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Topic # 188960 11-Dec-2015 12:31
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With low interest rates and near zero household affordability have people gone crazy?

Buy a run down place on 800m2 in Auckland for $2.4m (yes, you read that right).
Do it up, add a pool etc.

List it for $4.7m?!  

Has the world really gone that mad??

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gzt

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  Reply # 1448694 11-Dec-2015 12:40
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If there is a buyer then it is not madness. Just economics at work.

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  Reply # 1448695 11-Dec-2015 12:40
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So long as people keep believing that's it's going to keep going up, it will.
As for the shortage driving demand and predictions that'll keep things going for the next xx years, I'm certain that's wrong.  Most people would rather sleep in a cardboard box on the side of the road than "invest" in a property which isn't going to rise in value - or (shudder) fall (likely sooner or later). We'll probably see soon enough whether it's an asset bubble or not.  As the US increases interest rates, NZ will have no choice but to follow, and possibly faster and harder than many people seem to expect.

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  Reply # 1448704 11-Dec-2015 12:48
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Supply and demand.
Also the banks own 80% of Auckland.
Wonder what will happen in xx years time when it goes south again.
The rich will get richer and poor get poorer. 
Mortgagees are always good for growing your empire.




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gzt

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  Reply # 1448705 11-Dec-2015 12:48
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Fred99: Most people would rather sleep in a cardboard box on the side of the road than "invest" in a property which isn't going to rise in value - or (shudder) fall (likely sooner or later).

Lol. The quality of many apartments built during the boom means that many people are effectively sleeping in a cardboard box on the side of the road. Most of that is investment property. Rental investment. Ie; Investment for rental return.

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  Reply # 1448709 11-Dec-2015 13:06
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After the 87 crash I remember my father and a friend driving around Remuera, Epson etc. looking at all the for sale/mortgagee auctions. Houses once worth a whooping $100K were selling for less than half that. If you were cashed up - but most weren't - then that was a prime time to purchase property. Many doubt we'll see a massive fall in prices, but anything can happen.

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  Reply # 1448716 11-Dec-2015 13:23
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wsnz: After the 87 crash I remember my father and a friend driving around Remuera, Epson etc. looking at all the for sale/mortgagee auctions. Houses once worth a whooping $100K were selling for less than half that. If you were cashed up - but most weren't - then that was a prime time to purchase property. Many doubt we'll see a massive fall in prices, but anything can happen.


Crashes happen in cycles too. From what I can see, alot of what is happening in Auckland is greed, and people thinking they are going to miss out . When it is basically a supply problem, and too many new people coming into NZ and Auckland. There also appear to be many of quality developments / houses built over recent years. When the correction occurs, think the leaky building crisis and the financial crisis but far worse. I think of it as like playing hot potato. At someones going to be caught out holding it, and it will burn. People who live in Auckland aren't benefiting either because they have to sell and move to a cheaper part of NZ, if they want to benefit. Otherwise they have to buy and sell in the same market, where they have to pay the same sort of ludicrous amount for a shack. In most cases it is the land that is worth the money, the house itself can be almost worthless

Also banks will never lose

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  Reply # 1448748 11-Dec-2015 14:08
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mattwnz: Also banks will never lose


If its bad enough they can loose,
But under recourse debt they only get burnt after individuals are made penniless...
(Unlike the US where you can walk away from many home loans, and the bank wears the loss (although your credit rating gets pretty much ruined)

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  Reply # 1448873 11-Dec-2015 20:03
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It was only a couple of years ago when I was working at Westpac that some customers still had 10% loans coming off their fixed term.
I think the scariest thing is that amount that people borrow compared to incomes. Which is fine with low interest rates, both working etc.
But if they start to move up again. But who knows. 

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  Reply # 1449037 12-Dec-2015 08:38
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The last thing the government or the banks want is a situation where people are forced to sell houses they can no longer afford the borrowing on which are worth substantially less than the outstanding loan.

 

 

Of course this happens, but it is in no one's interest (sorry!) to get to that point and those in charge will try to make sure it is avoided where possible.

 

 

We'd be better off if we could find a way to emulate the USA, Canada, UK etc where people can fix for 10 years, 20 years, 30 years.

 

 






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  Reply # 1449046 12-Dec-2015 09:09
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Fred99: So long as people keep believing that's it's going to keep going up, it will.
As for the shortage driving demand and predictions that'll keep things going for the next xx years, I'm certain that's wrong.  Most people would rather sleep in a cardboard box on the side of the road than "invest" in a property which isn't going to rise in value - or (shudder) fall (likely sooner or later). We'll probably see soon enough whether it's an asset bubble or not.  As the US increases interest rates, NZ will have no choice but to follow, and possibly faster and harder than many people seem to expect.


The auckland market cannot crash like other markets. It is different to normal other markets which have boom and bust. 

Auckland only ever has booms and cannot bust, simply because of chinese demand.   

Given there are 1 billion chinese of which a large minority want to live here which will provide a solid base for auckland property for a hundred years or more (chinese operate with long term vision). 

So, if you want to ever buy a house in auckland, today will be cheaper than tomorrow. 



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  Reply # 1449047 12-Dec-2015 09:11
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Whats a crash? House prices in AKL drop by 30%? Thats probably more a correction but no doubt the media will headline it as a CRASH. Given the market there, I doubt that it will suddenly correct quickly. Demand may ease, prices stop rising or ease. Interest rates won't suddenly race upwards. As demand decreases, interest rates start edging up, people can re assess. Yes that will cause less demand, more supply. Owners can re finance to longer terms while they consider moving away. Take in a border or homestay. Assuming negative changes don't occur overnight, its a natural thing. The Govt could step in and update statutes or regulation to allow easier long or longer term financing to lessen mortgagee sales. 

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  Reply # 1449048 12-Dec-2015 09:19
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ockel: With low interest rates and near zero household affordability have people gone crazy?

Buy a run down place on 800m2 in Auckland for $2.4m (yes, you read that right).
Do it up, add a pool etc.

List it for $4.7m?!  

Has the world really gone that mad??


What is mad are the number of people who don't walk away from Auckland and refuse to be sucked into the abyss of an unaffordable mortgage. The government also needs to do more to pull businesses out of Auckland into Wellington and Christchurch. That being said, the refusal by New Zealanders to accept that the future of Auckland is dense housing plus a limit of 10 stories make the extreme costs unavoidable - if you want a big city then you have to adapt like all other big cities have an give up the quarter acre dream in favour of an apartment with shared public spaces.




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  Reply # 1449050 12-Dec-2015 09:22
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gzt: If there is a buyer then it is not madness. Just economics at work.


Economics isn't called the dismal science for no reason, it's "Nobel prize" isn't even a real one, they all just pretend it is. The invisible hand will quite happily bitch-slap you, unless you are too big to fail and get bailed out.

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  Reply # 1449056 12-Dec-2015 09:42
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kawaii:
ockel: With low interest rates and near zero household affordability have people gone crazy?

Buy a run down place on 800m2 in Auckland for $2.4m (yes, you read that right).
Do it up, add a pool etc.

List it for $4.7m?!  

Has the world really gone that mad??


What is mad are the number of people who don't walk away from Auckland and refuse to be sucked into the abyss of an unaffordable mortgage. The government also needs to do more to pull businesses out of Auckland into Wellington and Christchurch. That being said, the refusal by New Zealanders to accept that the future of Auckland is dense housing plus a limit of 10 stories make the extreme costs unavoidable - if you want a big city then you have to adapt like all other big cities have an give up the quarter acre dream in favour of an apartment with shared public spaces.


But thats artificially managing humans. Let them manage themselves. Many are moving out of AKL, prices are rising in those commuting areas. Those who stay, see the house prices, the city, as desirable or preferable. They are making a free choice. I'm sure some businesses have or will move. The non customer facing such as manufacturing facilities, where their main market isn't AKL, or the cost of transporting goods to AKL is well covered by lower operating costs. Sales offices will off course stay in AKL. People are voluntarily staying there or buying there. The big winners are long term residents who will sell up and retire elsewhere. 

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  Reply # 1449148 12-Dec-2015 12:12
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my house has gone up in value by 100% in 4 and a half years we have owned it. it can crash by a heap and we would still be ahead of where we were when we brought it.

the only way i can see it crashing is if there is suddenly a huge amount of houses added to the housing stocks (not likely for a long long time), or if people decided auckland isnt the place to live/immigrate to, but thats not going to be instant. Ditto with interest rates, thats going to take a little while before things are likey to go downhill.

Even if people do end up having to do mortgagee sales, property investors are going to be the ones to benefit from it as they will be the ones with money to spend.

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