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Is The "Property Bubble" About To Burst?

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Contributor:
Brian Dalley
Brian Dalley

Some are predicting it is only a matter of time and that time is growing near when we will be rattled by an unprecedented property melt down.

A scary thought for many I should imagine. But where do these scare mongers gather such evidence.

First, I should point to the fact that these people tend to generalise by throwing everything into the same mix; a two million dollar house [in] with a first home in Invercargill for example. Not being derogatory to Invercargill, but you get my point.

My argument is this, for properties in the lower price bracket to fall below current values, the cost to build, land, or a combination of both, would need to fall by around 50%.

Sure, in some regions where communities are facing hardship due to industry layoffs and closure there will be the exception and there always will be, as supply and demand is an ever changing factor in any commodity.

However I think anyone would be hard pressed to identify any region expected to take a hit of that magnitude.

Yes it did happen in other countries and there is good reason for it happening there but it is unlikely to here. One should remember we are not comparing apples with apples.

So I think it is safe to predict that house values in the lower level (in this country) will at worse remain static, with the upside being capital gain. Capital gain being a very real possibility.

As for the bulk of the market, medium to mid priced homes it is going to be a mixed bag and there is very little that can be done about it apart from a massive price reduction and that is simply not going to happen.

The reason I am so sure about this is people will strive to protect what they have. Why would someone sell at a loss unless they have no choice? Yes there will be some that will have no alternative but to do so, hence mortgagee sales still being at high levels.

But I should point out that the mortgagee sales have little to do with the current market and are an after shock of the financial meltdown that unearthed dodgy lending practices which no longer exist.

So yes, there may be price reductions in the medium to mid price brackets in some regions but not across the board.

For example, if you live in an area where there is very little if any building activity, there is less likely to be a shift in property values as opposed to an area were there is a reasonable level of building activity. The reason being new homes will generally attract more interest than a tired dated home. So to remain competive people with the older homes may be forced to reduce their expectations to attract a buyer.

Will the increase in GST, the increase in interest rates, the increase in this, the increase in that, have an impact on the real estate market? Of course it will, just as it will on all industry, hence the reason the economy is slowing down.

So what will happen to the property bubble? Nothing as there isn’t one.

Commentators tend to sensationalise. How else would they stand out and sell their wares?

I think the real estate market will remain much as it is for the next six to 12 months.

As boring and un-newsworthy as that may sound, I think that is good news for the real estate market when one looks further afield, for example the States and the UK. Plus remember, if you are buying and selling in the current market you are likely to come out trumps in the long term.

Brian Dalley is a former NZMBA Mortgage Broker, Property Investor, and Real Estate Agent with over 15 years experience in the industry. You can read more of his and other professional’s views and opinions on his website www.propertyprofit.co.nz.

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