The coming New Zealand property crisis


What’s happening in New Zealand and other countries at the moment reminds me of the 70` s and 80`s. We have rising inflation and  an over stimulated economy, frantic government spending a shortage of labour and goods . The usual medicine to fix inflation is to keep raising interest rates which is happing right now. If interest rates continue to rise there will come a time, when people will be unable to pay their mortgage. Back in the 70`s and 80`s interest rates were up in the 20% plus range farmers just walked off their farms. You could buy a sheep for a $1. In some cases, property prices went from 20% to 30% above CV to 20 to 30% below CV. If that were to happen there would be some cheep houses around. The problem is, that with interest rates high you still cant afford the payments. Also unemployment can be high during these times. Can any good be had from this situation.

If you have a mortgage already on your house, at say 3%, coming up  for renewal in the next 18 months or so. What can you do? This is an idea to consider: there are still rates on offer for 5 years fixed at 5.5%. If you were to negotiate with your bank to pay the higher rate and fix for 5 years and if you can make the payments, might be a good option. If you have to pay a break fee, you would have to weigh this up. A bank could look at this as they would be getting a higher rate now, its a win for them and maybe you over the long term. You also get to keep your home.

I have included some interesting reading at a site called Jim Sinclair`s mindset, in regard to rising house prices in the US and happening in Australia too. This is a bubble, bigger than the crash of the 1920`s.

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