NZ's economy in a bubble?

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newbellies

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#152454 27-Sep-2014 08:36

I found this forbes article to be an interesting read about NZ's economy.

I've just pasted some bullet points below, but follow the link for charts and more info. What do you guys think?

>>

12 Reasons Why New Zealand's Economic Bubble Will End In Disaster

1) Interest rates have been at all-time lows for almost a half-decade

2) Property prices have doubled since 2004

3) New Zealand has the world’s third most overvalued property market

4) New Zealand’s mortgage bubble grew by 165% since 2002

5) Nearly half of mortgages have floating interest rates

6) Mortgages account for 60% of banks’ loan portfolios

7) Finance, not agriculture, is New Zealand’s largest industry

8) New Zealand’s banks are exposed to Australia’s bubble

9) Australian and Chinese buyers are inflating the property bubble

10) New Zealand has a household debt problem

11) Government overseas debt has nearly tripled since 2008

12) The New Zealand dollar is overvalued

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#1138602 27-Sep-2014 08:54

This is an article from April this year....

Here is a local response to the article
http://www.interest.co.nz/opinion/69557/bernard-hickey-gives-6-reasons-why-jesse-columbos-warning-forbes-about-new-zealands-ho

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#1138611 27-Sep-2014 09:27

There are not many economies that cannot be tipped over by the right set of circumstances.

Killerkiwi2005

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#1138618 27-Sep-2014 09:42

When are we not in ethier a bubble or ression?

I don't know when this mythical stable econemy is meant to be but it seems to be more boom bust to me

At this point just accept it

1973 New Zealand's export market was reduced when the United Kingdom joined the European Community
1973 oil and 1979 energy crisis
1982 New Zealand had the lowest per-capita income of all the developed nations
1987 share market crash
1997 – 2000 dot com bubble
2007 - Great Recession
2011 - Christchurch Earthquake

Lets not pretend this is new and if you did manage to fix an issue there would be an unrelated problem causing a boom/bust its part of the system

newbellies

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#1138640 27-Sep-2014 10:35

Thanks for posting Bernard Hickey's response. Really interesting.

He's obviously a very smart man. However, this quote gave me the chills.

>>
In short, New Zealand's housing market is too big to fail, and New Zealand's shock absorbers and buffers would quickly kick in to soften the blow of a fall in house prices.
>>

Too big to fail. Hmm .....

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#1138668 27-Sep-2014 11:20

newbellies: Thanks for posting Bernard Hickey's response. Really interesting.

He's obviously a very smart man. However, this quote gave me the chills.

>>
In short, New Zealand's housing market is too big to fail, and New Zealand's shock absorbers and buffers would quickly kick in to soften the blow of a fall in house prices.
>>

Too big to fail. Hmm .....

He's correct - it is.

Why? Because so many people have mortgages and if the house prices crash, they will owe more than their houses are worth.

This would have a very serious impact and I would imagine that the RBNZ and the government would work very hard to avoid that.

Dratsab

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#1138689 27-Sep-2014 11:50

"Too big to fail" is a fallacy. Nothing is too big to fail.

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newbellies

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#1138714 27-Sep-2014 12:28

Geektastic:
newbellies: Thanks for posting Bernard Hickey's response. Really interesting.

Too big to fail. Hmm .....

He's correct - it is.

Why? Because so many people have mortgages and if the house prices crash, they will owe more than their houses are worth.

This would have a very serious impact and I would imagine that the RBNZ and the government would work very hard to avoid that.

Just sounds like famous last words. Right up there with, "Hey guys, watch this!"

matisyahu

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#1138729 27-Sep-2014 13:03

newbellies: I found this forbes article to be an interesting read about NZ's economy.

I've just pasted some bullet points below, but follow the link for charts and more info. What do you guys think?

>>
12 Reasons Why New Zealand's Economic Bubble Will End In Disaster
1) Interest rates have been at all-time lows for almost a half-decade

2) Property prices have doubled since 2004

3) New Zealand has the world’s third most overvalued property market

4) New Zealand’s mortgage bubble grew by 165% since 2002

5) Nearly half of mortgages have floating interest rates

6) Mortgages account for 60% of banks’ loan portfolios

7) Finance, not agriculture, is New Zealand’s largest industry

8) New Zealand’s banks are exposed to Australia’s bubble

9) Australian and Chinese buyers are inflating the property bubble

10) New Zealand has a household debt problem

11) Government overseas debt has nearly tripled since 2008

12) The New Zealand dollar is overvalued

Another US cheerleading journalist trying to spell doom and gloom to make the US economy appear to be rosier than it really is. Public debt is under control, the value of the dollar is directly linked to our interest rates which attracts the carry trade from Japan, Europe and United States (which have historically low interest rates), private property prices and how much invested is a problem but then again why did he just suddenly says something now? this has always been an issue in the NZ economy and as for floating interest rates - we don't have the massive government intervention in the mortgage market like they have int he US where people have 20, 30 or 50 year fixed mortgages nor the laundry list of tax breaks which encourage the sorts of reckless building into housing that exists in the US. It seems once again we have another outside looking from the US out to the world whilst ignoring that their own country is in a far worse position - that his critiques would be better spent on a country that deserves them, namely his own.

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#1138740 27-Sep-2014 14:00

Dratsab: "Too big to fail" is a fallacy. Nothing is too big to fail.

It's hardly a fallacy.

It may not literally be true (and it isn't) but it is certainly possible that some organisations and so on would cause so much damage economically if they did so that governments would do their utmost to try and prevent them failing.

Imagine, for example, the UK National Health Service. It has over 500,000 employees. Imagine the consequences of half a million redundancies.....

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#1138744 27-Sep-2014 14:10

We are always in a bubble. Like it or not. So is everyone else.

gzt

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#1138746 27-Sep-2014 14:15

Too Big To Fail is an economic theory which says that some financial institutions are so interconnected that allowing them to fail would have catastrophic consequences for a financial system as a whole - therefore if they do fail then bail them out no matter what the cost.

http://en.wikipedia.org/wiki/Too_big_to_fail

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newbellies

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#1138787 27-Sep-2014 16:24

He does specifically say "New Zealand's housing market is too big to fail". Maybe he's implying that the only way that a housing market would "fail" is if the banks did. It gives me the heebie jeebies to hear real-estate agents here exuberantly claim that housing prices will always go up.

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#1138797 27-Sep-2014 16:44

Geektastic:
Dratsab: "Too big to fail" is a fallacy. Nothing is too big to fail.

It's hardly a fallacy.

It may not literally be true (and it isn't) but it is certainly possible that some organisations and so on would cause so much damage economically if they did so that governments would do their utmost to try and prevent them failing.

Imagine, for example, the UK National Health Service. It has over 500,000 employees. Imagine the consequences of half a million redundancies.....

Imagining what would happen if something did fail and it being "too big to fail" are existentially separate. Just because the outlook would be horrific doesn't mean it can't happen. Obviously there would be an all out struggle to prevent a failure happening, but that in itself is something separate again from the fallacy. And no, I won't bother imagining the UK health service - I know nothing about it and therefore couldn't care less about it.

Edit: The term should really be "too big to be allowed to fail"

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#1138803 27-Sep-2014 16:53

newbellies: He does specifically say "New Zealand's housing market is too big to fail". Maybe he's implying that the only way that a housing market would "fail" is if the banks did. It gives me the heebie jeebies to hear real-estate agents here exuberantly claim that housing prices will always go up.

I'm sure that Charles Ponzi would have agreed with the real-estate agents.

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#1138808 27-Sep-2014 17:22

Nz (and you really mean akl, chch, as the rest of the country is stagnant or declined) housing market is driven by immigration.

More buyers, same number of houses, price goes up. Banks or govt cannot control prices! Indirectly with policy etc but if you have some millionaires from places where a million buys you a shoebox apartment, akl is dirt cheap. What policy you put in place ain't stopping those buyers.

If suddenly they ALL don't want the houses and desperate to sell the price with crash. But that is unlikely at the moment. Everybody it seems, want to live here.

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