November 29, 2007
Yesterday we received our rating revaluations (for those outside of New Zealand, every three years all properties are valued by local councils in order to levy rates for local body costs). Living as we do in a burgeoning wine producing area, our land value has tripled in 6 years. It was then timely to read this article that suggests that a housing bubble burst and flow on recession is looming in the US.
There seems to be a multiplicity of factors pointing in this direction – the value of the US dollar, oil prices, the credit crunch are all conspiring to bring things down. Unfortunately for the rest of the world – where the US goes economically, we all ten to follow.
In New Zealand it seems to be a disaster in the making – I remember a few years ago when it was totally viable to purchase a property for under $100k that would return $200/week (ie a 10% gross return). Now the same property might costs $250k and return possibly $250/week (a 5% return). With interest rates hovering around the 10% marks, clearly there must be some people out there hurting.
These same people quite possibly bought loss making properties with the belief that capital gain would see them right – a capital gain that looks increasingly unlikely to eventuate.
The flow on effects in the event that these Ma and Pa investors come unstuck would be massive – they’re a good part of domestic consumer spending and if their belts tighten… so to do all of ours.