PHOTO: Hold on New Zealand – it is going to be tough. Image by rawpixel.com
A lot of financial news came out today and the housing market is definitely hurting, but that does not mean the economy is facing another crisis like the 2008 meltdown, KiwiBank’s chief economist says.
Today saw news of continued low unemployment data and falling house prices.
As interest rates rise, that could push more home owners into negative equity, a risk highlighted in warnings in the Reserve Bank’s latest Financial Stability Report released.
The bank said while NZ’s financial system was resilient, some businesses and home owners could feel the squeeze with persistent inflation pressure and the increased cost of servicing debts.
Right now about 2 percent of mortgage holders are in negative equity, where the size of their loan is more than the value of their property.
Depending on how far house prices continue to drop, that could rocket to just under 40 percent, according to estimates.
KiwiBank Chief Economist Jarrod Kerr told Checkpoint the report today was not surprising.
“It’s to be expected, we are in a downturn, house prices are falling and some home owners who came in late in 2021 have found themselves in negative equity.
“That’s an uncomfortable position to be in, but we’re not seeing the more concerning distressed sales yet.
“What we normally need to see is quite a sharp increase in unemployment before that happens.”
Today’s unemployment data showed jobless numbers holding steady at just 3.3 percent and wages growing, which Kerr said was positive.
“We’ve got a very strong labour market and there’s very good income growth.”
At the moment we were nowhere near the conditions that led to the global financial crisis in 2008, Kerr said.
“That was a very different situation. That was a global financial market crisis and banks were under significant stress.
“There is risk that we see something similar but nowhere near as bad as that in the coming year.”
Banks had been forced to hold a lot more capital and lending practices were a lot safer than they were a decade ago, Kerr said.
KiwiBank’s Jarrod Kerr. Photo: Supplied / Gino Demeer
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