Has anyone witnessed firsthand a property price bubble? What does it look like?

[Davo36]

Oh I agree ChrisW, we're in a very precarious position.

But it's been this way for like 10 years now...

[fuzzlevalve]

And New Zealand is similar to Ireland in practically no way at all. That's why so many Irish move here. Our rents are 30% lower for a start

[Chris W]

And New Zealand is similar to Ireland in practically no way at all. That's why so many Irish move here. Our rents are 30% lower for a start

Fuzzlevalve, Can you tell me what other differences that you see that make the Ireland housing bubble situation in 2005 to be one that is irrelevant in a NZ context?

[fuzzlevalve]

Chris I think it's difficult, almost impossible to compare nations unless you can assess the similarities and differences in their govt policy, property and broader culture and their history. I think Australia is probably the closest cousin we have, Ireland has few similarities so comparisons are of very limited usefulness.

[fuzzlevalve]

A few thoughts Chris:

Irelands construction sector was 20% of Irelands GDP. NZ's is around 4 billion out of 200ish billion so only 2%
Ireland had over 13% of population employed in construction.
The ruling party was in bed with developers and passed numerous laws to benefit them directly.
Ireland was looking for a saviour having been in relative despair since independence.
Their regulators said "she'll be right" and made no attempt to manage their growth.

[Bob Kane]

Fuzzlevalve, Can you tell me what other differences that you see that make the Ireland housing bubble situation in 2005 to be one that is irrelevant in a NZ context?

I was under the impression that Ireland built too many houses - didn't that report say 80,000 in one year?
Something like 2-300,000 empty houses?
I would suggest that is a major difference.

[fuzzlevalve]

Their whole thing was quite different in that regard. Demand and supply both increased more or less equally. Plus the developer favourable laws for the hotel sector produced an oversupply that was breathtaking.
So yes they overbuilt like crazy.

[Bob Kane]

So there is one inevitable outcome to that.
The opposite is occurring in NZ.

[Wayne]

Their whole thing was quite different in that regard. Demand and supply both increased more or less equally. Plus the developer favourable laws for the hotel sector produced an oversupply that was breathtaking.
So yes they overbuilt like crazy.

Also Ireland had encouraged a lot of new jobs in the tech sector. This was one reason for the occupancy reducing and changing the demographics.
A lot of those jobs vanished, along with the people and the need for the houses they were occupying.
All in all a number of factors arrived at the same time to bring it all crashing down.

[Bob Kane]

Yeah - that's why the Ireland situation was unique to Ireland.
And the USA property crash was unique to the USA - nothing like Ireland.
And Japans 20 years of no growth is unique to Japan.
It's pretty hard to get a property crash, a country really has to do a lot of hard work to set up all the factors perfectly.

[Chris W]

Some personal experiences from NZ in the 2008 / 2009 GFC

https://www.propertytalk.com/forum/showthread.php?42730-What-s-happening-in-Waiheke-Island-in-Auckland&p=431264#post431264

[Perry]

Whether or not it has been "witnessed," I wonder how PT Forumites are placed to deal with adversity?

I suspect we have some who are debt free, so they will be the least concerned.

Would there be some sort of table ratio of worry, as that relates to (say) debt/equity figures?

100% equity - no debt : no concerns
90% equity - 10% debt : not worried

. . . . down to . . . .

20% equity - 80% debt : worried as hell
10% equity - 90% debt : shaking in my shoes.

Of course, the foregoing presumes tenants are still working and still paying the rent.

If not, then . . . .

[Chris W]

From the Propertytalk blog ...


Are We In A Housing Bubble?

This is by far one of the most important considerations that you should consider before you choose to buy property. First, what is a housing bubble? A housing bubble is when houses rise in value on the market, essentially for artificial reasons. You might hear that a certain percentage of the people on the market are speculators. These people on the market know there’s a massive risk and hoping that they can capitalize on it quickly. It’s a dangerous situation to be in and one that you should watch out for when buying property.


When the house prices rise for artificial reasons, the ultimate outcome is somewhat inevitable. Eventually, the market crashes because supply outreaches demand and house prices drop through the floor. So, you want to buy after the bubble bursts, not before. If you buy before the bubble bursts, you might spend a massive amount and never seen a return of investment.


So, are we in a housing bubble? This will, of course, depend on the area that you’re in. Housing bubbles can be localised and won’t always be dependant on the international or indeed national. As such, you will have to look at home prices in the area where you’re thinking about buying. If they have been steadily rising over time, this is a clear sign that yes, that area is experiencing a housing bubble. However, it’s very difficult to know when exactly the bubble is going to burst. That’s why you should look at stats showing just how many speculators there are on the market. If there are a lot, don’t buy right now. Wait a couple years and you’ll see home prices drop through the floor.

Source: https://www.propertytalk.com/blog/5-...yers-must-ask/

[Perry]

As such, you will have to look at home prices in the area where you’re thinking about buying. If they have been steadily rising over time, this is a clear sign that yes, that area is experiencing a housing bubble.

Without any precision about just what figures are involved in 'steadily rising,' then, as any sort of valid advice, the item is almost totally devoid of merit.

[Chris W]

From the propertytalk.com blog ...

Are We In A Housing Bubble?

This is by far one of the most important considerations that you should consider before you choose to buy property. First, what is a housing bubble? A housing bubble is when houses rise in value on the market, essentially for artificial reasons. You might hear that a certain percentage of the people on the market are speculators. These people on the market know there’s a massive risk and hoping that they can capitalize on it quickly. It’s a dangerous situation to be in and one that you should watch out for when buying property.

When the house prices rise for artificial reasons, the ultimate outcome is somewhat inevitable. Eventually, the market crashes because supply outreaches demand and house prices drop through the floor. So, you want to buy after the bubble bursts, not before. If you buy before the bubble bursts, you might spend a massive amount and never seen a return of investment.

So, are we in a housing bubble? This will, of course, depend on the area that you’re in. Housing bubbles can be localised and won’t always be dependant on the international or indeed national. As such, you will have to look at home prices in the area where you’re thinking about buying. If they have been steadily rising over time, this is a clear sign that yes, that area is experiencing a housing bubble. However, it’s very difficult to know when exactly the bubble is going to burst. That’s why you should look at stats showing just how many speculators there are on the market. If there are a lot, don’t buy right now. Wait a couple years and you’ll see home prices drop through the floor.

Source: https://www.propertytalk.com/blog/5-...yers-must-ask/

For your reference, some stories from 2016

1) Auckland's nine most-flipped houses


Speculators are trading Auckland homes like baseball cards on the back of rampant capital gain. Property reporter Lane Nichols investigates the city’s most on-sold properties and the huge profits being harvested.
They're mostly a tired bunch of very average homes in some of the city's poorest neighbourhoods.

But Auckland's nine most "flipped" properties were sold a total of 38 times since January last year with their collective value escalating by more than $1.7 million, homes.co.nz figures reveal.

The numbers are hard to fathom and it takes a forensic accountant to unwind the frenzied record of listings, purchases and sales.
Many of the transactions settled on the same day, meaning sellers cashed in on juicy profits without ever having owned the properties or taking possession.



Full story: http://www.nzherald.co.nz/business/n...ectid=11684069

2)

Speculation is where I see the greatest risk and that’s been a big factor in the Auckland market. The risk sits mostly around developers and land bankers and in areas where buyers have been speculating over capital growth as a result of the unitary plan and housing shortages. A lot of this has been fuelled by foreign capital and a game of pass the parcel. The rule of the game is simple – ignore fundamentals and find someone who is prepared to pay more than you paid. This game clearly ends badly. The greatest speculative risks are on the periphery of the city where land prices and build costs are simply too high

Source: https://i.squirrel.co.nz/auckland-market-correction/

3)
Full house for auction as 'panic buyers' look to snap up homes


It should have been an empty room with enough space to swing a cat. Instead it was stifling hot, and packed so full the line went out the door and down the stairs.
Welcome to the frantic world of real estate auctions in Wellington as the deadline looms for a clampdown on lending.
On Thursday a simple four-bedroom house in the Porirua suburb of Titahi Bay, without a garage, drew five times the usual number expected for an auction of such a property.
Harcourts auctioneer Wayne Sutton said the turnout for the sale of the bungalow was a sign of "panic buyers" desperate to use pre-approved loans before stricter minimum deposit requirements kick in.
Instead of the usual five or six registered bidders, the auction at Harcourts Paremata drew 26 of them.

Source: https://www.stuff.co.nz/business/mon...-snap-up-homes


4) Investors Buying 50% Of Houses In Auckland City

https://www.facebook.com/Newlandburling/photos/a.1414429085460258.1073741828.1413461352223698/1821440464759116/?type=3

https://www.facebook.com/Newlandburling/photos/a.1414429085460258.1073741828.1413461352223698/1759525434283953/?type=3&permPage=1

5)
Data reveal instant resales as sharp investors ‘flip’ properties for quick riches.

Auckland property speculators are on-selling homes on the same day of purchase for huge profits, sometimes without even setting foot inside.
Incredibly, one Auckland house was sold three times in a single day with its value surging by nearly $80,000 in less than 24 hours.

Other astute buyers have "flipped" their new purchases for instant profits worth tens of thousands of dollars, with one speculator pocketing $100,000 the same day they bought and sold a Papatoetoe house.


Source: http://www.nzherald.co.nz/property/n...ectid=11706163