I do enjoy living in the country; never much liked cities: all those people and traffic and homeless tramps in doorways. What a bore! Give me dirt roads, trees, livestock, fresh air and marvellous scenery any day of the week. Even better is living in the country in the deep south where people are ‘normal’ and friendly; it’s also an awfully long way from the ‘in laws’ and ‘far now’ in the Hokianga asking for “50 bucks to tide me over bro” (if you know what I mean)… but I digress.
There has been a lot of talk lately about real estate values and the likelihood of a dramatic (by historical New Zealand standards) fall in those values. Finally, the banks and economists have awoken to the stomach-churning possibility that defying laws of economics may have its limits and that reckless lending may come home to roost – and rather soon.
Let me give you a real-life example to consider.
Where we live is in a rural(ish) area south of Dunedin called the Taieri Plains: lots of lifestyle blocks, farms, market gardens; a couple of towns dotted around. (Hilariously, my American father once described it as being “like the San Fernando Valley before World War Two” – which was certainly an ‘optimistic’ view of the place). Historically it has been a pleasant but rather sleepy part of New Zealand with a stable population – loved by locals but not somewhere people move to.
In the last year or so many properties nearby have been sold: fifteen, according to the website homes.co.nz. Each of them was a very nice house on a lifestyle block that sold in the $1.25- to $2-million range depending upon the amount of land (somewhere between two and five acres). It’s considerably more than we paid in 2020 for a brand new house on 10 acres, and these seem vastly inflated prices.
However, there are only so many people who want to live here; it’s somewhat rare for an outsider to move into the area. Yet there are currently quite a few properties on the market all asking even higher prices (nothing under $1.5 million).
Some thoughts:
1. Is there really a seemingly unlimited pool of people wanting to buy a nice house with four or five acres of land on the Taieri Plains?
2. Is there really a seemingly unlimited pool of mortgage finance to pay for it?
3. Could this sort of thing really continue indefinitely?
4. Is there really a surprisingly large number of people in the “greater Dunedin” (for lack of a better term) area who can afford $1-million mortgages?
5. Has our own (mortgage-free) property really doubled in value in just two years?
6. Has somebody discovered oil or gold in the area and nobody told me?
Common sense would tell me the answer to all these questions is ‘no’, and some kind of bubble is taking place – and a certain aggressive bank that seems to provide most of the mortgage financing has been very reckless. That certain bank could find itself the proud owner of quite a number of lifestyle block properties once the introductory-level interest rates come to an end and repricing is undertaken.
If this is happening here, imagine what it’s like elsewhere in New Zealand.
https://homes.co.nz/map?lat=-45.8509&lng=170.3333&zoom=14&filter=type:sold
