Moses2013

The crash always happens and it's really only a matter of time. New Zealand is similar to Ireland during the boom and we know what happened. If you have the cash and can live with a loss, nothing wrong buying now, but in general the bubble will burst soon enough.

jmh

I don't think NZ is similar to Ireland at all, except in that house prices have been going up. Ireland had high interests rates, very low unemployment and banks lending on large housing developments. It only crashed due to the GFC, not because it was a bubble.

A crash will happen here if people can no longer afford their mortgages. If they can, then they will wait out any downturns. We saw it in London - during the GFC prices only really fell by around 10% and in some areas, not at all. Unless unemployment or interest rates suddenly skyrocket we will probably see stagnant prices. We may see corrections of around 10 - 15%, but probably not much more. And this will probably be due to reduced overseas investment or a drop in migration.

Also, I've bought property in a crash and it's not as great as you think. Most people take their property off the market and wait it out, so the number of properties available is very small, and often not the sought after ones.

Moses2013

There are a lot of similarities. First of all finance is now the largest industry, you have rising immigration, strong job growth and over 70% of assets are in real estate. The banks are now relying to much on mortgages, with most of their bank loans being mortgages. Include loss of competitiveness, because salaries are rising too fast.



It will obviously hit Australia first, but won't take too long from there. It really depends, but I wouldn't agree that most people take their property off the market and wait it out. They have to sell if they can't afford their mortgage. There were some amazing bargains here in around 2011/2012 and most were not on housing developments.

jmh

That's my point - if interest rates go up or they lose their job they have to sell. Then the bubble bursts. If those things don't happen they don't need to sell. No bubble burst.

Moses2013

The housing bubble will always burst, whatever the reason. You could also call it price drop.

LittleGreyCat

What defines a bubble?
What defines it bursting?

Are we, perhaps, saying that if house prices crash 25% or further then (looking back) it was a bubble which then burst?

Without hard agreed figures one person's bubble and burst is another person's surge and correction. Which makes any debate pointless.

Moses2013

I think this explains it:



What is a bubble?

A housing bubble is a period of above-average levels of house price growth that is followed by a drop in prices, back to or lower than the point where the growth started

jmh

Bubbles made of soap always burst, asset bubbles sometimes do. Don't confuse the two.

Snap Shot

I really smirked when I read what you had written there. NZ not naïve ? Really ? You (and anyone else) will probably continue to grow as you live here. NZ is unlikely to grow (the fluck up) during that same time frame as it likes itself as it is and is really quite proud of that.

To put it bluntly, Paddy234, use your intelligence man.

LittleGreyCat

So...ummm....from the original price, 3 years of zero growth, followed by 3 years of 1% growth, followed by a drop back to the original price is a bubble and a burst?

To me that would be slow growth followed by a minor correction, and few people would feel that their life had been destroyed in those circumstances.

Traditional "bubbles" (like the South Sea Bubble) involved wild speculation driving prices far above any reasonable value, followed by a "burst" which left most investors penniless.

In housing, there generally needs to be a surge in prices then a drop in demand and ability to pay the mortgage (such as a major hike in interest rates or a major hike in unemployment).

The last bubble in house prices was because of the ridiculous rules around re-packaging sub-prime loans and the lack of financial responsibility by the people selling the loans. Basically you sold a loan to someone who obviously could not afford it, established a payment record for a couple of years at low introductory interest rates and then sold it on as a "good" loan. Shortly after which the mortgagee defaulted.

Loans up to 95% value are fine as long as the "affordability" checks are done properly. Hopefully the financial institutions have learned from the last crash. Negative equity is not a disaster as long as you are not forced to sell - because the prices will come back up again eventually. At least, that is the way it has worked so far in the UK.