Log In


Reset Password

Sensitive to even modest rate rises

Editorial

New Zealand is ranked second-equal for housing risk indicators in a report by the Economist this week on the vulnerability of rich-world housing markets to sharp global rises in interest rates.

Our 46 percent jump in the price of the average house since the end of 2019 is the standout contributor. The United States ranked second on this measure with a 31 percent increase; it is 8th equal across housing risk indicators.

Our share of homeowners with a mortgage, at 67 percent, is also highest; next on 49.8 percent is Norway, ranked 4th overall; then the Netherlands on 48.8 percent, ranked second equal overall with us.

Most mortgages in New Zealand are fixed-rate, with only 18 percent floating . . . however, the protection from rising rates is limited as nearly three-fifths of fixed mortgages are for less than one year. (In the US, mortgage rates tend to be fixed for two or three decades.) Our total outstanding residential loans compared to the disposable income of households is 142 percent.

Sweden ranked No.1 for housing risk indicators, with a 28 percent hike in average prices since 2019, 43 percent of homeowners having a mortgage, 69 percent of them variable-rate mortgages, and residential loans at 177 percent of household disposable income.

Australia ranked 5th overall with a 27.6 percent rise in average house prices, 32 percent of homeowners having a mortgage, 81 percent of them variable-rate mortgages, and residential loans at 150 percent of household disposable income.

The Economist report is centred on the “spectre” of a global cost-of-living crisis becoming a global recession, and the abrupt end of more than a decade in which homeowners have benefited from ultra-low interest rates.

“Many economists believe that a 2008-style global property crash is unlikely. Household’s finances have strengthened since the financial crisis, and lending standards are tighter. Scarce housing supply together with robust demand, high levels of net household wealth and strong labour markets should also support property prices.”

However, rising interest rates could make homeowner’s existing debt burdens difficult to manage, and put off some prospective buyers. “If that hit to demand is big enough, prices could start to fall.”

“In Australia and New Zealand, where prices jumped by more than 20 percent last year, values have got so out of hand that they are sensitive to even modest rises in interest rates,” said the Economist.