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'NZ's economic bubble will pop' – economist who predicted GFC

LATEST: Forbes 'bubble-ologist' jabs back at Steven Joyce

UPDATE April 20: Economic Development Minister Steven Joyce has taken issue with Forbes correspondent Jesse Colombo's theory that New Zealand has a housing and credit bubble that, when it pops, will take down our entire economy with it — not the sort of publicity our government would hope for from arguably American's most influential business magazine (or at least, its website).

Mr Joyce tells NBR the economic analyst is "alarmist" and (although the insult has yet to be added to the Oxford English Dictionary) a "bubble-ologist".

"He pretty much spends his entire time predicting catastrophe around the world. Looking on his website he’s picked Northern and Western Europe, China, Canada, Australia, most emerging country’s economies, the US; in short, everywhere he can see he’s predicting a bubble."

Just as a certain lunar-focused weather forecaster maximised his chances of predicting a quake by picking multiple dates as possible disaster days, the Forbes contributor takes a scattergun approach that has "a certain sort of Ken Ring feel to it", Mr Joyce says ... "As someone said this morning, he's picked 27 of the past three recessions."

And while Mr Colombo says bubble-fuelled finance dwarfs agriculture in NZ's GDP, Mr Joyce says the Forbes man underestimates the size of the rural sector due to ignoring its indirect influence on food, beverage and other sectors.

Mr Colombo, who has yet to release his full report on New Zealand, has also been criticised for ignoring moves to cool the housing market, such as the loan-to-valuation lending restrictions that kicked in on October 1, and the Reserve Bank hiking the OCR on March 13.

It's very simple - Colombo
For his part, Mr Colombo says he's applying tried-and-tested methodology.

"I am using the same tried and true economic analysis techniques that I used to spot the US housing and credit bubble," he tells NBR.

"It’s very simple: abnormally low interest rates lead to dangerously rapid credit growth and asset bubbles that pop when interest rates rise again. It’s amazing that the same pattern is occurring over and over again but people expect different results each time."

Useful reminder – Hosking
"He exaggerates, but it is a useful reminder of New Zealand’s underlying vulnerabilities," NBR economics editor Rob Hosking says of Mr Colombo's bubble theory.

"To put in context, he doesn’t seem to write about any country without using the word ‘bubble’.  In the past three months alone he has made similar predictions about Singapore, South Africa and Turkey. I know he gets touted as the guy who predicted the GFC but if you're making predictions about bubbles with that sort of scattergun regularity, it kind of detracts from the impact. At some point, you’re going to get it right," Mr Hosking says.

"So is he right about us? I don’t think so.

"But his comments are a useful reminder that although the economy is picking up quite strongly, we have barely made a dent in the huge household debt which built up between 1998-2007, and this makes us really vulnerable to any shock, external or internal."

A point on household debt - Joyce
Even Mr Joyce concedes the Forbes contributor has a point on household debt.

“I disagree with much of his analysis, and much of it doesn’t bear scrutiny, but we do have quite high household debt," the Acting Finance Minister says.

"It has started to come back as Rob [Hosking] says, but there’s a fair bit of a way to go, and people should be cautious because the world economy is not out of the woods yet.

"But that’s a long way from saying we’re about to have an economic disaster."

ckeall@nbr.co.nz

What do you think? Is NZ's economic bubble about to burst? Click here to vote in our subscriber-only business pulse poll.


April 19: Not everyone agrees with HSBC's verdict that we'll be a rock star economy in 2014.

New York-based economic analyst Jesse Colombo says New Zealand is experiencing an economic bubble that will end in disaster.

Mr Colombo – credited by the Financial Times for predicting the GFC – says so-called safe haven economies, such as NZ, “are experiencing economic bubbles that are strikingly similar to those that led to the financial crisis in the first place.”

In an April 17 post for Forbes, the analyst quotes data saying NZ property prices have doubled since 2004.

And (via NBR), he notes Deutsche Bank research that found NZ’s property market the third most overvalued in the world in terms of home price to rent ratio. Australian and Chinese buyers are helping to fuel the market, he says.

He also throws in that nearly half of mortgage rates have floating rates.

And that “a mortgage bubble that grew from approximately $NZ70 billion in 2002 to $NZ186 billion in 2013 – a 165 percent increase in a little over a decade” as debt grew faster than the economy, causing the country’s total outstanding mortgage debt-to-GDP ratio to rise from approximately 57% to 85%, he says.

He adds that “New Zealand has the fourth worst household debt-to-GDP ratio among advanced economies, surpassing even the United States ...  household debt-to-disposable income ratio soared from 100% in the early-2000s to just under 150% in recent years thanks in large part to the country’s mortgage bubble.”

Meanwhile, government overseas debt has tripled since 2008 he notes. And to top it off, our dollar is overvalued.

And if you think the cheap credit and housing boom pale into insignificance beside Fonterra's booming exports to China, Mr Colombo says, "Agriculture accounts for only 5.1% of NZ's GDP, while the finance, insurance and business services sector is the country’s largest sector, contributing 28.8% to the GDP. Furthermore, banks account for 80% of the total assets of New Zealand’s financial system."

This means that "Not only is New Zealand's banking system dangerously exposed to the country's property and credit bubble, but so is the entire economy," Mr Colombo says.

The analyst says “The property bubble will pop”. He also sees shares falling and unemployment rising. Read his full analysis in 12 Reasons Why New Zealand's Economic Bubble Will End In Disaster.

ckeall@nbr.co.nz

What do you think? Who has more credibility on whether NZ has an economic bubble? Click here to vote in our subscriber-only business pulse poll.

More by Chris Keall

Comments and questions
82

It's a very good article. Look forward to the more comprehensive report to come. Fortunately the Labour/National/China coalition government will do nothing to prevent what's coming so people born in New Zealand might be able to afford a house one day.

The longer the current situation goes on (foreign 'investors' buying everything in sight) the less chance you will ever have of buying anything affordable.

Finally an independent commentator - not the usual Government spin. This guy is no fool and highly respected

If he is correct now is the time that legacy Government policy and structuring would kick in and protect us - the problem is that there is none - 6 years of kissing babies and kissing world leaders arses won't get us through this - if this guy is right.

For 6 years we have been told by the Government how clever they are and how insulated we are from the global financial crisis. For 6 years the Australian owned banks have been rorting their clients with obscene margins and fees and repatriating the profits back to Australia.

Why is our currency so overvalued and the 12th highest traded currency in the world - haven for currency speculators when as a country we are just a banana republic.

Lets wait for all the Government spin in response to this report and all their ill informed clones discrediting this world expert

Time to wake up NZ

"For 6 years the Australian owned banks have been rorting their clients with obscene margins and fees and repatriating the profits back to Australia."

Don't forget the shadow banking industry based in China who supplies most of the mortgages to migrants fuelling the housing bubble. The NZ Reserve Bank only has control of rates on mortgages with NZ banks which has left the Reserve substantially powerless in the Auckland market.

There is no evidence that foreign purchasers are driving up the price of homes in NZ. Stop looking for manufactured evidence to support what is realistically just a racist Fortress NZ world view. At least own your prejudice.

None so blind as those that do not see. Chinese buyers are driving Auckland, and by default, National prices. If you are not aware you don't read / see / hear much.

What's wrong with being a "Fortress New Zealand"? Racism? I think you're confusing China's hatred of New Zealand - poisoning our products, keeping them sitting on docks until the graft is paid to officials, banning us from buying land in China, expecting our taxpayers to pay the bill to look for Chinese citizens missing in a Malaysian plane ... the list goes on.

So by your account, China is itself both racist and fortified? Or is there another reason they can buy property here but we are banned from buying real estate in China?

No, they're just racist and fortified as you suggest.

Not a race issue at all but a capital controls issue. The usual suspects like to throw red herrings in the form of racism accusations. Funnily enough, they're often the same people who whinge that the "horis will go Mugabe on us!" and "the Muslims are coming, the Muslims are coming!".

Disclosure of interest: direct descendant of Cantonese gold miners in Otago.

Exactly, finally an independent commentator, regardless of your politics, FINALLY someone from outside with some nouse expressing a different perspective, and look at the tanty from Wellington. Thank god for American freedom of the press far away from New Zealand.

His arguments are circular...

The housing bubble was creating a mortgage bubble with almost half of outstanding mortgages currently having floating interest rates. "Though New Zealand is commonly thought to be an agriculture-based economy, this couldn't be further from the truth," the report says, noting agriculture accounts for 5.1 percent of New Zealand's GDP, while the finance, insurance and business services sector is the country's largest sector, contributing 28.8 percent to the GDP. "Furthermore, banks account for 80 percent of the total assets of New Zealand's financial system. http://www.stuff.co.nz/business/money/9959525/NZ-bubble-going-to-burst

New Zealand has a very export-driven competitive economy with exports accounting for about 30% of GDP ... Agricultural commodities account for around half of all goods exports ... http://www.newzealandnow.govt.nz/investing-in-nz/opportunities-outlook/economic-overview

Dairy makes a very strong direct contribution to the NZ economy
The dairy sector directly accounts for 2.8% of GDP, or $5 billion. http://www.fedfarm.org.nz/files/2010---Dairy-Economic-Impact.pdf .

... about 20 per cent of jobs in New Zealand are land-based - that includes working for places like Lincoln University - but only "5 per cent of jobs in New Zealand actually reside behind the forest gate, the farm gate or the orchard gate". Farms and factories are increasingly automated and "the real jobs are in marketing, distribution, banking, valuation, stock and station, all the stuff around the edges of the value chain".

New Zealand is riding a price wave. The boom is less about quantity or added value than simply rising prices of food worldwide. The risk is that we could get complacent like Australia, with its mining boom. "There will be a supply response from North America, South America and Europe, especially in milk," West says. "We have got to differentiate all the time and produce very targeted products at very wealthy consumers round the world. http://www.stuff.co.nz/the-press/news/9958677/Hard-times-ahead-of-bright-future-for-Lincoln-University .

thanks for the link to the LIncoln article -- and for pulling out the most interesting (and disturbing) statistic in it (ie 5% of NZ jobs actually ON the land).

For what it's worth I've been saying since the Fonterra food scare back in August, 2013, that dairy has a day of reckoning coming, critiquing our dairy sector per the thesis of Tyler Cowan's great stagnation thesis, and noting this was cognisant of the dairy debt cliff, but without direct reference to the current premiums being paid for dairy land, and a declining payout over foreseeable future, especially when EU subsidies on milk production end 2015:

http://lifebehindtheirondrape.blogspot.co.nz/2013/08/fonterra-free-market-is-solution-why_12.html

All is not well in the fragile New Zealand economy and yet more evidence is building up against the economic policies of the past six years. Reading these comments along with the paper on the productivity paradox earlier in the week (http://www.productivity.govt.nz/working-paper/an-international-perspective-on-the-new-zealand-productivity-paradox) one might be led to conclude that letting the rich get richer through property speculation tying up what relatively little wealth we might have in illiquid investments that don't attract taxation but may show capital growth, and shouting from the hilltops about a stellar performance in low added-value primary sectors - oh, and hoping for the long discredited trickle down effect - is a recipe for economic disaster.

Still, smile a lot, spin a lot and kiss the babies. I am sure nice Mr Key and his gnomes are anxious to keep plastering over the cracks long enough to keep power. The irony is that he has been in the middle of the implosion caused by bursting bubbles before and walked away mostly unscathed - unfortunately he was also unrepentant and appears to have learned little.

If you actually read his graphs, the greatest increase in the median house price took place under the previous Labour government. That is, the bubble was created by excess Labour government spending pumping money into the economy.

Does it matter to someone who will be losing their house when the correction comes whether it was Labour or National that caused it?

No Chinese migrant will lose their house because their loans aren't subject to NZ interest rates.

Can't disagree with the productivity report because it says what nobody wants to hear but we all know is the underlying cause - there aren't enough smart people living here making smart decisions that deliver smart results. It's that simple.

It's not going to change because smart people don't come here anymore and our smart young people have left and they're not coming back.

Well, I hope this chap is wrong or mostly wrong.

I do think low low interest rates do little. The private borrowers here use the savers cash to speculate Government uses savers cash for projects, which are unaffordable in the true sense.

Needs to be some restrain on borrowings, that can only be interest rates at market.

Great Comment

All low interest rates do is encourage mis allocation of capital. If interest rates were set by the market and not by a few economists sitting at the reserve bank (who they think they know better than the market) it would make a huge difference.

If interest rates were higher we would have got rid of the companies that aren't competitive in what they produce.

If interest rates were even higher our banks would receive even more foreign 'investment' money. High interest rates make very little sense.

If the market controlled interest rates rather than the reserve bank all that foreign investment money would drive interest rates down. That is how banking used to be.
Central banks setting interest rates have distorted the market as any government interference always does.

I don't. It's about time we had some market correction.

I kept saying to all those who will listen that the housing bubble in NZ and AUS will burst soon. That was me two, three years ago. The data supporting this view are still the same, and getting worse, (e.g. house price vs median income), so I agree with Colombo that only a real external shock can burst this bubble. Like the collapse of Chinese debt/property market putting the export economy in trouble. But in this case it will be a real global financial disaster (the once in every decade kind) it is not exactly something to look forward to.

Whilst NZ house prices are still considered very cheap by the thousands of Asian millionaires and billionaires, nothing will change. NZ homes are purchased with 'pocket money'. The only people who get excited about all the zeros in the current prices are Kiwis. These prices are nothing to wealthy Asians.

Gee Whizz, the article doesn't mention if he is using the same tea leaves he used to predict the "GFC" or, is he using a different method now, e.g. goat entrails?

Also the article doesn't include all of this Shamans predictions and what his win % is?

I would also like to know exactly what Mr Columbo and his "colleagues"do that benefits society or adds anything to the sum total of human knowledge?

Hi John,

I fwded your first question to Jesse Colombo, who replied:

"I am using the same tried and true economic analysis techniques that I used to spot the U.S. housing and credit bubble. It’s very simple: abnormally low interest rates lead to dangerously rapid credit growth and asset bubbles that pop when interest rates rise again. It’s amazing that the same pattern is occurring over and over again but people expect different results each time."

A few points. Interest rates in NZ are and have always been higher than US rates. There's no QE [quantitative easing or printing money to boost the economy] here. And NZ banks to my knowledge never lend money to people without jobs or some way of supporting repayments.

Mortgage structures in NZ are far superior in terms of repayment in NZ vis a vis UK and US.Think recourse and non recourse loans. I saw the difference whilst working in London circa 1990. One of my staff asked for time off to drop his house keys to the local bank as it was under water . Try that here and see how you get on.

Banks in NZ have been lending to virtually anyone with a job.
To say banks are very careful who they lend to is a misconception.
I know of a person who on & $70,000 per year and no security was lent 550,000 on a mortgage. Nearly all his income now goes to repay the mortgage. If he looses his job, he will be in trouble.
The reason the RB brought in LVRs was to protect the banks if the property bubble bursts, not to protect the borrower.
The quantitive easing money simply floods the world with cheap money that goes into assets such as housing not productive enterprises.
A large correction is coming, but unfortunately for some , it is the elephant in the room.

See , you don't get it and are selective with your response. Banks in NZ do lend to people with jobs but not those without or another means of meeting the repayments. Banks may also require mortgage insurance in many instances. Completely opposite to overseas lending practises who eventually came unstuck.

Pleased to see you that you recognise LVR and its effect on banks risk profile. Again not done offshore pre crisis.

If you are so worried i suggest you sell up and rent. For me the market is what it is and housing price rises are merely a function of supply and demand. Higher deposits should be encouraged as they were the norm until 70's.

Why is it that most comments here are attacking Mr Colombo and not his logic?

To me this is simple, lending amongst the majority of the people in New Zealand is being fueled by low interest rates and if this changes it will affect people's ability to repay. The sad thing is that if this happens (in my view it's more like when it happens) - there will be a significant price correction that will leave many New Zealanders owing more than their property is worth. For the majority of people who are barely clearing the interest on their mortgages - they will inevitably default. It might not be a behavioural trend as you saw in London but just a simple function of affordability. A huge price correction would also mean significant losses for the banks should they choose to repossess the property.

One last correction as well, QE (QUANTITATIVE easing) money from the US has sadly made it to New Zealand shores given the slightly better rates here so let's not fool ourselves by thinking otherwise. Look up the stats on inflows from the US for instance.

If this ever happens, and all real indicators in NZ actually prove otherwise, I will personally pledge to vote Labour at the following election.

Not true. Bank lending criteria and regulation in NZ is what saved us from the GFC. Banks will not lend if you are unable to service. If you don't believe it, try and get a loan for one of your kids.

So is that why Chinese banks are running the shadow mortgage market in Auckland?

You are just repeating an unproven xenophobic theory, encouraged by Winston Peters. There is no such thing as a shadow mortgage market in Auckland.

Our balance of payments capital account is all the proof I need. If I thought Winston was even 1% likely on following through on his rhetoric I'd vote for him ... but at least his rhetoric is in New Zealand interests rather than select parliamentarians and their local and offshore cronies.

No argument on that score. The western world has sold its soul.

It's called jingle mail in the US.

The problem for anonymous and the reason his predictions have failed is that NZ is such a great place to live people keep arriving to live here. And when demand continually exceeds supply prices remain strong,
Of course the market fluctuates in the normal course of the cycle but predicting Apocalypse in housing is analagous with climate change crisis

His analysis is probably correct for new Zealand citizens but he forgets that the prices are fuelled by asia investment. When an 80 square apartment in Beijing costs $600k US what is there to lose by buying in NZ?

Another myth, fuelled by Winston Peters and other xenophobes. Labour is getting on the bandwagon, with its claim that a CGT will solve the problem when it won't. Labour just want a CGT because they like increasing taxes, and Auckland house prices are a convenient, but dishonest excuse for another tax on savings and investment. Just wait and see what happens to the share market when people realise that a CGT will apply to all their share investments.

Lindsay, you're at it again. What more do you need to prove that the heart is being sold out of Auckland to Chinese 'investors'. The evidence is all around you....or maybe you are a John Key and Bill English 'sweep the truth under the carpet' supporter?

I believe my friends in banking and real estate rather than Lyndsay's "nah, it's not happening". They note that while they see it happening, it's not in the best interest of banks (writing the loans to foreign buyers) or estate agencies (collecting commission) to acknowledge publicly that NZers are getting shafted here.

New Zealand needs to replicate the models used in many overseas countries (including in Asia) and limit foreign buyers to apartments - excluding them from owning land. Land ownership should be limited to those who are invested in NZ enough to become citizens.

We cannot keep selling off the country's productive assets to those who are not TRULY invested in the country, and expect our grandchildren to have a bright future. This is simply selfish behaviour by those who may benefit from the immediate cashflow in the here and now.

Absolutely agree Graeme, house price inflation is a supply driven issue, when supply exceeds demand then you might see the market burst. Can anyone say when this will happen? Who's going to build all the extra houses. Where are they going to build them.? A CGT won't have any effect, it's just another cost that gets priced in. All that's going to happen is fewer people owning more of the housing stock. The market didn't burst after the GFC, it had a small correction or period of stagnation.

When investors stop buying, then those houses will be available for families to buy, they won't disappear.

If the problem is a supply problem as you are saying , then why is there a house price inflation problem in all major Western cities in the world.

Because wealthy Asians are now buying up the planet using money we gave them when we wanted everything cheaper, closed our factories and bought from Asian sweat shops. Predictable Karma sadly.

Jesse Colombo sees bubbles the way Joel Osment sees dead people.

China, Canada, Australia, the US, all bubbles. He even sees a Social Media Bubble for Lordes' sake. They are everywhere and when one pops he claims credit.

Bit like Ken Ring.

Even a casual observer can see that the GDP figures are completely wrong. It's publicly available information on the Statistics NZ website. The Financial sectors account for less than the agricultural sector. We have a successful export business in milk, but somehow that's "risky" or dependent on others. Of course it's dependent on others buying - there's virtually no prospect that the world won't need food.

Two things: if our house market is overvalued, wouldn't make sense for foreigners to by properties where they are undervalued? there are plenty places where this is happening. One can by a 3 bedroom place in Miami for $100K

Second point: I wish people would get over the rich getting richer. If one has a million dollars to invest at 5%, one's fortune will grow to $1,050K. if another one has $1000 to invest at 5% one's fortune will be $1050. the difference from the rich and poor will grow from $999K to $1,048,950. shall we blame the rich for this? or should we forget about how the rich get richer and instead focus on improving the conditions of the poor?

Today, income redistribution occurs in some form in most democratic countries. In a progressive income tax system, a high income earner will pay a higher tax rate than a low income earner. http://en.wikipedia.org/wiki/Redistribution_of_income_and_wealth#Types_of_redistribution

Safety nets are part of a broader poverty reduction strategy interacting with and working alongside of social insurance; health, education, and financial services; the provision of utilities and roads; and other policies aimed at reducing poverty and managing risk.
http://en.wikipedia.org/wiki/Social_safety_net#General_overview .

Income redistribution in a democracy is basically vote buying. The common denominator being to have everyone at the bottom. NZ has more people on transfers than it has providing the taxes for this situation to exist.
The progressive tax system is for the benefit of the politicians not prosperity of NZers

How come if you are a winner, everyone hates you and wants you to lose? Why don't the envious get off their bums and achieve something useful, there are huge opportunities in this very fortunate Nation.
If it wasn't for the risk taking, hard working and productive in this World creating opportunity for everyone, there would be nothing to "predict!". I would suggest Colombo's predictions might be on the money if Labour or the Greens manage the treasury after September. Currently our economy is the envy of the World, that's why the "Doomsters" talk about it

Quite right Michael. When your the best at what you do, people will always try to degenerate and knock you. Doomster twerps like Colombo, knows that if he bangs on long enough about economic bubbles then sure enough, one of them will eventually burst and he will receive his adulation.

I bet this economic moron has neither started or, ever run a business in his life.

You guys are ever hopeful and blindly believing of the current Govt spin that all is well - its only well for the top 10% of the population.

You can't knock this guy for picking things right. The only thing Steven Joyce has picked right is his nose in recent times. Tell me any legacy economic development policies he has created that will make sure we are the top of the pile going forward - and that is in a period following the GFC that allows hard common sense decisions in the best interests of NZ.. Answer - none

We all want NZ Inc to succeed and most of us want the National Government to lead like the majority voted for 6 years ago and a near majority 3 years ago. They haven't delivered and the risk free middle line strategy they have taken is going to bit us in the bum - not them as the way they are going they might not be there.

What is useful about buying up existing rental houses thus denying owner occupiers the chance to afford a decent home to buy.

Its called the market. Any willing buyer can purchase anything in NZ if they can find a willing seller and has the means to do so.

Whats useful is that someone has saved the money to buy the property and is obviously willing to pay more for it than other market participants. As with all property rights they are free to do with it what they like or are you advocating for a communist solution here.

You're wrong - NZ is not a "market" because it is being artifiically manipulated by central government to benefit external interests. That is NOT a free market - that is de facto market intervention. If external interests were subject to the same controls as domestic consumers then you might have a valid argument.

New Zealand will keep doing well as long as the global 1% wealthy class keep doing well because, let's face it, the country's exports cater to niche markets of high-quality food, luxury tourism etc. So New Zealand's so-called "bubble economy" will only pop when the global 1% are knocked off their perch, say by a revolution. But in that scenario, the whole world will be in a mess, not just New Zealand!

As regards the danger to New Zealand's economy from a future Labour-Green-Mana etc government, my prediction is that the Labour right wing will hive off and support a National-led government if the economy really goes down the gurgler due to their inane policies.

For a start, there is no boom.
Secondly, thousands of people predicted the GFC so this is pretty much a waste of space.

A couple of points, it is fact syndicates from overseas are buying property here. Capital gain is by an large tax free.
Why would one not divert cash earnings from low interest countries and invest here when last month the medium house price increased by $25,000 ?

The other is this, if like me you have kids trying to buy a home in a half decent area in Auckland you will see and hear what is going on 1st hand. Unless one has this experience bloggers are simply guessing.

Low interest rates cause problems, they need to be set at market, risk versus return. They are a monetary policy easing tool.

\Wonder why a tool like lowering GST is not used as an economic stimulant , so the whole community bears the brunt of less Government income rather than savers taking the hit.?

NZ is not just in a bubble, the whole Western world and China is in the bubble ... the globe is awash in cheap money. Asset price inflation is just a symptom of the true bubble in global fiat money production. Nothing of measured value is as it seems any longer.

Try not to confuse an expanding ruler with greater real measurements.

You are so right. The bubble will not pop just in New Zealand - it will be a global phenomenon if and when it happens. And the cheap money resulting from money printing by the Fed, Bank of Japan etc. is the real cause of Auckland house price inflation. Planning restrictions, Asian buyers, buy-to-let investors etc. are merely a side show!

The charts all add up to a collapse coming. But they don't teach that analysis in universities or PhD courses for those who work at Treasury or the RB. So the Government follows Treasury advice and simply says "its not a problem until it becomes a problem". In the meantime it all looks good for voting year and that is nice. This is the reality of having a 'career politician economy'. Long term sustainable economic viability goes out the window for short term crisis management and reacting to problems.

hmmm derivatives analysis is a funny business when the air is wagging the tail which is wagging the dog

Finally head in the sand people who think paying more for assets that add nothing to our terms of trade have got somone to make them think. A nation is not wealhly when people just pass the property parcel to the next mug.... RBNZ brought in restrictions and is hiking rates because it is very worried about financial sector impact when the housing bubble in australasia corrects ...Joyce clearly has no economic background and bully tactics to people who try to start the debate before it is too late is unfortunately a reflection of the rigger all our politicians show when real issues are highlighted ... And bubbles nowhere else please ..emerging markets have got big issues and that is going to hurt us big time .... shooting the messanger doesn't solve thre problem

A timely warning and what the RBNZ is doing will hopefully let the air out of the bubble without a lot of collateral damage to the wider economy.

Meanwhile, you can be guaranteed a very hard landing if Labour/Green/NZ First gets in and stop foreign purchases of properties.

Enjoy!

What the RB is doing has no impact on foreign money. Only penalises Kiwis.

Hard to believe my generation survived the 23% mortgage and 29% overdraft rates of the late 1980s.

It is also hard to believe this generation does not understand that our perceived prosperity is totally fueled by the artificially low cost of money which will not stay at these levels.

There is the irony that the late 80s interest rates destroyed business while present rates destroy savers.

Your generation survived the rates of the 80s because the people you voted for took out massive loans to underwrite the cost of your capital. The next generation is paying taxes to cover the cost of the debt for you to live in your swanky house while they pay rent to live in a place they'll never own - that's if they haven't escaped to Queensland or Perth. Sadly you'll probably get a pension too - that they won't get either.

"fourth worst household debt-to-GDP ratio among advanced economies"

This is not a government problem, it's a household problem because people won't buy just a house they can afford but "their perfect house" which they cannot afford.

Heard Cameron the ANZ economist talking on Newstalk zb at 7.15 am today.His take, more a wakeup call than one minute to doomsday.Did read a guy called Cunliffe agreed with the yanks forecast,of course he would,,beats driving in the fast lane.

Real estate agents and bankers have all got a vested interest to talk up the property market.
Do not believe anything they say!

They don't need to talk it up, they barely need to even advertise it....have you seen how fast central Auckland real estate sells, and often before auction. wonder where all that cash comes from? It isn't Aussie banks that's for sure.

If u have attended as many auctions as I have in the last 12 months you would know that very houses have reached reserve in the last 2 months.

I spent most of 2011/12/13 at Auctions in central Auckland, and I know who was buying, I knew where the money was coming from and I knew English was not the buyer's first language in the majority of sales. If this is changing that would be nice, but I doubt it, as Auckland Real Estate is still amongst cheapest around compared to any modern Chinese city.

Have just got back from Gangzhou, China, our bubble has got nothing on theirs, it's looking close to bursting, when it pops will ours also?As funds their are repatriated, or will it grow as they seek greener pastures ?
The good news is 2 child families are now OK, that's a lot more baby formula required. The people I spoke to saw no legacy in our milk scare. Google "soil pollution China" to see why ours will always be at a premium.

The ones who can get their money out have been buying all the 'green pastures' they can get their hands on. And whilst waiting for their bubble to burst are rapidly getting their aging relatives into NZ and other country homes in anticipation. Another expense for NZ taxpayers.

Jesse Colombo sounds like our very own Olly Newland. Back in 2004, I bought Olly's new book 'The Day The Bubble Bursts'. After reading the book (that sounds just like the book of Revelation btw), I was totally convinced that the overheated market would burst soon. Auckland house prices will freefall by 30 to 40% and I would be the one rubbing my hand in glee getting bargains. I didn't buy any house and continued to rent. My friend didn't believe in the 'bubble crap' story and bought one house in 2005 and another in 2007.

We are now in 2014. The same house I had my eye on 10yrs ago has now increased by $290k. That friend of mine continued to play the buy-sell-buy-sell game to this day. He now owns 3 houses with 1 nearly fully repaid. Guess who was the smart bloke..... one bought a book, one bought a house.

Not a day goes by that I don't feel regret. I look back on myself the way I was.... a stupid kid who bought that accursed book.... I wish I could talk sense to him. Tell him how things are now. But I can't.... That kid's long gone and this middle-aged man is all that's left.... and I have to live with that.

To all you renters out there: pls don't be emotional. Don't listen to 'experts', naysayers and doom predictors. Do your own research and figure things out for yourself. Use some logic. If Auckland house prices didn't collapse during the greatest economic slump in the past 80years that took out half the world (ie the 2008 global financial crisis), chances are there are strong fundamentals propping the Auckland market. Know that sometimes there are poor people out there who wants you to remain poor (like themselves). They don't want you to prosper. They want you to stay poor, without a home and without a future.

I still have that accursed book - if you want it, please leave a message here and I'll snail mail it to you within a week (the book is discoloured, earmarked, scribbled and old though). Thanks for reading.

The bubble will burst and the consequences will not be good for NZ'ers.

I know of an ex banker who has had enough of the greed and risk taking in Auckland and is intending to come out with a scathing report that will clearly illustrate to everyone how screwed we are.

PS - might want to look at how Westpac use RBMS and Sky City's sources of funding - just to name a few things he has mentioned to me that has the ability to affect our capital markets/local economy.

Also might want to look at the value of USD exposure we have now vs pre GFC - not in import/export but in interest rate swap agreements with treasury/rbnz.

We are having to sell state assets by instruction from the Bank of International Settlements, "structural adjustment" they call it. Kiwisaver - a government mandated method to increase "savings" to improve NZ's balance sheet, nevermind they're taking our rights away from OUR hard earned money right?

It's amazing how many people cannot see what is happening/going to happen.

People who realise "the system" make money when its going up or down, there's a reason rich get richer, we adapt our investments with the business cycle, there will always be losers in the economy because of inflation taking away your purchasing power, the trick is to work in real returns vs nominal if you do actually want to get ahead.

Accept NZ isn't such a lovely place as we make it out to be.