Real estate, post COVID-19 level 4 (since 2020)

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Smpl Mnmlst
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#2757041 9-Aug-2021 11:49

tdgeek:

Handle9:

Because they can. They package your debt as a long term bond and resell it while keeping the margin. It's not rocket science.

Cool, then all banks can give everyone 2.69% mortgages for 25 years today. Somehow I dont think that will happen. Which is why banks are not giving rates for long terms.

You say "which is why" - but your first two sentences don't explain why banks are not giving rates for long terms. I'm interested to know why you think it is that they don't do that? All you're saying is that you don't think it will happen.

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tdgeek

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#2757064 9-Aug-2021 12:02

eracode:

tdgeek:

Cool, then all banks can give everyone 2.69% mortgages for 25 years today. Somehow I dont think that will happen. Which is why banks are not giving rates for long terms.

You say "which is why" - but your first two sentences don't explain why banks are not giving rates for long terms. I'm interested to know why you think it is that they don't do that? All you're saying is that you don't think it will happen.

Matt stated "The problem in NZ is you can only fix for 5 years max (one bank used to be 7 years but has just got rid of that claiming it was unpopular, although I suspect it maybe popular now or in the near future). Whereas in the US you can fix for the period of the mortgage (eg 30 years) giving people much more certainty."

I merely commented that I don't think it will happen. If rates may rise, the longer fixed term you choose the higher the rate. As Matt says, you cant fix past 5 years now, I assume as the risk is too high for rate increases to lock up funds for 25 years. (should have excluded Which is why banks are not giving rates for long terms.)

eracode

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#2757079 9-Aug-2021 12:28

@tdgeek I don't think it will happen either. However @Handle9 is also correct - it's not difficult to construct financially engineered products to get to 25-year fixed home loan rate. Given that there was little demand in NZ for seven-years fixed, a 25-year fixed offering would probably go down like a lead balloon. This probably because the Kiwi financial psyche couldn't live with a 25 year horizon (we're too used to shorter-term fixes) - and the rate would be out of kilter with our current rates. So it's unlikely to happen - not because it can't be done, but because there would be no demand.

I would be very interested to know what the 25-year rate would be - just out of interest.

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GV27

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#2757085 9-Aug-2021 12:42

eracode:

This probably because the Kiwi financial psyche couldn't live with a 25 year horizon (we're too used to shorter-term fixes) - and the rate would be out of kilter with our current rates. So it's unlikely to happen - not because it can't be done, but because there would be no demand.

I would be very interested to know what the 25-year rate would be - just out of interest.

I suspect also because we've gotten into a rut where you buy a house to 'move up a ladder' and start off in something like a 'starter home' (read: Cold, damp, small, on the city fringes) and then somehow horse-trade your way up into a much bigger nicer house in the middle of a city with a massive section.

Doesn't really work when you're all trying to do it and then you throw in another half a million people in two decades to boot.

So our entire home ownership experience is set up around what are quite small timelines when compared against the time needed to actually pay off a massive mortgage on our wages, simply because we can't build quality accommodation at lower price points that people can actually live in longer term, and even if we could, we'd still add more people quicker than we can provision for, so you'd get the same demand squeezes.

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#2757093 9-Aug-2021 12:48

@GV27 Exactly - also crossed my mind when typing my post above. Some people will stay in a house for 25 years (more likely if it's their second or third house) - but most don't. So there's a mismatch between financial commitment and behaviour expectations.

The scariness of break-cost considerations would be reduced if you were able to take the remaining term fix with you to a new house. On the other hand, a long fix effectively locks you into your current bank. What about break-cost if you think you want to change your bank within the 25-year period?

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tdgeek

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#2757098 9-Aug-2021 13:10

eracode:

@GV27 Exactly - also crossed my mind when typing my post above. Some people will stay in a house for 25 years (more likely if it's their second or third house) - but most don't. So there's a mismatch between financial commitment and behaviour expectations.

The scariness of break-cost considerations would be reduced if you were able to take the remaining term fix with you to a new house. On the other hand, a long fix effectively locks you into your current bank. What about break-cost if you think you want to change your bank within the 25-year period?

Kiwis are cheap. If it's 2.69% today but 25 year fixed term is 4% you are ripping me off. The banks don't mind if its downward trend, but if its an upward trend, the rate will be what they thing will happen and a good bit more. You can easily make a 25 year term that as long as its with "you", you can keep it for 25, even if the house changes. But if you want to change banks, well you are committing to a 25 year term but you want to hop out if its suits, so in fact you want the bank to commit but you don't want to commit. Its a gamble

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wellygary

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#2757117 9-Aug-2021 13:58

tdgeek:

I merely commented that I don't think it will happen. If rates may rise, the longer fixed term you choose the higher the rate. As Matt says, you cant fix past 5 years now, I assume as the risk is too high for rate increases to lock up funds for 25 years. (should have excluded Which is why banks are not giving rates for long terms.)

Banks don't carry much of the interest rate risk on most current mortgages, they swap it away using the wholesale market... the risk they carry is you not paying it back....

The problem is that there is very little depth in NZ's long term (20+ year) debt markets meaning the rates are harder to work out...

in places like the US, 30 year Treasuries are very liquid established benchmark, that sets long term rates, this meaning banks are happy to lend long term as they can de-risk it fairly by funding the borrowing in that same long term debt pool..

Handle9

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#2757275 9-Aug-2021 14:54

heavenlywild: On another note who thinks the OCR will be increased by 25 points this week?

With Aussie under lockdown and us being one delta case away from the same, the increase may not be a done deal just yet.

If not now then soon. Inflation is here and will be for sometime. It's not going away quickly.

I refixed my mortgage for 5 years in April. The certainty of 2.99% was very hard to turn down when I'm pretty confident of significantly higher interest rates in the next couple of years.

Handle9

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#2757276 9-Aug-2021 14:58

eracode:
You say "which is why" - but your first two sentences don't explain why banks are not giving rates for long terms. I'm interested to know why you think it is that they don't do that? All you're saying is that you don't think it will happen.

There's generally more money for the banks in shorter term rates. Given the general lack of competition in NZ and fairly predatory pricing from all the banks it's in their interest not to incentivise longer term loans.

The NZ government doesn't sell long term debt which also doesn't help - there is no government bond to peg it against.

Handle9

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#2757400 9-Aug-2021 18:35

GV27:

eracode:

This probably because the Kiwi financial psyche couldn't live with a 25 year horizon (we're too used to shorter-term fixes) - and the rate would be out of kilter with our current rates. So it's unlikely to happen - not because it can't be done, but because there would be no demand.

I would be very interested to know what the 25-year rate would be - just out of interest.

I suspect also because we've gotten into a rut where you buy a house to 'move up a ladder' and start off in something like a 'starter home' (read: Cold, damp, small, on the city fringes) and then somehow horse-trade your way up into a much bigger nicer house in the middle of a city with a massive section.

Doesn't really work when you're all trying to do it and then you throw in another half a million people in two decades to boot.

So our entire home ownership experience is set up around what are quite small timelines when compared against the time needed to actually pay off a massive mortgage on our wages, simply because we can't build quality accommodation at lower price points that people can actually live in longer term, and even if we could, we'd still add more people quicker than we can provision for, so you'd get the same demand squeezes.

The property ladder is entirely normal internationally. This is hardly unique to NZ.

Peoples need for property changes as their life does. Early in your life you don't need 3 bedrooms and a yard, once you have kids you want these things.

quickymart

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#2757576 9-Aug-2021 22:13

Handle9:

Peoples need for property changes as their life does. Early in your life you don't need 3 bedrooms and a yard, once you have kids you want these things.

Not always. I have a mate here in Auckland who bought a house exactly as you've described in 2005, this was before he had any kids at all. Most likely he was just thinking ahead.

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Handle9

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#2757584 9-Aug-2021 22:15

quickymart:

Handle9:

Peoples need for property changes as their life does. Early in your life you don't need 3 bedrooms and a yard, once you have kids you want these things.

Not always. I have a mate here in Auckland who bought a house exactly as you've described in 2005, this was before he had any kids at all. Most likely he was just thinking ahead.

I bought a three bedroom house before kids - I didn't need it. I've upsized twice since based on my family growing

mattwnz

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#2757627 10-Aug-2021 01:08

Wheelbarrow01:

GV27:

Here we have something slightly different: A government that can't build state houses fast enough bidding against aspiring home owners on the open market for the same houses.

But Megan Woods categorically refuted this on the news a few days ago. They aren't buying houses already under construction by private developers then taking the credit for adding to supply, no sir, not on your nelly. I for one believe her!

Crap, my sarcasm meter just went off the scale 🤣

But are they buying existing older houses, which are what FHBs usually buy? If they are buying these, do they just make the maximum bid, and then say they paid the market price for it? eg outbidding everyone including FHBs and investors. Or do they have a budget per house they buy? I did read somewhere that they were buying some of them for the future, for the land, so they could build more houses per section. Although I can't recall reading where that was. But I did see the PM a few days ago on TV opening some new development, and it looked awful. Like a closely packed together trailer park, it is sad that NZ has become like this. .

tdgeek

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#2757637 10-Aug-2021 06:26

mattwnz:

But I did see the PM a few days ago on TV opening some new development, and it looked awful. Like a closely packed together trailer park, it is sad that NZ has become like this. .

Do you have a link? I thought the big thing these days is intensive housing? Most subdivisions I see these days are nice enough houses on postage stamp sections.

quickymart

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#2759706 13-Aug-2021 15:34

Not sure how realistic this is, but...

https://www.newshub.co.nz/home/money/2021/08/housing-market-forecast-to-peak-with-fall-in-prices-predicted.html

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