Will there be another property boom in the next 5 years?

[ambission]

Do you think we will ever (in the next 5-10 years) see the kind of capital growth that happened in the 2000's? Has the recession shut down everyones spending mindset? Do we need to wait another 20 years for a good boom? What are your thoughts?

[eri]

personally i don't think we will see house price inflation so much in advance of general inflation and wage inflation in the next 20 years

ie i don't think house prices will double unless wages, and everything else, also doubles

[speights boy]

Do you think we will ever (in the next 5-10 years) see the kind of capital growth that happened in the 2000's?

Hope not...

[Orkibi]

I rekon We WILL see a property Boom and duble digit Capital growth in the next 5-10 years, -- BUT it will not last Long like the last boom, Probbaly 2-3 Year MAX.

look at Aus...

[LKSteve]

Before we consider if there will be another property boom we need to consider the underlying cause of the last boom & if similar conditions could possibly exist again. After the dot-com bubble burst the Fed created the conditions for the next bubble, cheap money & the banks did the rest. The Fed kept interest rates low for over a decade & there was a rush into real-estate as people figured property only rises, the property mania spread around the globe. We all now know what happened in the US in 2007/8 and is still happening to this day. Rates are still almost zero & money is easy to get hold of again but people have become a bit more conservative. The high price of gold demonstrates that people currently lack trust in the banking system or real estate as a store of value. That's the case in America. In New Zealand, holders of real estate are toughing it out & have not lost faith in property as a store of value. That's why prices are still sky high. The same applies to Australia. The US has experienced the bust that follows all booms. NZ & Australia have still to experience a bust. Once this happens, the cycle will repeat itself as cheap & easy money looks like it's here for some time yet. As bad as things have been, there's worse to come in the US and at some point the market in NZ & Australia will also tank. Then will begin the long drawn out process of bust to boom all over again. People will lose their inhibitions around debt, sell their gold & pile back into real estate again. Humans have very short & selective memories. Once the RE market bottoms it will come back strongly again.

[Austrokiwi]

Around 1978-early 80s there was a huge appreciation in house values that was followed by a considerable period of low Price growth much in the manner that eri predicts. I think it is more likely there will be at least 10 years of flat prices. The risk is it may even be longer.... Baby boomers are retiring and will be a brake on economic growth as they loose their economic inpact.

[ambission]

I'm loving everybodys opinions on this matter. Especially the comment about people losing their inhibitions for debt after a period of time. Right now people seem pretty averse to much risk with the labour market so tight. The short to medium looks pretty flat.

I guess property seminar promoters will soon turn around peoples opinions with "examples" of easy money being made, and then Joe Public jumps back in mortgaging to the hilt.

So where to from here.....are FAST (Buy and hold) capital gains over for this "generation"?

Is it better to go back to the tried and true model of, renovate for a few years, sell, and repeat. Is that the model that should have been stuck too all along?

[Orkibi]

FAST (Buy and hold) capital gains over for this "generation"?

The Only way for Capital growth in today's market is to buy well and add value- IMHO

[LKSteve]

I guess property seminar promoters will soon turn around peoples opinions with "examples" of easy money being made, and then Joe Public jumps back in mortgaging to the hilt.

It depends what your idea of 'soon' is. There are already spruikers saying the US market has hit rock bottom & is set for a recovery. New Zealand appears to have entered a downward trajectory, although it has a long way to go before prices are affordable. The Australian market would appear to have peaked but may remain stalled for quite some time before declining as there is strong demand for it's resources & the economy is still chugging along here.

[drelly]

If things stay the same as they are now, I think there's no doubt at all that we'll see another boom starting relatively soon. I was in Westpac last week, where they are advertising how much money people can borrow and how much the repayments are. People can now borrow more money for lower repayments than I could in 1998 when buying my first home. Sure, prices are higher but there are a lot of cheaper properties on the market, well within the price range of a FHB working couple.

[cube]

It depends what your idea of 'soon' is. There are already spruikers saying the US market has hit rock bottom & is set for a recovery. New Zealand appears to have entered a downward trajectory, although it has a long way to go before prices are affordable. The Australian market would appear to have peaked but may remain stalled for quite some time before declining as there is strong demand for it's resources & the economy is still chugging along here.

Homes are at their most affordable in six years, according to the Roost Home Loan Affordability report as presented in the Herald, although it does exclude Auckland in that statement.

Given that 6 years ago is probably mid-boom, how much more affordable do you think they need to become to avert a true 'crash'?

[speights boy]

I was in Westpac last week, where they are advertising how much money people can borrow and how much the repayments are.

True.
But they haven't exactly been the smartest oyster in the sack when it came to their lending practices this decade.

I think a huge number of "this generation of borrowers" do realise how close the world economy came in 07 / 08.

There is evidence of debt being repaid, and saving increased; hence the banks seeing their profits falling.

In the timeframe of the question ( 5 - 10 years ), I believe memories won't fade.
20 years??? That's another question unfortunately.

SB

[LKSteve]

I was in Westpac last week, where they are advertising how much money people can borrow and how much the repayments are.

Citigroup (the bank that never sleeps) are similarly active in Australia. This is the same bank that received 40+ billion in cash bailouts from the US Government & guarantees on over 300 billion of shonky mortgages. Proof if needed that moral hazard has occurred in bailing this industry out.

[LKSteve]

Given that 6 years ago is probably mid-boom, how much more affordable do you think they need to become to avert a true 'crash'?

Cube: I had a look at the RE section on trade-me's website yesterday & I am still stunned by the high prices of houses in New Zealand. Even after the recent adjustments the NZ market must still be among the most expensive in the world when compared to local average incomes. I just can't fathom it, the country is certainly no economic powerhouse. Maybe the market is anticipating a flood of cashed-up people moving to NZ from the UK, China etc. The average wage of working New Zealanders can not justify these prices. It's still bubble territory.

[cube]

Cube: I had a look at the RE section on trade-me's website yesterday & I am still stunned by the high prices of houses in New Zealand. Even after the recent adjustments the NZ market must still be among the most expensive in the world when compared to local average incomes. I just can't fathom it, the country is certainly no economic powerhouse. Maybe the market is anticipating a flood of cashed-up people moving to NZ from the UK, China etc. The average wage of working New Zealanders can not justify these prices. It's still bubble territory.

Possibly because New Zealanders do not like equities - they have been burnt one time too many, and it now takes government incentives to get people to invest in managed funds on any scale.

The price of property is not limited by the wage of the average New Zealander, but by what the people with the money are prepared to pay. So long as rents remain affordable, prices will remain strong.

However, the government is forcing rents to increase by biasing the tax take against property, removing the right to claim depreciation and the right for company directors to invest company profits in the way that best suits the needs of the company and the shareholders.

When the reality of the tax changes bites next tax year, I would expect pressure on yields to increase. With a number of investment properties already heavily mortgaged, reducing property values won't help, because the mortgage is the mortgage, regardless of the property value. It would take a reasonable number of investors to sell up at a loss before reduced prices have a significant effect on overall yields.