In 1988, 1998 and 2008, NZ’s economy took a beating due to a crisis the year prior – some have termed it 'the curse of the eight'; as NZ makes its way through 2018, there is a sense of optimism the curse may have been broken

In 1988, 1998 and 2008, NZ’s economy took a beating due to a crisis the year prior – some have termed it 'the curse of the eight'; as NZ makes its way through 2018, there is a sense of optimism the curse may have been broken

Superstitious economists and market watchers may well be getting jittery.

It’s 2018 and the spectre of economic crashes of yesteryear are looming large.

You only need to cast your mind back a few decades to see why. When some of the biggest financial meltdowns have occurred, they have happened around this time of their respective decade.

On October 19, 1987 the Dow Jones fell 23% – it’s largest one day fall in history. It commonly became known as “Black Monday” although we in New Zealand know it as “Black Tuesday” because of the time difference.

The carnage continued into 1988.

The Asian Financial Crisis of 1997 left the markets reeling and saw many economies in Asia, and other parts of the world badly burned. The following year, the Russian financial crisis weighed down the global economy.

And finally, the 2007/08 Global Financial Crisis (GFC) devastated the global economy; leading to hundreds of billions of dollars of bailouts and the introduction of quantitative easing in the US.

New Zealand’s economy was badly damaged as a result of the GFC, with unemployment jumping from below 4% to 6.5% in the space of just a year.

In 1988, 1998 and 2008, New Zealand’s economy fell on very hard times – some economists call this the “curse of the eight,” others would simply call it the end of an economic cycle.

But looking at the state of both the Kiwi and the global economy, it is beginning to look like the curse of the eight will be broken/ the economic cycle may stretch on longer than it has in previous decades.

Prepare for the ‘normalisation of rates’

The global economy made it through 2017 relatively unscathed but, although no one is picking the economy to slump like it did in “the eights,” some potentially troubling signs have started to emerge.

In early February global markets took a dive after better than expected jobs data in the US led the market to the conclusion inflation was returning to the US economy.

More inflation, the market assumed, would lead to the US Federal Reserve hiking interest rates faster than had been expected.

This led to market panic and the Dow plummeted more than 3,200 points, or 12%, in just two weeks.

New Zealand equities took a hit as well, but it wasn’t long before both markets had more or less recovered.

But the problem for New Zealand is not our stock market, it’s our housing market.

This country’s love affair with owning property has left many homeowners highly leveraged when it comes to debt – that could spell bad news for many when interest rates begin to normalise.

In fact, last month Acting Reserve Bank Governor Grant Spencer was warning homeowners to brace for a shift in the economy.

“[Interest rate] normalisation will happen – it has to happen,” he said.

Globally, interest rates and inflation have been at record-low levels. But as the global economy improves, Spencer said both interest rates and inflation will pick up.

“The risk is, and what we’re nervous about, is if that happens quickly,” he said, adding that quick correction in the global market would hit the New Zealand housing market.

“If you’re borrowing, then you should be thinking about if you can afford that mortgage at a 2% interest rate higher than you’re paying upfront.”

This is no doubt a risk to the economy but growth projections from Treasury, the Reserve Bank and bank economists, although some are at odds, continue to see steady growth this year and beyond.

And the likelihood of an economic crisis? Fairly low.

Is the curse of the eights set to be broken? We have 10 more months to find out.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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11
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Surprised we haven't had a property downturn in the last few years.

A lot of debt out there. Not just in NZ, but the US, China etc.

It's a huge debt fuelled asset bubble in my opinion.

Is it really that much? My recollection (which may be faulty) is that NZ has about $250billion in mortgage borrowings against >$1trillion in property value, with about $80billion of that debt held overseas. ie it is mostly locally held debt to other NZers. Only about 25% of value is in mortgages, and only about 8% of value is owed overseas.

... that debt level over houses pretty much matches our nation's annual GDP ... so 100 % private debt to GDP ... which is sustainable at the current record low interest rates ... luckily we're not building a fraction of the houses we need to match market demand ... and the prices of sections , materials and consents are so outrageously high ... that even if interest rates rise , house prices are unlikely to fall much ...

.. the Rock Star economy !

Bear in mind the debt is real with the value is un-realised.

Accidental pun? ('bear' in mind)

Fantastic news out today, QV says house prices in 54 Auckland suburbs are in full retreat. Many will agree, these declines come as a flicker of light for FHB and are just the beginning. Eventually ALL suburbs will be caught up in this downdraught;

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1200...

Sad news out today, there are many slumlord leeches who spruik they are an essential service to society. Their service is being described as something out of medieval Britain.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1200...

It's a serious vulnerability when, at current prices, Auckland is still considered seriously unaffordable! If the 2018 curse proves to be true then what?

Read Page 8 and Page 9 of the QV Property Report out today. It's called revenge.

Can't find the report.

The printed QV Property Report is out with NZ Herald today. Go get it at the local diary. The one on Kohi Rd on top of Selwyn Ave should have it :-)

I'll look out for a free copy. I gather it isn't doom and gloom for 1050. 85 Baddeley goes to early auction tomorrow. It will be interesting to see what offer was so good they went to early auction. I wonder if the Americas Cup is bring in a few buyers rather than rent for all of those years?

Tut tut. It is time to look at the bigger picture. We are starting to see a paradigm shift away from investing in rentals especially in Auckland. Why? Because it is damaging essential services such as fire control. hospitals, and teaching etc as well as large sections of business. The forces being mobilised against our rental 'industry' are those I fully expect to win. Attacking slumlords is merely the thin edge of the wedge.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1200....

Are you referring to Jacinda? She is trying to rent out her investment property in Pt Chev. *Toot toot*

DGZ, either prove it by posting links, or stand accused of spreading lies.

It would probably be a good idea to keep the property. Rents are on the rise:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1200...

Oh snap!

Ex Expat, I honestly can't see this lasting for long as this is stretching the budgets of many. If overseas student numbers take a hit together with the labour market (imported labour) its quicksand territory for a lot of Landlords.

I understand that job openings is now past its peak. Weakening business sentiment and hiring intentions will flow on to the rental market quite quickly.

Exactly RP. It is situations such as this that will motivate ever more opposition to our obscene rental industry. Sadly it is ever more likely to become a crash rather than a controlled exodus.

R-P, let’s face it, you and I are not in the inner circle here. We’re not renting, landlords, potential buyers or sellers. Those people know what’s really going on with their budgets and whether it can last.

BTW: If readers are sick and tired of reading 1050 and 1071 commentary, it would be useful to see some balance to the commentary with examples of the suburbs on the way down. You could balance Zachary with some of that. It would be more meaningful than relying on QV reports.

Well said :)

Those figures look a bit odd to me. 30% increase in some eastern suburbs....really? That looks like an aberrant result. I look at the trademe figures a bit, rent increases in auckland in the last years have consistently been around 3-4% pa. In real terms says 2-3% pa. Material but not significant increases. During that time there were lots of pressures that should in theory have led to bigger increases and didn’t. Despite NZH and various property managers doing their best to talk up the rental market. So I struggle to see what is happening now that will have the effect of pushing up rents significantly. If immigration numbers fall, esp if the immigration scam known as foreign students is stamped out, rentals will be under pressure. Rentals are limited by incomes. I think the hope for significant rising rentals is wishful thinking.

Bobster, it might be that an increasing proportion of larger homes in eastern suburbs are now being rented out - skewing the figures. It could be that those who have shifted to the provinces have rented out these homes until the market meets their expectations.........

Yeah, it might be something like that, the mix of rentals has changed in that period. The figures otherwise don’t make sense to me. It seems a pretty obvious question to ask, although it’s well beyond the journalistic capacity of the NZH property section.

Might want to view your own links....

As to be expected, NZH put the most REINZ friendly spin on it. As they always do. They aren’t even trying to be subtle about it. Goodness they are a disgrace.

Personally I don't have a superstitious bone in my body.
A 2% increase in mortgage rate is a very arbitrary figure. Why not be bold, see what happens if it goes up by 4%. Thats arbitrary too.
With steady mortgage rate rises, I suspect that it would slowly dawn on them that they don't actually own the house after all. This shift in thinking would take a while to sink in. But it would sink in and they would move on hopefully in a positive frame if mind.

Anything is possible - some here may remember paying 21% mortgage rates in the late 1980s, & homeowners survived somehow.
A rise in wage rates might help homeowners deal with any mortgage rate rises.
NZers have been warned of rate rises for the last 9 years while rates have dropped or flattened, maybe ‘crying wolf’ too many times have inured the mortgagebelt to any threat.
Somethings gotta give - either house prices, interest rates, or wage rates, or maybe the global economy/conditions will just keep swamping NZ and we will just keep riding the global float.

Yes remember that time only too well. My father, long gone now, though never forgot RSL!

23
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Sorry folks but is it also time to break the curse of the property spruikers? I find far too much space in these threads is taken up by our resident property speculators whom add nothing new to our learning. Thus it is wise to ignore threads with any mention of auctions or indeed of residential property in general. I am curious as to how many readers actually follow such threads. Please uptick this post if you DO NOT follow them or would like them to go away.

I feel that there may be a fatal flaw in this sampling and voting method.

The mission is “helping you make financial decisions” so the test is whether a comment provides some insight on this.
Unfortunately for many Kiwis, their house is where 95% of their assets are. Also for mom & pop investors, their investment portfolio is weighted heavily on property.

Done :)

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I don't mind their posts as it helps me better understand the way the herd is thinking. i.e. the likes of TTP, Eco Bird, TM2, DGZ are caught up in group think but at the same time believe they are special bcause they are 'leaders' of the herd ('I am the alpha property investor..king of double grammar..or I am 'The Man' from Christchurch') . So I find it excellent to know what the leaders of the herd are thinking because I can assess their opinions and positions and make financial decsions based upon the quality of their views (get a sense of when the flock is getting edgy/unsettled) - whether they are right or wrong doesn't really matter - it just adds more information to the bigger picture. Having many views of every argument is important so I welcome their opinions....

Done :)

Eighteen nineteen idiots misguided individuals so far.

Although, I do agree, avoid the auction pages if your shtick is social justice; try to stay on topic.

"Eighteen idiots so far" Zachary. Sadly, your arrogance is so typical of too many property spruikers. A level of investment in rental housing is of some use to society but the current amount is already far past the point of being beneficial. Indeed it is now highly detrimental. Any system that creates arrogant winners but too many very angry losers will collapse.

Okay, I toned it down a bit.
I believe everyone can "win". Just follow TM2.

dp

Mortgage you are correct.
This site I believe is exactly as you say, helping people make financial decisions.
Dodge, seriously if you didn’t have the property bulls and investors the site would be dead.
The property negatives offer very little in regards to financial advice.
The odd one talks about shares etc. but you get no details as to what to buy and why ever.
What I can guarantee is that if people took advice from the successful property investors then they would be a far more financial situation.
The property topics always gets the most discussion because people are more interested in,property as an investment tool than equities and is far more exciting!

13
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And your financial advice on property investing has been exactly nada, nothing, zilch.

11
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The thing is: lots and lots of people are taking the advice of the successful property developers. Incl disciples of the Ron Hoy Fong school of morals. That's why prices have gone up so much. The more that do it the more crazy it gets and the higher the chance of a huge crash hurting all including the "successful property investors".

I have just seen a black cut,as I walked beneath the ladder.Should I drink the champagne or launch the boat. The "curse"of the 8.Oh dear.(I am the 8th comment)

Repent the end of the world is nigh...

... unless you're religious or Chinese ... in the Christian religion the number 8 is the symbol of resurrection and regeneration ... and the 8 is a very lucky number in Chinese folk lore too ...

Everyone else , buy oodles of insurance and a tin-foil hat !

With particular emphasis on the tin-foil hat. Only insure what will financially cripple you.

.... good advice ... I'll insure the wife ... she's the only thing that is currently financially crippling me ...

:-)

On the TV program "snapped", one of the top reasons for murder in the States is....life insurance....

Cowpat, is there a typo in your first sentence? You did meant "Black Cat" - right? ;-)

Thanks Retired ,I will edit ,thankfully a mistaken letter not a missing letter.

Bad Robot, you are a very Bad Robot!
I offer plenty of advice, whether you follow it is up to you.
I have always advised to buy positively geared real estate with upside and therefore undervalued.
You make you money when you buy and not waiting for it to go up!
There are many places in NZ that you can do this but you need to be prepared to get off your butts as it won’t just come to you.
All you need to do is ask advice from successful people.
Many people read books, I didn’t get a lot out of any of them really, as property investing is commonsense and some people are just good investors

So you've just admitted property investing is common-sense and that you haven't added anything particularly noteworthy to the property investment knowledge-base. You keep claiming you offer advice but I have yet to see any startling revelations.

Common sense = unexamined cognitive bias + following the herd.

Of course it is commonsense! !
Positively geared property not negatively geared property!
Buy at under market value can’t say how I do that!
There is never anything startling about correct investing when you know,what you are doing.
If you want to work hard all your life for wages and then retire with bugger all to show for,it, that is your choice.
If you want to retire early with minimal weekly effort and a great income and capital gain with no risk then property investment in Chch can’t be beaten.
Yes not many will agree with “The Man” but that is why I am financial and have a choice in life as to what I want to do and all the property bears will be off to work in the bad traffic in the morning!

So your real estate buying advice is as useful as "buy low, sell high" is to someone looking at being a sharetrader.

No, TM2 is saying buy "positively geared" rental properties, that is properties where rent exceeds the mortgage interest and expenses. Such properties can be found in Christchurch. Two useful bits of info. I would add, live in Christchurch also.
I would also add that one should consider the equity in the property as the true investment. If you owned 25% of the property and the bank 75% then the increasing value of the property is worked out relative to that equity. If the value of a 400k positively geared property went up 5% and your equity was 100k then your return would be 20% in theory.
This is not necessarily "obvious" advice as some people have no idea how much their properties are worth.

And again TM2 highlights that he/she, and those of similar position, are the problem, not the solution....and yet blind to the fact....

You should have read the books The Boy because I am sure they would have told you to diversify in terms of property and also the different asset classes. You didn't and now you are left in a very under performing Christchurch. Your advice is so vague and so predictable. I hope no one is following your advice in poor old Christchurch where prices and rents are going backwards.

Any downturn would be short lived as people are “smarter” now. Internet tells everyone what to do, when to do and where to do and what not to do...etc. The powerful smart phone now days tells you everything anywhere compares with 10 years ago.
It’s really scary because we might already in a recession? If you havn’t got internet or in a bad financial situation then now is recession for you.

Interest.co.nz is a prime example as it alerts people when to buy and not to buy properties.

In the event of a downtown I expect prices will flatten or at worst go back 10% in Auckland.

Sections in holiday locations will take the biggest hit just like they did in 2008 so could be some low priced sections in offer for land banking opportunities.

“[Interest rate] normalisation will happen – it has to happen" Does someone want to thank Mr. Spencer for his staggering depth of analysis and reasoning on this this topic? It's no wonder reserve bank forecasting is widely seen as accurate and dependable.

You know , if you really want a housing slowdwon , just get the RBNZ to remove the special dispensation they give to banks for Mortgage lending .

Right now , the banks get a low risk weighting for mortgages thus leading them to pile in .

If the RBNZ changed the weighting for mortgages we would see the costs go up and prices slide down .

keith rankin has some interesting stuff
He nailed the downturn in 2008 http://rankinfile.co.nz/rf98_GrowthCycles.html
His latest views https://eveningreport.nz/2017/12/20/keith-rankin-analysis-the-next-econo...