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

[Chris W]

And the investor's purchase price for that apartment / those apartments was?

Undisclosed. This part of their comment might give you an idea though.

"equity is not there anymore."

[Perry]

I have apartments in Sydney. One has dropped $ 150,000 in 3 months. (from $ 550,000 to under $400,000 today)

And the investor's purchase price for that apartment / those apartments was?

[Chris W]

FYI, here is a comment from a property investor with properties owned in Australia. The investor lives in NZ.

"I have appartments in Sydney. One has dropped $ 150,000 in 3 months.( from $ 550,000 to under $ 400,000 today) 2 in the block are for sale, equity is not there anymore. Bank has called for more money or re-mortgage.Owners are devastated, and have no home anymore, they will be renting before the end of the month. Their propertys have to be sold , at possibly no reserve."

[eri]

yup

with councils dead-set on driving up the cost of new builds

it's very, very hard

in a housing shortage

to see why solid older housing

won't keep an 80%? pace

with forever climbing; leaky, shonky, shaky new build costs

the labour /green faithful must be so frustrated they can't just

nationalise housing

and give it to their supporters

isn't that

what being in POWER

is all about!

[Perry]

Think house prices are going to drop? Sell yours, then
12 Feb 2019

[McDuck]

There is a Biily T sketch in which he discusses the (1998 ?) sharemarket crash.

Where did the money go?
How come is just suddenly disappeared?
Who put it in and who gets it now?
Quite funny in a weird way, if you can track it down.

Haha. A smart man. A smart man indeed.
I just tried to find it on the internet, but is buried deep within hours of viewing. looks like he did at lest seven years worth of shows.


It's quite a good question though.
Don't you think?


If you look at how early shares were sold to the average punter, it was just that.
The cartoons showed a factory needing money to buy more machinery, or build another factory next door.
You were giving dollars and getting a little piece of paper to show you owned part of that new factory.


Similar to houses, it looked like you owned part of a real physical object, and it seemed reasonable that you could re sell that object for what you paid.
I mean, a brick wall is real, a stamping machine is real, and the land it sits upon is real.
How could it suddenly vanish into thin air?


Where's the magic trick?
Where has the magician hidden that rabbit? in his coat? under the table? What's going on?

[flyernzl]

There is a Biily T sketch in which he discusses the (1998 ?) sharemarket crash.

Where did the money go?
How come is just suddenly disappeared?
Who put it in and who gets it now?
Quite funny in a weird way, if you can track it down.

[McDuck]

I was just testing the water pipe analogy in several economic situations.
It seems very effective.
but, it's just a model, not the real thing, a fact to be remembered.

Then the " bubble" analogy came to mind.
A bubble, a quickly expanding thing that soon "pops" and leaves no trace.
A very effective visual, - to demonstrate an idea.

Maybe it's the gradual expansion and almost instant contraction, both entertaining, and frightening.

But does property and land behave like that?
Not really, it stays, it's used.

Then what do they mean by property bubble?
Certainly not the real value of property rapidly diminishing.
A roof over your head is good no matter what.
Only something like a road or railway (or even water supply) suddenly being removed or diverted could reduce the real value of a dwelling.

What they mean is something much more abstract.
They mean the money flow.
They mean that it works in conjunction with the financial conventions and tools of our current economic model.


seems too had to explain to the average punter.

maybe talk of bubbles and pictures of balloons will be the best way.

[McDuck]

@Chris W

... If there is a housing shortage, why are there so many properties still listed for sale? If there is a housing shortage, why are the clearance rates at auctions so low relative to previous levels?...

Maybe if you expand it to" a shortage of affordable housing"?

@Chris W

… many people make house purchasing decisions based on what mortgage payments they can afford, not the price...

So true.

Now, where does the money come from..
from a global perspective I mean.

..and where does it spend it's time, and who benefits from the quantity of it and the uses it's put to.

I like to imagine it like water flowing trough pipes.

[Nick G]

That was Chris's comment that I pasted.

[Davo36]

Nick, I think, as Perry said, people just can't afford them. The banks aren't lending like they were and the foreign buyers (with cash) have gone.

[chook]

There are lots of cheap older apartments in GC...

What type and price are these "cheap" apartments? I notice anything with a water view is still very expensive.

[Perry]

Why, Indeed?

There is a housing shortage in Auckland and yet there are over 11,000 properties in Auckland currently listed for sale on trademe.co.nz. If there is a housing shortage, why are there so many properties still listed for sale? If there is a housing shortage, why are the clearance rates at auctions so low relative to previous levels? If there is a housing shortage, why is it taking longer to sell a house? (as indicated by days to sell). If there is a housing shortage in Auckland, why are vendors cutting their asking prices in order to attract buyers?

All too often, on all sides, glibness prevails. (Present company excepted, of course)

Perhaps it would be better if each pronouncement was qualified?

There is a shortage of houses in Auckland which:

* buyers can afford the mortgage payments on;
* are suitably located for buyers;
* banks will finance;
* have enough bedrooms;
* are in xxx school zone:
* on and on.

As I see it, the underlying dilemma of our times is affordability. The reasons for that being manifold.

[Nick G]

@Chris W

Coming back to this after moving house and getting my lad into a new school. I've pasted your reply from Jan 27 here and will add some comments below.....

Before I start, my business has always had a strong cashflow tilt to the deals we look for and the clients who work with us. In Auckland that means cashflow neutral now or if not, a deal that has some twist to it and will get there very soon or has some other investment angle. Basically we don't steer our clients into the kinds of exposed situations or speculative buying practices that you are talking about. Anyway, I'll do my best to give an intelligent response since I object to the idea that everyone in the industry is on the "pay more pay more rah rah train", there are plenty of very sensible operators out there who take great care of their clients.

I'm a solo dad until April with a busy schedule so if I don't respond again soon please understand.

---------

Yes, the key question is which markets in New Zealand are currently at or near a peak situation (if any)?

>> I don't know. Queenstown seems like one, however compare it with places like Tahoe in the USA and it's cheap. There is more money sloshing around California than little ole NZ tho. QT has come off the boil since the OIA came into force but that doesn't mean the market was too expensive, plenty of people were clearly willing to buy there, it means that an artificial mechanism to reduce buyer demand has worked. Or has it? It could just be the same credit tightening.

>> However holiday areas have traditionally been more volatile than stable working towns and cities.

Some property owners who are property professionals may know. I'm not sure if most property owners who are outside property professionals know the answer to that. My sister in law who works in a bank certainly doesn't know if the price of her house is in a property price bubble. A survey indicated that most property investors are part time property investors, who own 1-3 properties, they have full time jobs and may not have time to keep a close eye on their property market.

There are property owners who believe that property prices in Auckland will continue to double every 10 years based the extrapolation on a 50 year price history.

There are property owners who believe that continued population growth and immigration growth will lead to continuing property price increases.

There are those with vested interests in property (real estate agents, property mentors, property investors, economists, etc) all continuing to put their positive spin on property prices continuing to go upward in the mainstream media. Property owners should hear independent and different viewpoints so they can assess the merits of each and form their own opinions and viewpoints. Unlike property promoters with vested interests, those with a different viewpoint have very little to gain and mostly no financial gain from sharing their different viewpoints publicly, so they are infrequent and very often drowned out in the mainstream media by the property promoters. It is only after property prices have fallen that the mainstream media seeks out these people - but that is of little use to the leveraged house owner who has lost their home as the bank has put them under financial pressure.

There are news reports of housing shortages in Auckland and many expect property prices to continue to increase in the next 3-5 years. According to the Auckland Council there is a shortage of 46,000 residential dwellings - ""Auckland's shortfall is around 46,000 dwellings" - https://www.interest.co.nz/property/...-shortage-will

Look at the housing shortage in Auckland, yet property prices have languished over the last 2 years or so. There is a housing shortage in Auckland and yet there are over 11,000 properties in Auckland currently listed for sale on trademe.co.nz. If there is a housing shortage, why are there so many properties still listed for sale? If there is a housing shortage, why are the clearance rates at auctions so low relative to previous levels? If there is a housing shortage, why is it taking longer to sell a house? (as indicated by days to sell). If there is a housing shortage in Auckland, why are vendors cutting their asking prices in order to attract buyers? If there is a housing shortage, then why were the properties at the St James development project in Queen St and Flo apartment project in Avondale not sold out? - these projects were subsequently cancelled.

As a professional property finder, you are uniquely positioned to know if any markets are in a peak market situation and vulnerable to price falls - many of us would be very interested in your perspective.

>> I think property prices, particularly in the leafy suburbs that people stretch to get into, are exposed to interest rates, credit availability, the job market, immigration, wage levels and economic confidence. Also I guess all the LL changes, however I think buying majorly negatively geared properties as rentals is crazy risky, would never advocate it, and don't know how many are in this position. I've heard that up to half of landlords are negatively geared, but that might be by $10 pw on a small rental down the street since most LL's own one property....

>> We are coming to the end of a 10 year+ credit bubble or cycle or whatever and that is slowly being wound back. A big change has not been LVRs it has been banks moving to servicing-based credit assessments. So lending is harder and the lenders are chasing bankable customers. I think this is reflected in news that prices have flattened in some areas. However, we are at full employment and new rules are coming in to push up minimum wages, which should bring inflation.

>> The big risk I see is that in a window through the boom until around last year, a lot of folks were able to buy property that wouldn't get now (because of servicing). They are exposed to interest rate rises, being put onto P&I loans, job risks etc. I don't know how many people that is. Many who bought into expensive areas sold a property and bought again in the same market. Really it would take a bank to open their loan book to get a proper idea.

>> This is important because many people make house purchasing decisions based on what mortgage payments they can afford, not the price. Interest costs are tied to that. So how many bought homes because they can afford $500 pw or $750pw but couldn't afford $10 more? That's the real question.

The purpose of this thread is to learn lessons from past property bubbles from those that experienced it firsthand - "those that fail to learn from history are doomed to repeat it"

[McDuck]

Haha.
Dominos.
That's the game they usually talk about with that sort of thing.

In science we use the chain idea.
A chain reaction.

People of course, are not simple mechanisms.
And there is a lot of vested interest in keeping the system running in a particular way.

China is the main thing.

It's just so huge and directed, and slowing.