Which way will the property market go now?

[fungus pudding]

Japan's problem of high debt to GDP is due to inflation in the 70s and 80s. They Yen got too strong due to high productivity that it rendered their country uncompetitive. 20 years later and they still struggle with getting their debt down to be comparable around the world.



Not a strong believer in this statement. You need to look at inflation figures for which IMO, inflation in NZ has been way to high for the past 30 or 40 years (notably caused by excessive high housing prices). The Keynesian move to adjust interest rates won't apply anymore with record low central bank interest rates. Look for the unemployment indicators from this COVID crisis ; if we were to hit 30% unemployment, watch out! the NZ gov't can not borrow indefinitely to keep the banks holding long. Pretty much ALL banks in NZ (except Kiwi Bank) are foreign owned and they hold the mortgages. When mortgagee sales start flooding, it doesn't matter what level interest rates are.

Using round figures, $500,000 at 8% costs the same as $1,000,000 at 4%. Second hand house prices will always settle around the median weekly affordable figure. Therefore doubling the interest rate will over-time, halve house prices. Halving rates will double prices.*
*Principle repayments will mean this is not strictly accurate - but it's a good rule of thumb.

[SBQ]

Using round figures, $500,000 at 8% costs the same as $1,000,000 at 4%. Second hand house prices will always settle around the median weekly affordable figure. Therefore doubling the interest rate will over-time, halve house prices. Halving rates will double prices.*
*Principle repayments will mean this is not strictly accurate - but it's a good rule of thumb.

Not too long ago in 2008 & 2007 mortgage rates were double digits. How come houses have not come down in price? Have you not considered the basic principle of "Time Value of Money" ? When you factor cumulative inflation over the years, houses in NZ have still become unaffordable.

The key reason money is kept in the NZ housing market is the tax free capital gains investors enjoy.

[fungus pudding]

Not too long ago in 2008 & 2007 mortgage rates were double digits. How come houses have not come down in price?

Because, interest rates have come down. As one falls, the other will rise. 'The opposite ends of a see-saw'. Read what I wrote in the example I gave.

Assuming the median affordability is 800 per week, then houses will be rise in price to that level. i.e 500,000 at 8% or at 4% - 1,000,000
Look with envy on those who moaned and groaned about having to pay 20 to 24% or more. They were the lucky ones.

[SBQ]

Because, interest rates have come down. As one falls, the other will rise. 'The opposite ends of a see-saw'. Read what I wrote in the example I gave.

Assuming the median affordability is 800 per week, then houses will be rise in price to that level. i.e 500,000 at 8% or at 4% - 1,000,000
Look with envy on those who moaned and groaned about having to pay 20 to 24% or more. They were the lucky ones.

No, what's happened in real terms here in NZ is the standard of living in houses has eroded. New families are buying old houses that are 19th century performance whereas overseas, for the same amount of $ would get you in a modern McMansion size house.

I don't understand your interest rate example where housing prices are tied to swings in interest rates. Any common sense shows inflation causes prices to go higher. NZ has not experienced deflation so houses never did go down when mortgage rates went high.

[fungus pudding]

No, what's happened in real terms here in NZ is the standard of living in houses has eroded. New families are buying old houses that are 19th century performance whereas overseas, for the same amount of $ would get you in a modern McMansion size house.

I don't understand your interest rate example where housing prices are tied to swings in interest rates. Any common sense shows inflation causes prices to go higher. NZ has not experienced deflation so houses never did go down when mortgage rates went high.

Look at the difference between real and nominal. If you can be bothered researching it you will find a couple of long periods where house prices remained quite flat, while all around other prices, groceries, petrol, daily living costs etc, were screaming up. that equates to falling prices in real terms. Look at those rocky industrial years with never ending strikes resulting in higher wages all round, yet real estate was flat.

I can assure you if interest rates jumped to, say, 12% tomorrow, you'd quickly see what I'm talking about,