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

[Beano]

Sounds about right.

Yeah I looked at it in 2002-3 with Bayleys
Thought the upstairs would be hard to lease due to the noise of the machinery and stink from the printing ink
Brought elsewhere instead ...they all had great net yields of 9.5pc plus in those days (only brought $4m in that year should have brought $40m :-( )

[Chris W]

I think you've failed to mention the important bit.
As I understand it, the developers went crazy and built and sold huge numbers of houses which flooded the market.
Finance was readily available to everyone.
When finance was turned off, everything turned to custard because of the over supply.
The outcome was predictable.
The Irish problem was the over supply of houses.
Does that sound like Auckland or NZ?

Bob,

Thank you for sharing your story from 1987 about Hobson St. Very interesting.

With respect to the current situation in the Auckland residential property market, just so I understand you correctly and we are on the same page

1) regarding the housing "shortage" in Auckland - what is the number of new houses / residential dwellings that needs to be built to meet demand?
2) can you tell me how is that number calculated?

[flyernzl]

Was it 222 Hobson st ?

Sounds about right.

[Davo36]

Was it 222 Hobson st ?

I was thinking that! Had a listing on that building at one point when I was an agent.

[Wayne]

Ahh, yes. 1987. I remember with astonished delight, the Rates going down with the drop in RV.

Just as rates don't go up because of RV change why would they go down (assuming that your change is the average for the city)?

[Perry]

Ahh, yes. 1987. I remember with astonished delight, the Rates going down with the drop in RV.

[Beano]

Yes I can agree with that.
A friend of mine at the time and his wife owned a sizeable commercial printing business in Hobson Street, Auckland.
When the landlord put the building on the market they seized that chance and bought it.

A few years later - 1987 approx - the value dropped and the bank who held the mortgage made a repayment call.

They had to to sell their house to pay off that demand, and ended up living in the basement of the commercial building in order to survive.

So it can happen.

These are approx numbers but it is an actual situation
1: builder builds building 12 story high 1987
2: cost overrun completed at approx $16m
3: builder goes broke
4: purchaser cannot complete purchase
5: banker takes over building for Mortgage value approx $12m
6: banker (national bank {black horse}) tries to sell for $10m
7: we tender $2.8m {break even} bank sells for $3.3m {1991}
8: years later it resells for $3.8m {1993}
9: investor fills the building
10:{1999} later resells $6.3m
11: today the CV is $12.4m
So possible value today is less than 1987

[Beano]

Yes I can agree with that.
A friend of mine at the time and his wife owned a sizeable commercial printing business in Hobson Street, Auckland.
When the landlord put the building on the market they seized that chance and bought it.

A few years later - 1987 approx - the value dropped and the bank who held the mortgage made a repayment call.

They had to to sell their house to pay off that demand, and ended up living in the basement of the commercial building in order to survive.

So it can happen.

Was it 222 Hobson st ?

[flyernzl]

Yes I can agree with that.
A friend of mine at the time and his wife owned a sizeable commercial printing business in Hobson Street, Auckland.
When the landlord put the building on the market they seized that chance and bought it.

A few years later - 1987 approx - the value dropped and the bank who held the mortgage made a repayment call.

They had to to sell their house to pay off that demand, and ended up living in the basement of the commercial building in order to survive.

So it can happen.

[Beano]

1970-75 was a major dip!

Re your comment
I am not certain which city you are referring to but In the city (Wgton) I lived in 1970 to 75 was a major increase ..over 100pc increase
(residential) biggest increase I have ever seen in my lifetime

Back to topic
1987 to 1991 saw many large drops (commercial ) 75% decreases
2006 to 2008 some of my commercial properties dropped 50pc in value
These are based on actual properties that I owned or placed offers on.

[Bob Kane]

Using the logic above to an actual historical situation ...

In 2006,
1) Ireland had a rising population.

2) Property developers went bankrupt, so property developers stopped building new houses.

3) There were very few new houses completed (there were lots of partially built houses).

I think you've failed to mention the important bit.
As I understand it, the developers went crazy and built and sold huge numbers of houses which flooded the market.
Finance was readily available to everyone.
When finance was turned off, everything turned to custard because of the over supply.
The outcome was predictable.
The Irish problem was the over supply of houses.
Does that sound like Auckland or NZ?

[Davo36]

Chris - you talk of prices and provide lots of well thought out opinions. In these examples you cite, where do all these newly unemployed or ex home owners live? What is the impact on rental market?

In the event of losing a job or having a home foreclosed on these people need to live somewhere so I imaging the rental market in these example remains buoyant - there might be an issue with ability to pay rent but the demand for rental can only go up in these situations.

They leave for Aussie mate.

Remember before National got in last time Key was promising to reverse the 30,000 people p.a. we were losing overseas? That could easily happen again.

It certainly happened in Ireland, people simply bailed.

From Wikipedia: https://en.wikipedia.org/wiki/Post-2...nomic_downturn

Emigration[edit]

The Central Statistics Office estimated that 34,500 people left the country from April 2009 – 2010, the largest net emigration since 1989. However, only 27,700 of these are Irish nationals, an increase of 12,400 since 2006. It's also notable that more people went somewhere other than the UK, EU or US, traditional destinations for Irish emigrants.^[33]

[Chris W]

When I was considering a move that had the potential to impact my income I preempted this by reducing my costs where I could. The highest cost to me was the rent I was paying in a affluent suburb in Melbourne that was close to my office. I traded this high cost rental for a bit of a drive that reduced my costs by more than 50%.

If people think rationally they more to a lower cost accommodation - maybe some move in with friends and sleep in their cars as you point out but the majority won't have that option - I would think the majority would lower their expectation of the home they live in resulting in increased demand for rentals in the lower end of the market.

When people have lower incomes or little or no income, they adapt accordingly. The options are many and varied depending on their personal circumstances.

- some families will move to lower cost suburbs (to either rent or buy) -
- some families will move in with family (think adult children who move back with their parents)
- some families will move in with friends,
- some couples may choose to flat share instead of have a house
- some single adult children will move back with their parents
- some people may choose to live in camping grounds
- some individuals become homeless

- some will move to a new city where job prospects are better - recall families from Christchurch moving out of Christchurch to other cities in NZ after the Christchurch earthquake.

- many many other options.

[Don't believe the Hype]

They live with family and friends - or cars and tents.

When I was considering a move that had the potential to impact my income I preempted this by reducing my costs where I could. The highest cost to me was the rent I was paying in a affluent suburb in Melbourne that was close to my office. I traded this high cost rental for a bit of a drive that reduced my costs by more than 50%.

If people think rationally they more to a lower cost accommodation - maybe some move in with friends and sleep in their cars as you point out but the majority won't have that option - I would think the majority would lower their expectation of the home they live in resulting in increased demand for rentals in the lower end of the market.

[Wayne]

Chris - you talk of prices and provide lots of well thought out opinions. In these examples you cite, where do all these newly unemployed or ex home owners live?

They live with family and friends - or cars and tents.