So long as New Zealands major urban centres housing remains bubbled out to the "severely unaffordable" catagory - where house prices exceeed in excess of 5 times household earnings - housing debt loads will increase.

In 2007 - the average new mortgage in Texas was about $US140,000 - in California it had bubbled out to $US403,000 - before it all fell down - precipitating the global financial crisis.

I note Australian Financial Group reported in the Qld Courier Mail Dec 2 2009 "Queensland low bucks the Australian home loan trend" - that the average new mortgage in Austrralia now is $A367,000 - Qld $325,000 - NSW $A433,000 - WA $391,000 - NT $A386,000.

It is pleasing to read Cameron Bagrie of the ANZ National expressing concern about these trends in todays The Press. It appears unfortunately that the report authors Scobie and Henderson of Treasury, do not adequately appreciate these serious structural problems.

Hugh Pavletich

And following on from Treasury's affort we will get some blather from English, released at 4am today in the Herald of course....next in line will be some humbug from the RBNZ and then we can expect a dollop of crap from one of the ratings liars. All part of the plan Alen. Never tell the client the chute didn't open. What they don't know ....splat.

"This paper draws on both aggregate and household level data to assess the extent and composition of household debt;....."

I wonder just how accurate using these stats in the real world is?

"with one in five spending more than 30% of their gross income on debt repayments."

My commonsense says that each of these statements are in serious conflict with each other, and puts "at risk" far higher.

That "30%" ratio come up again.....Old school commonsense has 1/3 as the basis for min security all the way thru all financial dealings, from bank deposits to lending ratios to owning 1/3 of ones assets.

Because its so hard to get business loans, how many of those housing loans that are underwater against the house actually have other business assets that support the loan?

Don't Treasury have anything better to do with their time?

Less than 1 % of population at risk of high debt servicing obligations.
I thought NZers have serious issues with debt level, but that seems to be another myth !?

got this from expats link--am i wrong here or did 48105 kiwi,s take out new mortgage,s in november---http://www.rbnz.govt.nz/statistics/monfin/rbssr/rbssrparte/data.html

Looks like 92000 are due for a reset inside the next 23 months!. These will be two very INTERESTing years I think. Alan flexing his ocr tool to see what sort of impact it can have and those who fear the floating face the core funding fixed rate rises.

Guys, all this needs is for the "stone" of overpriced urban land to actually start rolling. The more defaulters, the more mortgagee sales, the more the prices fall, the more the speculators bail out of the market, the more home owners move into reverse equity territory. Repeat until economy stuffed.

Look at the unemployment figures and the lack of economic growth. If we think we've made enough changes to policy settings that this is all now behind us, pity help us. We might have had a chance to avert this catastrophe in the making, given overseas experience. But nah. We're different, we're invulnerable.

.. and for these and others Crude is rude again = 81.72

NZ is nothing more than a spot of fly shit in the global arena . A south pacific bannana republic with delusions of importance. Reality 90% of the real world would not even miss our less than 1% contribution to the global economy if we sank into the pacific ocean tomorrow.

I agree somewhat with Bullish. Property can only fall so far. Take replacement cost. $200k for a section and $250k for a modest house. Replacement cost of an average new house therefore $450k. How can existing houses fall far when that is what it costs to build one? If you think $200k is a lot for a section try paying all the subdivision costs. NZ does not have a housing oversupply - except at a beach near you.

When we bought out first home in the early 80's we paid 20% interest rates and it took all of one wage to meet the payments (thanks Roger Douglas). However, as the house purchase price was $50k, it looks cheap now. All generations find it hard to break in but it can be done.

Note that our third biggest export is now oil. With more discoveries to come don't underestimate NZ's future. All we need now is some sun to match the Aussie weather as well as the economy.

Skeeter - maybe we could light up some oil to create a bit of artifical heat.. Not sure it would help our damaged international eco friendly rap though..

Cost to build a house is certainly the market floor.. Unless your in the US.

Expat, Miles - "Household Net Financial Wealth as a %age of disposable income in 2008 was 15%, in the 80's it was over 100%"

Am I missing something here?, or does the article above say "net wealth grew from 319% of disposable income in 1982 to 430% by 2002 and 604% by 2007" ????

15% of disposable income would give a very low household net worth. According to Spicers the average net worth in the last quarter was almost $372,000.
At 15% your disposable income would have to be $2.5 milliion !! I'd like to live with that family !! ............

Using the 604% figure from the above article, household disposable income would be around $62,000 - sounds more realistic.....

In most parts of NZ you can buy an entry level property for around $250,000. Contrary to some peoples expectations- family homes in central Auckland etc have never been affordable to the starting out property owner so there is no point in saying houses are now unaffordable because your average kiwi cannot buy in Epsom!

The sort of property we started out with 20 years ago would now cost around $250,000. To service a 30 year mortage at 7.5% would cost around $400 per week. Most ordinary couples would have no difficulty affording those repayments. Many could afford to pay a lot more.

I can't see the reserve bank hiking interest rates any time soon either. Bollard talked down the property market while doing everything he could to support it. He will not be the one to bring down the property market.

The only thing that would kill the market would be people leaving NZ and not enough immigration to replace them. Again that is not going to happen- the government will just keep relaxing the entry requirements and let in more and more rich asians in. NZ is a desirable paradise to many people from dirty, overpopulated parts of the world and there is no shortage of people wanting to come here.

very very concerning figures. What a lot of people forget is that the longer the bubble stays, the more households will enter stress, and these will soon start to outweigh those who got in pre bubble. Aggregate mortgage debt is like a pyramid, small at the top for those who have nearly paid it off, larger (increasingly) at the bottom for new home buyers. the issue now is that those at the bottom have far higher debt than those above took on when they started. If the bubble only runs for a few years then an economy perhaps can absorb it WHY - 90% of homeowners get the benefit of rising asset prices, 10% who bought recently finance it. If its been running for 10 years, then 50% might be wearing the cost and the aggregate effect on consumption and current account deficit is enormous. this is what is most concerning. as long as the bubble stays inflated and even if ppty only stagnates, aggregate debt will continue to skyrocket. A reversion back to pre bubble levels will see a stabilisation of the debt only. we really are screwed - its appalling to know that the govt/rbs best policy to avoid recession is to pile on more debt.

bullish - I agree with everything you said apart from "I can't see the reserve bank hiking interest rates any time soon either" - they WILL lift them over the next couple of years, but it won't be to any alarming level........

Miles - thanks for the clarification. A lot of people have had their nest egg wiped out in equities, finance companies etc, so for many the decision to hold the majority of your wealth in property is a logical one.

Higher residential property prices means more money in the pockets of builders and suppliers of materials for new buildings, perhaps also more money in the pockets for contractors involved in renovations and maintenance for existing buildings. If these builders and contractors then choose their investments wisely, this would that be good for the economy.

Also perhaps consider this, some property investors also have other non-property investments to balance their portfolio "“ I expect if they did not have property, the value of their non-property investments is likely to be considerably less.

We should be just a little wary of those unintended consequences if the property market was to be "killed off". Reducing property investment is fine by me, but we have to make sure there is a suitable alternative in place before this is done.

Wally... thanks

"Much better to have lower res prices don't you think!"¦the extra in the pockets being spent even on reno jobs."

Sam.... thanks
But I didn't really get it (I'm dim).

You seem to be implying that richer builders helped the economy. In many ways I think that builders are the best placed to buy and renovate "investment" property. This is their business. I doubt that this is outrageously inflationary to the economy provided that the property is sold on and taxes paid.

It redistributes wealth and may help with job creation, spreading what we have around (good thing).

But unless you sell these properties to overseas buyers, I still cannot otherwise see how it "helps the NZ economy".

Is this a mainstay of our economy?
If so, is it this funny old 'flick-it-on' game that we so enjoy.

- Robbing Peter to pay Paul - or some such other cliche.

- Like living in a goldfish bowl, without changing the water (coo I like that!).

I too think all people (builders too) would be richer by paying less on the mortgage for a reasonably valued home.

We may even persuade the kids that its worth being here.

So here's the list again:

Reasons to opt for property:

1) "A lot of people have had their nest egg wiped out in equities, finance companies etc, so for many the decision to hold the majority of your wealth in property is a logical one."

Again though "What good are high residential property prices to the NZ economy".

Hey KW John : I'll play . ................ . No good ! High residential property prices are indicative of too much munny flowing into non-productive assets . And you answer the question as to why this has occurred , with your first statement .

And that leads back to Bernard Hickey's assertion that we have a fiscally unbalanced economy . But we kinda knew that , already .

.............When do I collect the bag of gummy bears ? ........There was a prize for playing , wasn't there..........?

I find it interesting that financial commentators in the press often bag property investment. The reality is though that it has performed over several lifetimes. So what if it has dropped say 5% in the last year, most owners will still be ahead. In comparison I have a kiwisaver account that has the funds invested in a mixture of shares and cash both here and overseas. The funds are invested by full time professionals (presumably), yet after 2 years the returns are still in the negative! I am down 2 or 3 %. Don't tell me there is money to be made by investing in the greater economy! If the funds were under the matress they would have done better. I bet those who invested in finance companies also wish they had their money still under the matress.

The other reality is that property investment gets all the tax breaks - $2 billion/year which the government has woken up to. What other investment vehicle has the gearing and the tax breaks?

Making the sacrifice for the first property is worth it if you consider your lifetime. When I bought my first home it was also cheaper to rent. But of course if you rent you always pay current market rates, whereas your mortgage drops in relative terms and one day you will own it and have to pay no more. Try paying rent at market rates in your retirement.

No problems KW John : And if it bothers you that there is " So many clever people " around here , hang around with me . That'll improve the look of your I.Q. 1000 % !

Jimmybob at 8.58AM on the 6th. Well said. Others need to take note.

Real Estate agents, if they honestly admit it to you, say that first home buyers pretty much dropped out of the market as median multipliers passed 5.5 to 6.

Jimmybob, if you haven't read Robert Bruegmann's "The Housing Bubble and the Boomer Generation", you would find it extremely interesting. He calls what has happened with house prices, "The biggest intergenerational wealth transfer in history".

http://www.newgeography.com/content/00452-the-housing-bubble-and-boomer-...

The underlying cause of all this, is urban limits being unnecessarily restrictive, so that property developers have to take part in a bidding war for the available land, and /or finance ownership of it for years before they actually do the development. This is why council planners can say they release "enough" land to satisfy growth, yet prices are far too expensive.

$250K for a section is racketeering, given historical norms and the cost of farmland just over the urban limit. In the USA, there are still thousands of jurisdictions with loose enough urban limits, that the price of sections relates directly to that of farmland, plus development costs, plus a fair profit. The comparison with the prices in urban limit regimes like NZ and California, is around ten to twenty times. Enough has been written on this by Hugh Pavletich, Arthur Grimes, Don Brash and numerous overseas authors.

Ian Abley of "AudaCity" in the UK, is actually attempting to get an "illegal settlement" movement underway in protest against all this, having lost patience for political-legal reforms that will not happen because of incumbency. I must admit a good deal of sympathy for this approach. Imagine a well publicised movement presenting the prospect of thousands of young people getting $5,000 sections outside the urban limits, which cost could go up by $10,000 or $20,000 if services were provided. The $200,000 plus involved in the status quo, is almost ENTIRELY a "planning tax" or rather, the result of a "cap and trade scheme" in urban land.

http://www.newgeography.com/content/001261-there-no-free-market-housing-...