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RBNZ’s Bollard says he’s concerned about higher long term rates
Dandan - I think long-term rates are now over extended and over the next couple of months will come back a bit, but I strongly doubt it will be by 2%. Short-term mortgage rates are way too high bearing in mind that the OCR is likely to be cut by another 50-100 basis points - in my humble opinion I think the short-term ones will make new lows over the coming 2-3 months and will make the bigger move.
So you think 5 years rates might come back from round 7.5% to 7% or maybe as low as 6.5% if we're lucky, over the next few months and that will be the low point for the year.
And, do you think the increased cost of overseas funds has caused less than a quater of the 1% increase in 5 year rates over the last few weeks?
SURVIVABLE: Mortgagee sales may be hitting new highs, but the Reserve Bank says its analysis of household debt is reassuringly positive. Relevant offers
Mortgagee sales may be hitting new highs, but the Reserve Bank says its analysis of household debt is reassuringly positive and it expects households to withstand even a big shock.
''Most debt is held by high-income households,'' said Reserve Bank adviser Mizuho Kida. The top two income bands account for more than 70 per cent of all household debt.
''Loan-to-value ratios on housing debt are generally quite manageable and debt-service ratios have actually fallen among lower income households,'' Kida said. Households on the lowest incomes hold only 1 per cent of debt, down from 3 per cent in 2001.
This reflected the common observation that home ownership had become more expensive, she said.
Only 35 per cent of households hold a mortgage, and of these, more than 40 per cent are less than $200,000. Four per cent of households service a mortgage bigger than $400,000. ''For most, the debt remains manageable.''
But Kida warned that weaker economic growth and falling house prices would require adjustments that, for some, would be painful.
Mortgagee sales have soared in recent months, albeit from a tiny base. In January, 150 owners were forced to sell their homes, a more than five-fold increase on the 28 two years earlier.
Foreclosures hit a 14-year high in December, with 191 mortgagee sales compared with 66 in December 2007, a 270 per cent increase.
But the New Zealand mortgage sector is substantially different from that the United States, where the housing sector has alarmingly collapsed, Kida said in a paper, Financial vulnerability of mortgage-indebted households.
The subprime segment (lending to people with poor credit history and scanty income) was relatively absent in New Zealand, domestic assessment of risk was good and the banks had not invested heavily in the securitisation of mortgages, as had their US equivalents.
Kida used the triennial household economic surveys from 2001 to 2007 to assess the vulnerability of mortgage-holders to falling prices, rising unemployment and slowing economic growth. Loan-to-value ratios, a good indicator of mortgage stress, had actually fallen on average since 2001, she noted. The other key indicator was the debt-service ratio, comparing annual mortgage payments to disposable income. The proportion of households with a debt service ratio more than 50 per cent was highest among low-income earners. But even if the shocks were big, it would not result in wholesale foreclosures.
Dandan - I don't think its the "cost of overseas borrowing" that's pushed mortgage rates higher in the past couple of weeks (i.e. banks having to pay bigger spreads above swap rates). Rather its been a case of swap rates moving higher because as banks moved to hedge their mortgage books in the swaps market in response to retail borrowers moved to 5 year fixed mortgages, the investors didn't step up to the plate in enough volume in the swaps market to absorb the pressure - consequently swap rates went higher and thereby so did the banks hedging costs which ultimately lead them to raise their mortgage rates.
Hopefully with financial year ends now out of the way, many of these investors (who generally reside offshore) will see current NZ swap rates as high, bearing in mind a OCR heading towards 2.0 - 2.5%, and will reenter the market soon and push rates back down - that may be days or weeks away and hopefully will ultimately enable banks to brings rates back down (6.5 - 7.0% for 5 years still very possible again I think)
Dandan - I don't think its the "cost of overseas borrowing" that's pushed mortgage rates higher in the past couple of weeks (i.e. banks having to pay bigger spreads above swap rates). Rather its been a case of swap rates moving higher because as banks moved to hedge their mortgage books in the swaps market in response to retail borrowers moved to 5 year fixed mortgages, the investors didn't step up to the plate in enough volume in the swaps market to absorb the pressure - consequently swap rates went higher and thereby so did the banks hedging costs which ultimately lead them to raise their mortgage rates.
Hopefully with financial year ends now out of the way, many of these investors (who generally reside offshore) will see current NZ swap rates as high, bearing in mind a OCR heading towards 2.0 - 2.5%, and will reenter the market soon and push rates back down - that may be days or weeks away and hopefully will ultimately enable banks to brings rates back down (6.5 - 7.0% for 5 years still very possible again I think)
A week ago I thought I was the only one here who thought long term rates may drop again in coming months.
Looks like we now have a couple other PT users who have joined the club.
Dean is on the fence. Suggesting investors lock in long term whilst himself floating.
A week ago I thought I was the only one here who thought long term rates may drop again in coming months.
Looks like we now have a couple other PT users who have joined the club.
I am in this camp and have thought it since the last increase. If I didn't get in before the lasts round (I only fixed for 2 years as the longer ones had already increased), I would only be fixing for 6 months now (floating is overpriced in my opinion). I am predicting (and hoping) the 3y and 5 y rates will be the same or lower in November when my next rates roll over. I have been keeping note of the movements so I can see if I am correct. After Nov 2009, next ones expire in Nov 2010 which I have absolute no idea where rates will be.
Whitt - totally what you'd expect at this time in the cycle. As the general credit quality of the borrowers deteriorates on average, their modeling will be telling them where they have to move their rates to so as to accommodate the growing amount of bad debt that's going to hit them over the next year or two.
Whitt - totally what you'd expect at this time in the cycle. As the general credit quality of the borrowers deteriorates on average, their modeling will be telling them where they have to move their rates to so as to accommodate the growing amount of bad debt that's going to hit them over the next year or two.
I guess it sounds plausable and a fair strategy from banks.
So in thoery at the end of each boom we should expect at least a 1% hike as banks creep the spread higher to minimise these losses.
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