I think reason 3 could be negated if we educate struggling NZ home buyers that they are better off going into bankruptcy and starting again than pulling out all stops to pay off a mortgage that they should not have taken on in the first place. This pushes the cost back onto the bank and improves NZ's current account deficit where the bank is foreign owned - I am quite happy with that scenario. Perhaps the government should start a campaign to this effect.

4) we have much more wealth tied up in property than the US (97% according to Bernard's figures) , so the downturn will have a greater effect.

Kate, I agree. Better to cut your losses now than be in hoc to the bank for the next 30 years for an asset that is losing you money.

And bankruptcy does not hold the moral stigma of days gone by. If a struggling family was to pursue this option, I think many people would think it a just outcome given the unbridled greed of the banking industry in recent years. I might even manage a little cheer from the sidelines.

Yes I do actually Mitch. The more people who take this option the less demeaning i reckon, especially if the public comes round to who the real culprits are. As I said, we can help here through general public education.

I'm with you on this one James. I'll be filing this article away for 2 years and setting a diary reminder for September 2010 to see how accurate it was. This type of article was being written in the US 2 years ago.

Missing the point i think.
Our economy is in the thralls of it's privately created comounding interest debt based system, that is what governs and shapes the economy; for a long time successive governments, at best, try and continually patch over the gaping cracks this makes but as often as not, they just ignore it entirely.
Anyway, we are a housing bubble economy, property industry not long ago reported as fastest growing industry while home ownership at record lows....
The expertise of all successive governments has been to integrate us further and further into the global financial debt superstructure, for example our "pioneering free trade deal with China". New Zealand has little sovereign ability left in self-determination, it's been continously sold off for pennies on the dollar as the saying goes.
The global financial derviatives/hedge funds markets are designed as dominos. FLittering with the interest rates won't make a difference to the situation, it's a interconnected system; creating a little xtra circumstancial room in one part of the system will only increase the backlash as the rest of it adjusts and catches up.
The difference is population and geography, absolutely little to nothing as to the lever pullers having much idea about what they have been doing; although in the prolonged global meltdown if enough sheep to the slaughter line up for John Key( n its by no means done deal), then he n National will do a good job in giving global financiers the best possibly deal on New Zealand society as this time around the lever pullers will have a pretty good idea to do with what they are about.

James - you think the "greedy banks" are the culprits?
How about the "greedy" sellers? Or the "greedy" investors who pushed up demand.

I was looking to buy 2 yrs ago and walked away as I was not willing to pay what was being asked. People thought I was nuts not to "get into the market" given I could do so. I say I was smart and I did my homework. This situation (prices falling, etc) was so inevitable, maybe the people who took out these mortgages they could not manage should face the consequences - they were the ones who were bidding prices up.

Louise

Add the "Greedy buyers" willing to get into the market, James anyone who is seriously suffering mortgage stress now did it to themselves, But in NZ personal responsibility has been systematically removed from the curriculum, there is always some one to blame.

Comparing NZ to the US has it problems as well, The US has been in recession (decline?) for years, and have manipulated their economic data to fool everyone, we have got the tail of their inflation fueling loose credit policy and will suffer the withdrawal as well, the BIG thing to come out of this is the complete and utter demolition of US infallibility, I think Cameron Bagrie has it wrong (the called the US Dollar the tallest pygmie), the US Dollar is soon to be in major freefall and risk adverse capital will flee, it has to go somewhere and NZ is considered a 'nice south seas' island.

In addition whereas the US 'Privatized the gains, socialized the losses' We cringing wimpy middle class NZers have allowed Cullen to 'socialize the gains, privatize the risk', so other than "greedy" (and/or vulnerable/dimwitted) individuals who have gambled away their childrens inheritances we are in better shape.

Having said that Cullens poison pill is the overhead spending he has committed us to, the HUGE growth in inefficient social welfare/bureaucratic spending will cause the next government (albeit Labour or National) pain, forget borrowing for taxcuts, they'll be borrowing for handouts

Neven

This is a pretty fancy website. Such things dont come cheap. I am with ANZ bank and i am delighted that this well financed site continues to support the big banks. ANZ share price was up 8% Monday. I look at the share price everyday. New Zealand banks are the greatest banks in the world and i am pleased to support them. All of the main banks have made massive profits for years and years. There should be some kind of buffer there for the future regardless of whatever decisions there poorly paid CEO's have taken. I have my eyes wide open. Wider and wider. In recent weeks they have been out on stalks but so far Bernards efforts are working on me. One thing i like to consider is that after ww2 when the rest of the world was more or less a basket case the ability of New Zealand to feed armies as the rest of the world destroyed itself meant that per capita New Zealand ended up the 7th richest country in the world by about 1957. You can argue that we are actually a South pacific Switzerland at times like this. Where else would you want to be for WW3?

So no worries! :-)

Louise - taking personal responsibility is indeed an admirable trait .. but the world's corporate elites (governments and their masters, the banks and financiers) do not share that worldview. Of course, they want the general population to ascribe to these views as that keeps the population in debt to them.

Just look at John Key and his TranzRail shares - was he taking any personal responsibility by declaring a conflict of interest - no. He was using his position to improve his lot in life - when it looked like that 'bet' he'd taken wasn't going to pan out - he sold out.

Kate

If you're Dr Cullen and you invest a billion on rail your a patriot, if your J Key and you 'bet' a 100K of your own money you are a 'rich prick'? What JK did by querying the Govt on it policy was probably in the best interest of all Tranzrail shareholders.

This is right out of the J Stalin handbook, a hundred people dying is a tragedy, many thousands are a statistic.

We will get a lot more of this 'base envy' politicking before this election (using the green eyed monster).

Also I point, on the TV1 interview with JK re the shares, how many cameras did they have on that shoot? How was it edited?

Neven

James - I brought 2 properties in my first 2 years out of Uni in 2002 and 2003. I realised 80K on the first and 130K on the second. We now have a mortgage of $120K on the 3rd.

My balance sheet looks like this:

House (Cost July 08) $510K

Cash $50K

Mortgage $120K

My wife can now have kids and not go back to work and we won't have to sell our house for years to come as it has everything we need - including a 1 bedroom income which pays the mortgage. Personally we are much better off having brought a property then had we rented, but then we were never in a position where we couldn't face up to our responsabilities if things had turned to custard.

Surely someone as learned as you would have had the nous to profit in a booming housing market?

Jezza

Exactly when/how did JK lie? You have been told he lied but did he?

Neven

JK said he only had 50,000 shares when he had 100,000. Personally I don't care whether he lied or not, but that is what the issue is.

Jezza,

You lose money relative to your financial position today. Interesting to see that NZers lost 5% of net wealth over last year. This is the first time this has happenned in a long while and I would expect to see this continue for 3-5 years given that 97% is tied up in houses. And good luck finding a cash flow positive property today.

On the topic of mortgage stresses, if people if NZ believe there is not a debt problem in NZ then it seems there is a debt problem in Australia, and the UK and other major economies. Historically these moves away from long term trends always resolve themselves by painful corrections. NZ seems to have had a multi year boom fueled by debt which interestingly Mr Dixon described as an experiment by the RBNZ. In theory therefore in part the wages of people paying the debt are related to the money in the economy coming from debt. No point in arguing about this. Reality will arrive and we will know one way or another. Some realities we know about already are:

1. that many debt fuelled developments and finance companies are already in ruin with *savers* taking losses.

2. For the last 20 or more years banks have found it easier to raise funds because saving nations have been attracted to AAA rated bonds produced by wealthy countries and that some of these bonds are now severely compromised and the model whereby they were produced is not coming back again for decades. Arguably it was a wall street scam. And yet strangely Wall street and pension funds and individuals have also bought these toxic products. To argue NZ is immune from such an historic abberation of risk management is a bit pointless.

3. Related to 2 wholesale funding costs for NZ debt that is sourced from overseas is rising. Mr Dixon tells us that up to 25% of NZ debt is funded from overseas. That is a massive amount if it rises in price - NZ will be stressed.

This is a world problem. All countries are going to be stressed by this because so many countries have unusually high personal debt levels relative to historic norms at a time when a cheap source of credit has been suddenly removed from our apparent reality.

10% on the purchase price Jezza, how about after the cost of the new dwelling was added in??