Whenever prices seem to go out of control people start jumping in and saying a crash is just around the corner.
They will point at historical trends and suggest that just like in the states NZ will experience a crash, or just like last time we are headed for a crash.
Here are 3 reasons why New Zealand won’t have a crash like the Americans, Irish and Spain did.
1. Our current boom has not lead to the same sort of construction boom that occurred in the US, Ireland and Spain. We still have a housing shortage, not a glut, and the current surge in net immigration suggests that will last a while yet, especially in the market which is seen by all as having the most potential to bust, Auckland.
2. When our banks lend money, unlike the Americans and their Sub-prime lending sector that allowed 100% loans, NinJA (No income No Job, No Assets loans) they keep the mortgage loans they write on their own balance sheets. They do not shift that risk off onto unsuspecting investors through securitised products, therefor they are very cautious about the ability of a borrower to repay the loan and therefor already have safety measure such as Debt servicing rations built in.
3. In New Zealand our mortgages are tied to the borrowers not the property itself, in other words, unlike the states where the wner could just hand in the keys and walk away, here in New Zealand you have made a significant deposit to get into your home so you risk losing all of that investment and then if the bank sells your home and there is not enough money to pay the loan out in total the bank will come after you for the rest and if you can’t pay then it is down the path of bankruptcy for you, there is no handing the keys in and walking away with no consequences.