New Zealand property bubble

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A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid speculative increases in the valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic indicators, followed by decreases that can result in many owners holding negative equity (a mortgage debt higher than the value of the property). Just like any type of economic bubble, it is difficult for many to identify except in hindsight, after the crash.

Real estate prices have risen dramatically in New Zealand in the last five years (approximately 80%). Like other property bubbles, the New Zealand property bubble has been driven by low interest rates and generous lending (5% deposit for example). However, in international terms New Zealand has had high interest rates (presently the Official Cash Rate is at 7%). Recently Alan Bollard the governor of the Reserve Bank of New Zealand has increased the interest rate in part because of fears of a property bubble and has publicly warned of such dangers. The all indicators are presently showing that the property market has peaked and if the market is indeed a bubble the price should begin falling soon.