World watching NZ housing market as Auckland labelled 'canary in coal mine' & More News Here – Upjobsnews

International investors are increasingly watching New Zealand’s housing market for signs of trouble and as an indicator of things to come, with one Australian financial services firm labelling Auckland the “canary in the coal mine”.

High mortgage debts compared to incomes, house price rises that outpaced every other country studied, and the Reserve Bank’s aggressive steps to fight inflation have resulted in New Zealand’s housing market being the one to watch, according to multiple analysts both domestically and across the Tasman.

Auckland’s unfortunate label came from Barrenjoey, an Australian firm providing insights to banks and investors.

The firm’s research focused on debt to income ratios (DTIs), and found almost two-fifths of recent Kiwi home loans were lent out at ratios considered high-risk and curtailed by other countries, including the UK and Ireland.

READ MORE:
* Over 300,000 New Zealanders owe more than they own – is this a problem?
* Banning young people from buying homes would be a spit in the eye after slapping them in the face
* Debt to income ratios: are they necessary in NZ?

DTI ratios are calculated by dividing the total debt of a borrower by their gross income, and are a measure of how leveraged a customer is, and therefore how at-risk they are if the cost of servicing their mortgage rises.

Debt to income ratios

The likes of Ireland and the UK have DTI caps between three and a half and four and a half times income. In New Zealand, customers with DTI of more than six account for 39% of recent borrowing, Barrenjoey found after analysing Reserve Bank data.

Auckland was higher, with 51% of recent borrowers taking out home loans at DTIs over six, and a fifth borrowed at DTIs over eight.

Mint Asset Management senior analyst Michael Kenealy​ said the canary analogy was “pretty dire” but said Australian and other international investors had been keeping an eye on New Zealand’s housing market ever since the country led price rises during the pandemic.

He describes New Zealand’s house price increases as “astronomic relative to most other developer countries”.

These movements have been measured by Australian bank services firm Macquarie, which found over the two years since the end of 2019, New Zealand house prices rose 45% compared with rises of around 25% to 30% in Australia, Canada, the UK, the US, Germany, Sweden, and the Netherlands.

Macquarie senior economist Justin Fabo​said investors were also keeping an eye on New Zealand because the Reserve Bank had been the “most aggressive advanced economy central bank to date” in jacking up interest rates to fight inflation.

“Investors are watching to see how sensitive both housing and the broader NZ economy are to higher interest rates, particularly against a backdrop of high debt-to-income and housing price-to-income ratios,” he said.

Fabo suggested a reason for the rise in New Zealand house prices during the pandemic was the Reserve Bank’s temporary relaxation of high loan to value ration restrictions for investor borrowing.

Price decline expected to hit double-digit percentages

Fabo said New Zealand house prices had already fallen about 4% in the four months to March, and he guessed prices would continue to fall for some time, with the overall percentage decline likely to be in the double-digits.

The main risk to prices in Macquarie’s view were higher interest rates.

“Fixed mortgage rates have already risen by 250 basis points or more. This is significantly dampening the ‘capacity to pay’ for housing for the average NZ household,” Fabo said.

He expected the weakness in house prices to have a knock-on effect on consumer spending.

“We suspect that there will be a point where falling housing prices, weaker consumer spending and probably higher unemployment will lead to at least a pause in the policy tightening from the RBNZ,” he said.

“That’s unlikely until later this year though.”

Investors question house price sustainability

Kenealy said last year’s 30% increase in house prices would make investors question if prices were sustainable, particularly with interest rates rising and the population possibly dipping once the border reopened.

He also shared Barrenjoey’s concerns, describing the amount of high debt-to-income lending as “pretty frightening”.

As the cost of living rose and interest rates increased, Kenealy said many recent buyers would start to struggle.

To put it into context, an extra 1% on a $600,000 loan would mean an extra $80 a week in interest costs, he said.

Kenealy questioned whether the Reserve Bank could impose similar DTIs to the UK at this point, without causing a market crash.

Possible “bubble-dynamic” created

From Kenealy’s perspective, the pandemic may have incubated a “bubble-dynamic” in housing, because prices boomed while interest rates were at record lows, confidence was high after the country successfully fended-off Covid, people had a lot of spare cash because they had been confined by lockdowns, and FOMO (fear of missing out) led many to borrow large amounts.

However, he doubted there would be a crash, with the two key reasons to sell a house under duress – unemployment and divorce – unlikely to surge

“It’s very easy to get bearish and get a bit panicky that the end of the world is nigh on these things, but I don’t think that’s really that fair.”

I have tried to give all kinds of news to all of you latest news today 2022 through this website and you are going to like all this news very much because all the news we always give in this news is always there. It is on trending topic and whatever the latest news was

it was always our effort to reach you that you keep getting the latest news and you always keep getting the information of news through us for free and also tell you people. Give that whatever information related to other types of news will be 

made available to all of you so that you are always connected with the news, stay ahead in the matter and keep getting today news all types of news for free till today so that you can get the news by getting it. Always take two steps forward