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

[Chris W]

You've got to get over this obsession with discount percentage. What you have to know is what yield you require and go and buy that. That may be 20% over so called retail but if it performs that is irrelevant.

The most recent comparable transaction method is the main valuation method that most owner occupiers, buy and hold property investors, & valuers look at when purchasing real estate. It is also the reason that they get caught out at or near the peak in those rare and infrequent property price bubbles.

[fuzzlevalve]

Rare and infrequent? You mean every 7 to 10 years, as predictable as any other cycle........

[Chris W]

Rare and infrequent? You mean every 7 to 10 years, as predictable as any other cycle........

Not sure about your definition of rare and infrequent. To clarify, I was referring to a one in 50 -100 year event. For example, in the US, the time frame between the two property price crashes was about 77 years between 2007 and 1930.

Most people who are saying that there is no property price bubble in NZ have very likely never personally experienced a property price bubble. They are very likely to have only experienced a history of property price increases in the last 50 years or so. The question is - how can someone who doesn't know what a property price bubble looks like say that there is no property price bubble? Only those who know what a property bubble looks like can truly make a more informed conclusion if we are in property price bubble.

That was the purpose in asking if anyone had experienced firsthand a property bubble to share their experiences. Now some of you will be quick to say, who has been around 77 years to experience a property price bubble?

There have been property price bubbles internationally, such as Ireland in 2008, Spain in 2008, US in 2008, Asian Financial crisis in 1997 (affected countries such as Indonesia, South Korea, Thailand, Philippines, Singapore, Hong Kong etc), Japan in early 1990's etc - and there may be participants on this forum who have experienced it.

In the absence of personally experiencing a property price bubble, the other method of learning what a property price bubble looks like is through reading and studying financial history.

[Perry]

Don't you first need to prescribe the size of the bubble, before you prick it?

Likewise with the "property always goes up" cant.

It took a bit of finding, but my PPOR property value went down in 2000.

1998/1999 year - CV: $230k.
1999/2000 year - CV: $205k.

That did not change until the 2001/2002 year, when it went back to $230k.

[fuzzlevalve]

Sounds good Chris but not true at all necessarily. People who have gone through cancer don't know anywhere near as much as someone who has studied and researched cancer.

In the case of the USA you can follow the decisions that have caused the booms and busts of 1890, 1905, 1920, 1940, 1980's and 2000's

The misnomer is that they are some pariah called a bubble. They are cause and effect. We do not have their financial system nor their backstops of freddie and fannie etc. So they are not a very useful model to research.

[fuzzlevalve]

Don't you first need to prescribe the size of the bubble, before you prick it?

Well the first question is: Is this a bubble?

I think the term is rubbish, (in NZ). We aren't talking about the butter bubble or the toilet paper bubble........

[Chris W]

Don't you first need to prescribe the size of the bubble, before you prick it?

If you can see a person, do you need to know the weight of that person to determine if they're overweight and obese? Over time and through many observations, you have learnt to know what to look for.

When you know what to look for and see it at extremes, it can become pretty obvious to those who are trained and informed.

In asset price bubbles, there are not many frequent observations to learn how to spot them.

Another issue with asset price bubbles is that they can continue for many years before bursting. For example, there were market participants calling for the internet bubble in 1999, before it popped in 2001. In Ireland, there were warnings by some experts before the property price bubble burst in 2008, yet those were ignored by most. There have been warnings in NZ recently by those with well informed viewpoints, yet these have been ignored by most.

You never know what the exact catalyst will be the turning point for the change in sentiment and confidence - where investors go from being greedy to being fearful ...

In the Auckland residential property market, you have certainly seen a decline in confidence and sentiment by buyers over the last 18 months or so - that's how the residential property market in Auckland turned from a sellers market to a buyers market.

[Chris W]

Sounds good Chris but not true at all necessarily. People who have gone through cancer don't know anywhere near as much as someone who has studied and researched cancer.
.

You raise a good point that those who have studied and researched many cases of cancer are better positioned to know what to look for than those who are personally experiencing the cancer (possibly for the first time).

The patient currently going through or has already gone through cancer can provide us with some of their early symptoms / experiences and if there is another patient exhibiting similar symptoms then we can look further at the commonality of symptoms ...

1) what were some of the early symptoms that were seen in other property price bubbles, prior to large price falls?
2) are any of those symptoms to be seen in NZ ?

[WINZ]

Not sure about your definition of rare and infrequent. To clarify, I was referring to a one in 50 -100 year event. For example, in the US, the time frame between the two property price crashes was about 77 years between 2007 and 1930.

Most people who are saying that there is no property price bubble in NZ have very likely never personally experienced a property price bubble. They are very likely to have only experienced a history of property price increases in the last 50 years or so. The question is - how can someone who doesn't know what a property price bubble looks like say that there is no property price bubble? Only those who know what a property bubble looks like can truly make a more informed conclusion if we are in property price bubble.

That was the purpose in asking if anyone had experienced firsthand a property bubble to share their experiences. Now some of you will be quick to say, who has been around 77 years to experience a property price bubble?

There have been property price bubbles internationally, such as Ireland in 2008, Spain in 2008, US in 2008, Asian Financial crisis in 1997 (affected countries such as Indonesia, South Korea, Thailand, Philippines, Singapore, Hong Kong etc), Japan in early 1990's etc - and there may be participants on this forum who have experienced it.

In the absence of personally experiencing a property price bubble, the other method of learning what a property price bubble looks like is through reading and studying financial history.

You both raise a good point. There are cycles in cycles.

E.g. the typical business cycle lasts 7-10 years, and then there are wider debt (leveraging/deleveraging) and generational cycles.

This may sound rather pessimistic but I believe that we are currently at the beginning of the 'fourth turn' (Strauss–Howe generational theory) which means that the next decade will be a decade of crisis. For reference the last fourth turn was the 1930's, which saw a massive economic collapse and the greatest international conflict in global history, which collectively lead to a reshaping of the global economic order (with America coming out on top as the dominant superpower).

[eri]

^

https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory

At the heart of Strauss & Howe's ideas is a basic alternation between two different types of eras, Crises and Awakenings. Both of these are defining eras in which people observe that historic events are radically altering their social environment.^[48] Crises are periods marked by major secular upheaval, when society focuses on reorganizing the outer world of institutions and public behavior (they say the last American Crisis was the period spanning the Great Depression and World War II). Awakenings are periods marked by cultural or religious renewal, when society focuses on changing the inner world of values and private behavior (the last American Awakening was the "Consciousness Revolution" of the 1960s and 1970s).^[49]

[Perry]

I've oft-observed before that I am in awe at how the whole house-of-cards remains standing.

Yes, those who ignore the lessons of history are condemned to repeat them.

But I suspect that changing technology and the rate at which it changes could have a significantly modifying effect on a contemporary event (or series) to that which happened with or consequent upon the same event[s], xx number of years ago.

Keep your saddle well buckled and ride the cycles. For they have always been and probably will continue - even if their form changes markedly.

[BlueSky]

Perry, it could very well be that the technology and fancy reporting are masking what is actually a tsunami coming.

[Davo36]

Perry, it could very well be that the technology and fancy reporting are masking what is actually a tsunami coming.

What kind of tsunami?

[Chris W]

For reference, here is an article in the Independent newspaper in Ireland in June 2005, about 2 years before property prices fell substantially.

There is no property bubble to burst, despite doomsayers

Tom McEnaney
Monday Morning
June 27 2005 12:11 AM

Once again 'The Economist' is claiming that the Irish property market is a bubble ready to burst - and once again 'The Economist' is wrong.


It's in good company. Davy Stockbrokers seems to have published reports suggesting that Irish property prices must be due for a fall once a year for the past decade. One once a year for the past decade Ireland's largest stockbroking firm as been wrong.

Not only is Irish property bubble not about to burst, but there are very good reasons to believe that it doesn't exist. Yes, of course Irish property prices are rising faster than anybody predicted, but we are only looking at a bubble if that rise is not justified by the fundamentals.
In simple terms a bubble happens when people are buying on the wrongful assumption that prices will continue to increase.

There are very good reasons to believe that Irish house prices will continue to increase for some time before plateauing off. Good reasons which any analysis based on simple indicators, such as house prices relative to income, or to rent, are likely to miss.
The simplist of these is projected population growth. Last month, the Central Statistics Office published its 'Regional Population Projections 2006-2021'. It states: "Major increases are projected in all regions between 2002 and 2021 for those aged 25 to 64."

If we narrow this range further to relect the time of life when people tend to buy homes we see that the number of people aged 25-44 is expected to increase by 26pc to 1.4m between 2001 and 2021.
Much of the increase is expected to come from non-Irish people coming here to bolster our economy. With the economy expected to continue to thrive in the coming years we can expect that influx will continue.

It is unwise to look at population without looking at family sizes. In simple terms were family sizes to double over any period that would mean that the population had doubled, but this would not lead to a doubling in the demand for property.
In fact, the size of families is not only falling in Ireland but is falling faster here than in any other country in Europe. The average Irish family now has only three members. The average Irish family headed by one or more professionals is only 2.1.

So the projection is that we will have a fast-growing economy leading to a fast-growing population made up of smaller and smaller family units.

So much for demand. Now let us relate that to supply.

It is often stated that the percentage of home ownership in Ireland is higher than anywhere else in Europe.
While true this is a misleading statistic. Let me give you a more appropriate one.

Ireland, for its population, has the lowest availability of housing units of any country in Europe. This is a fact which was first highlighted by the ESRI way back in 1998, but which rarely makes its way into public debate on the housing market. It has been backed up many times since.
In 2002, the EU housing statistics showed that Ireland had 337 dwellings per 1,000 people in the population. Compare this with the UK, which had 417 dwellings for the same number of people, or Germany, which Spain, which had 462. And none of these can compare with Greece, which had 505 dwellings per 1,000, making it the most housed country in Europe.

To those who suggest that the Irish property market is a bubble just waiting for somebody to come along with a pin, we might reasonably ask the question: "Why does Ireland need fewer houses for equivalent numbers of people than anywhere else in Europe?"
Why does a country which has produced more jobs in the past eight years than it did in the previous 80 need fewer houses than Greece, or the UK, or any other European country you care to mention?
If interest rates were expected to rise you could understand, if not agree, with their position.

But in recent weeks the German economy minister's voice has been added to those who are calling on the European Central Bank to reduce rates. Interest rates may change, but if they do it is more likely to be downwards.
Now let us put all of the statistics to one side and look at the politics. Home owners vote.
Non-home owners are much less likely to turn up at the polls. The Government knows this and this is why it will never address Ireland housing problem.

Leaving aside land-swapping gimmicks which play well to a trade union audience, there are many things which the Government could, and should, do to solve Ireland's housing problem.

But if it were successful house prices would fall, and, although this would be great for those who are less inclined to vote, home owners would not be a happy lot.



Source: https://www.independent.ie/business/...-25982289.html

[Chris W]

Comment from a post bubble article of what went wrong in Ireland in the property market -

Demographics was the mantra of the boosters of the property industry and it gave sustenance to the political elite who through hubris and short-term self-interest, promoted the fantasy that the free lunch had been invented.

Source: http://www.finfacts.ie/irishfinancen..._1015142.shtml