Australia, Spain, the UK and Canada had the highest concentration of variable-rate loans as a share of new originations in 2020, according to a May report from Fitch Ratings.

Other countries have a large proportion of mortgages resetting imminently: In New Zealand, for instance, about 55% of the outstanding value of residential mortgages is either on a floating rate or on a fixed rate that needs to be renewed in the year to July 2023.

New Zealand, where prices rose close to 30% in 2021 alone, is something of a poster child of the pandemic housing boom — and its unraveling. The central bank has hiked interest rates seven times in the past 10 months and house prices were down 11% in July from the peak in November last year, according to the Real Estate Institute of New Zealand. Economists predict they may eventually drop as much as 20%.

Femke Burger, a 33-year-old insurance case manager, bought a house in the Wellington region in March 2021 for NZ$825,000 ($504,000). In the months that followed, the value of her property raced to NZ$1 million, according to house valuation websites. Those gains have evaporated. Her two-bedroom, semi-detached property is now valued at about the same amount she paid for it.

“I definitely feel as though there’s been a reduction in my own personal financial wellbeing,” said Burger, who must refinance her mortgage in the next 12 months. While she’s confident she can handle the increase in interest rates, it will still hurt.

Economic Impact
New Zealand, like most developed world economies, is weathering the housing slowdown so far. Household balance sheets and savings are strong, labor markets are thriving and lending standards have tightened since the mid-2000s boom that sparked the financial crisis — meaning a cascade of defaults is unlikely.

Many property owners are still sitting on plenty of home equity from years of soaring prices, and in some overheated areas, lower values may allow buyers to enter the market.

“Given that the housing affordability crisis is very serious in many major economies, cooling house prices may result in some positive effects,” said Kwan Ok Lee, who specializes in housing at the National University of Singapore.

Economists, however, are still nervous. If the paper losses experienced by homebuyers such as Burger turn into more material declines for households, banks and developers, that could hit a slowing world economy the International Monetary Fund has warned is teetering on the edge of recession.

“If central banks tighten too far, the prospect of a soft landing diminishes,” said Niraj Shah of Bloomberg Economics. “House prices could fall faster, exacerbating and prolonging a recession.”