If you think Australian mortgagees are in trouble this year, spare a thought for their Kiwi counterparts:
The nation’s homeowners are facing a double whammy of tumbling house prices and rising mortgage costs in 2023, with about half of home loans due to refinance this year at higher rates.
It’s seen as a harbinger of what’s to come for other countries. The South Pacific nation of 5 million people saw home prices jump almost 30% in 2021. Now, the Reserve Bank of New Zealand’s aggressive tightening of monetary policy to rein in inflation is causing a correction that’s ahead of those underway in countries such as Canada, the UK and US.
Kiwis tend to fix their mortgages for less than three years. The central bank estimates about half the stock of fixed-rate mortgages is expected to reprice this year, meaning homeowners face a jump in interest rates from historically low levels of 3% or less to at least 6.5%.
Former Prime Minister John Key, who is now chairman of ANZ Bank New Zealand, describes this impending financial burden in stark terms: A person who borrowed NZ$1 million ($638,000) at the beginning of 2022 would have paid around NZ$35,000 toward their mortgage. That same loan will now cost around NZ$65,000 a year.
Kiwi house prices are already down 14%. But unemployment is low at 3.3%, wages growth is hot at 5.3% with core inflation at 6.2% so the RBNZ is on the warpath to an estimated 5.5% cash rate.
These are lagged numbers, though. The NZ fixed rate reset began in Q4 and will run through H1. It is going to lead Australia by a few months so is going to be an interesting litmus test for the Australian version which is smaller and more drawn out but still huge.
The soft data is foretelling the story:
Ouch!
