Earlier in the year Lance pointed to an interesting video:
This animation is based on US data, but the NZ version of this ride would be pretty similar I’d expect. And it should give pause to anybody who is blindly positive about the prospects of the property market.
Back then Lance predicted that the market was “ready to plunge”. It hasn’t done yet but still seems to have all of the signs.
What do you think?
If you accept that it’s just a market, and prices can go up and down (see the above video), think about what will influence the supply and demand over the coming years. Specifically think about the demographics of the participants in the market.
On the supply side there are the Baby Boomers who are heavily invested in residential property and are now looking to downsize their family homes and sell down their rental portfolios to fund their retirement.
On the demand side there is Generation X who are pretty poorly positioned to enter the property market. They (we!) have spent longer in education and so relatively less time in the employment market. And they have a pretty poor savings record – preferring instead to fund their lifestyle. So they have less savings and more debt (credit card and student loans) not to mention a reluctance to settle down and start a family: station wagon and white picket fence anybody?
Yes, I realise these are rash generalisations and stereotypes, but it’s worth thinking about.
Who will want to buy? Who will want to sell? What’s that going to do to prices?
But, what about all the people who have made a killing in the property market in the last few years?
Here is a quote from Mark Cuban:
“A lot people think that if they are picking stocks that keep on going up, its because they are smart. They fail to notice that EVERYONE is able to pick winning stocks when all stocks are going up.”
(actually, while unrelated to property, the whole post is worth reading)
It’s been a buoyant property market in NZ. But this is not normally something that people consider when thinking about the gain they’ve made.
Here is a simple table that shows the capital gain required just to match the market as a whole:
Based on QV data to Q4 2006, Source: Reserve Bank of New Zealand (http://www.rbnz.govt.nz/keygraphs/HousingData.xls)
So that’s the baseline.
How does your return compare?
Remember to deduct anything you’ve spent on renovations and repairs first.
So take note next time somebody is bragging about how much they’ve made in the recent property market. The real test of their smarts will come when the market turns.
Or maybe it never will?
You tell me.