Yesterday we received our rating revaluations (for those outside of New Zealand, every three years all properties are valued by local councils in order to levy rates for local body costs). Living as we do in a burgeoning wine producing area, our land value has tripled in 6 years. It was then timely to read this article that suggests that a housing bubble burst and flow on recession is looming in the US.

There seems to be a multiplicity of factors pointing in this direction – the value of the US dollar, oil prices, the credit crunch are all conspiring to bring things down. Unfortunately for the rest of the world – where the US goes economically, we all ten to follow.

In New Zealand it seems to be a disaster in the making – I remember a few years ago when it was totally viable to purchase a property for under $100k that would return $200/week (ie a 10% gross return). Now the same property might costs $250k and return possibly $250/week (a 5% return). With interest rates hovering around the 10% marks, clearly there must be some people out there hurting.

These same people quite possibly bought loss making properties with the belief that capital gain would see them right – a capital gain that looks increasingly unlikely to eventuate.

The flow on effects in the event that these Ma and Pa investors come unstuck would be massive – they’re a good part of domestic consumer spending and if their belts tighten… so to do all of ours.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • The key q here is not “are?”, but “when”, and how big? – I would say starting two months ago, and really massive! – 30-50% drops over the next 2 years.

  • I’ve been saying much the same thing for some time now and predicted the unraveling of the subprime housing market at kiwiblog, much to the consternation and outrage of the vulgar libertarians there, but now I believe that it is much too premature to predict, because of the peverse consequences of government intervention in the credit and asset markets via the US Federal Reserve banking system. Mark Faber makes a convincing case in his column at Money Week

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.