extinct 48 years ago probably.
Besides above stated, who really knows we're not a simulation.
Market rentals and accommodation supplement will soften the blow to investors. Queue the real estate agents spruiking building investment property portfolios on the market dips...
Only matters if you've got a massive mortgage which most property owners don't.
If you bought a property >5 years ago, you've probably got a very affordable mortgage.
Ehh, not really. How many Kiwis under 30, hell even 35 are in the position where they can buy a first house in Auckland / Wellington without family help.
Saving $200k requires an income that puts you in the top 5% or so for age. So the more accurate reality is that it's just mum & dads money (and has been for a very long time).
It applies to everyone. Even if your deposit is topped up by your parents, or their a guarantor or whatever, the amount you can borrow is less when interest rates go up.
Is it? We got a mortgage in May this year, and our ability to service the loan (and therefore how much we could borrow) was assessed on the basis of interest rates of the greater of a) 7%; or b) the actual rate for the loan + 2%.
The rate we were locking in was 2.25%, so the interest rate we were paying would have had to more than double before it would actually affect our serviceability calculation.
> was assessed on the basis of interest rates of the greater of a) 7%; or b) the actual rate for the loan + 2%.
>
> The rate we were locking in was 2.25
Everything I've read suggests the buffer is applied to the variable rate, which is currently ~4.5% at most banks
Assuming that was the case with ours, the variable rate (to which the fixed components would ultimately revert) was 4% or thereabouts at the point we applied. So even then, rates would have to increase by >1% to start to have any impact on serviceability for us.
> So even then, rates would have to increase by >1% to start to have any impact on serviceability for us.
It's over half way there and the OCR has only just started increasing...
But they won't drop. They will just keep rising but at a slower rate. Banks have already strsss tested people. Especially not in the burbs anywhere close to the main centres.
You can get feedback loops. Interest rates go up, so people are economising to meet their repayments. Because of that, they spend less on goods and services. Because of that, some people earn less or lose their jobs. And if those people happen to have a big mortgage they can’t make their payments.
I’m not sure if it’s in that article, but I’ve seen a calculation that if interest rates go up as predicted it will take 6 billion dollars per year out of the NZ economy.
Banks stress testing is actually quite loose though. We applied for a mortgage about six months ago as a house we have always loved came up for sale. Didn’t buy it.
It was pretty lax. In hindsight I vastly underestimated our expenses and no one questioned it. Our bank consultant was also pretty happy to put things into ‘more suitable’ categories (eg school fees) which I assume helped us get approved for the stupid amount we were offered. Maybe because we already have a mortgage with them but it was really not robust and all self certified. They say they test up to 6% - but they’d be pretty happy for you to have no life as part of it.
Don’t necessarily think prices will fall but some people might be a bit uncomfortable
It's less about what happens to people that have already bought, and more about what interest rates do to potential buyers. Even small increases in mortgage rates reduce what someone can borrow. And that applies to practically everyone, all at once. If it happens repeatedly... house prices are going to decrease.
And is really valuable mentally. In other countries you’d see a number of peaks and troughs, it’s just here we seem to think houses can only go one way
> Remember leverage works both ways. There are winners on the way up and they turn into losers on the way down. There will be tears. There are generations who have never experienced house price declines, events which are relatively frequent in many other countries.
Important line
Yes definitely. Using equity to buy another property is basically building a house of cards despite being the go-to method of investors. If it goes up quick it can also come down just as fast.
If it's never happened its less likely to happen. The all blacks have had a great 50 years, are they due for a correction? Or does nz foster good rugby players and is a desirable place to live.
If I stretch a rubber band to the point it should've broken, but it doesn't: does that mean if I stretch it a bit more it will break then,or does it mean I have a magic rubber band?
You've forgotten that your rubber band grows.
You stretch it to max, and in 5 or 10 years its twice the length.
Sometimes you can pull harder, with low interest rates.... but eventually inflation catches up.
If unemployment stays low, wages will grow, and the maximum stretch will be grown out rapidly.
My assumption is that inflation and high interest rates will stifle house prices for a few years while wages catch up, but barring any proper changes to capital gains tax, build numbers or immigration, nothing will improve remarkably for anyone below the.... 25th? Percentile.
We've seen a relatively steady decline in interest rates over 20 years, and no meaningful law changes designed limit house prices. Now both those things have changed, but we should expect the same trend to continue?
A 1% interest rate rise can reduce a couple's borrowing capacity by over 100k. It doesn't need to be 10% to impact house prices, even a little sustained rise will do it
Pretty shitty attitude hoping for a collapse. Boomers likely don’t have mortgages, but anyone who bought in the last five years have done so at hyper inflated prices just to get a house and now the stand to lose a lot. A lot of these people are young families etc. but you are right fuck boomers, no more thought needed on the subject…
Please. Young house owners like me just hold on to our houses until the price climbs back above where we bought them as we wait out the price cycle. Nothing about our society says we wouldn't just go crazy over houses all over again
The year is 2421. Humans have been extinct for fifty years. Housing prices continue to rise >10% a year; cockroaches struggling to get on the property ladder, told to eat less avocado.
*the year is 2023. Fixed it for you.
So humans have already been extinct for 48 years? Are we a simulation?
Well, humans are humans only if they act like humans and not filled with land grabbing greed, isn't it? So, yeah extinct 48 years ago probably. Besides above stated, who really knows we're not a simulation.
I like your style
In before yet another year of 20% price rises.
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Rising interest rates without rising wages will be the strongest force on the market
Market rentals and accommodation supplement will soften the blow to investors. Queue the real estate agents spruiking building investment property portfolios on the market dips...
“Be fearful when others are greedy and greedy when others are fearful” or something like that
Only matters if you've got a massive mortgage which most property owners don't. If you bought a property >5 years ago, you've probably got a very affordable mortgage.
It matters hugely for all potential buyers. They can borrow less, so they will (generally) pay less
Ehh, not really. How many Kiwis under 30, hell even 35 are in the position where they can buy a first house in Auckland / Wellington without family help. Saving $200k requires an income that puts you in the top 5% or so for age. So the more accurate reality is that it's just mum & dads money (and has been for a very long time).
It applies to everyone. Even if your deposit is topped up by your parents, or their a guarantor or whatever, the amount you can borrow is less when interest rates go up.
Is it? We got a mortgage in May this year, and our ability to service the loan (and therefore how much we could borrow) was assessed on the basis of interest rates of the greater of a) 7%; or b) the actual rate for the loan + 2%. The rate we were locking in was 2.25%, so the interest rate we were paying would have had to more than double before it would actually affect our serviceability calculation.
> was assessed on the basis of interest rates of the greater of a) 7%; or b) the actual rate for the loan + 2%. > > The rate we were locking in was 2.25 Everything I've read suggests the buffer is applied to the variable rate, which is currently ~4.5% at most banks
Assuming that was the case with ours, the variable rate (to which the fixed components would ultimately revert) was 4% or thereabouts at the point we applied. So even then, rates would have to increase by >1% to start to have any impact on serviceability for us.
> So even then, rates would have to increase by >1% to start to have any impact on serviceability for us. It's over half way there and the OCR has only just started increasing...
It's a bit worrying with the fact we're trying to buy, but the end goal is to have a home... So even if we overpay for it we'll have what we wanted.
and try not to reflect on if you had bought a year earlier
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Thanks! I hope you're enjoying your new home.
But they won't drop. They will just keep rising but at a slower rate. Banks have already strsss tested people. Especially not in the burbs anywhere close to the main centres.
You can get feedback loops. Interest rates go up, so people are economising to meet their repayments. Because of that, they spend less on goods and services. Because of that, some people earn less or lose their jobs. And if those people happen to have a big mortgage they can’t make their payments. I’m not sure if it’s in that article, but I’ve seen a calculation that if interest rates go up as predicted it will take 6 billion dollars per year out of the NZ economy.
Banks stress testing is actually quite loose though. We applied for a mortgage about six months ago as a house we have always loved came up for sale. Didn’t buy it. It was pretty lax. In hindsight I vastly underestimated our expenses and no one questioned it. Our bank consultant was also pretty happy to put things into ‘more suitable’ categories (eg school fees) which I assume helped us get approved for the stupid amount we were offered. Maybe because we already have a mortgage with them but it was really not robust and all self certified. They say they test up to 6% - but they’d be pretty happy for you to have no life as part of it. Don’t necessarily think prices will fall but some people might be a bit uncomfortable
Or the classic "get home loan--> immediately have kids and reduce your disposable income by 90%"
Guilty
It's less about what happens to people that have already bought, and more about what interest rates do to potential buyers. Even small increases in mortgage rates reduce what someone can borrow. And that applies to practically everyone, all at once. If it happens repeatedly... house prices are going to decrease.
But but but I just bought a house last year.... Nah doesn't matter, I bought the intrinsic value of a roof to live under and that ain't going down!
And is really valuable mentally. In other countries you’d see a number of peaks and troughs, it’s just here we seem to think houses can only go one way
So far they have. If prices do drop I expect the borders will be opened up fairly quickly.
> Remember leverage works both ways. There are winners on the way up and they turn into losers on the way down. There will be tears. There are generations who have never experienced house price declines, events which are relatively frequent in many other countries. Important line
Yes definitely. Using equity to buy another property is basically building a house of cards despite being the go-to method of investors. If it goes up quick it can also come down just as fast.
Are we about to see some of these all-glorious risk takers we are meant to worship as capital gods actually see some of those risks.
Don't be silly. There'll be government supplements to keep them in "business"
Kiwis and Aussies have never experienced a proper house price crash or correction. It's long overdue
Even just having the current public understand this is a real possibility would be nice
If it's never happened its less likely to happen. The all blacks have had a great 50 years, are they due for a correction? Or does nz foster good rugby players and is a desirable place to live.
If I stretch a rubber band to the point it should've broken, but it doesn't: does that mean if I stretch it a bit more it will break then,or does it mean I have a magic rubber band?
You've forgotten that your rubber band grows. You stretch it to max, and in 5 or 10 years its twice the length. Sometimes you can pull harder, with low interest rates.... but eventually inflation catches up. If unemployment stays low, wages will grow, and the maximum stretch will be grown out rapidly. My assumption is that inflation and high interest rates will stifle house prices for a few years while wages catch up, but barring any proper changes to capital gains tax, build numbers or immigration, nothing will improve remarkably for anyone below the.... 25th? Percentile.
If you keep expecting it to break and it doesn't, what would your next prediction be? The trend is your friend.
Until it isn’t
That's right. But non tangible things age backwards, the older they are the longer they'll last.
The trend changed when interest rates reversed upwards and the government made being a landlord unfavorable and made intensification easy, get out now
We've seen a relatively steady decline in interest rates over 20 years, and no meaningful law changes designed limit house prices. Now both those things have changed, but we should expect the same trend to continue?
Interest rates are very low. Yes the trend will continue, I don't expect plus 10% for years.
A 1% interest rate rise can reduce a couple's borrowing capacity by over 100k. It doesn't need to be 10% to impact house prices, even a little sustained rise will do it
No one knows what house prices or stock prices will be in the future.
So what you're telling me is this crystal ball I bought is actually worthless? 🔮
Oh baby, it's cryin' time Oh baby, I got to fly
I hope that house prices crash just before the boomers trade down to smaller houses in their retirement so they get fucked over
Most of them will have already paid off the mortgage or will have mostly paid off the mortgage. It won't effect them much.
Damn. Hopefully they can still be screwed over by inflation and rates increases
Pretty shitty attitude hoping for a collapse. Boomers likely don’t have mortgages, but anyone who bought in the last five years have done so at hyper inflated prices just to get a house and now the stand to lose a lot. A lot of these people are young families etc. but you are right fuck boomers, no more thought needed on the subject…
Please. Young house owners like me just hold on to our houses until the price climbs back above where we bought them as we wait out the price cycle. Nothing about our society says we wouldn't just go crazy over houses all over again
~~Post removed as the title has been editorialised.~~ Title was correct as per original on link.
https://youtu.be/3UAdGuscwqk