A property bust wouldn't matter if you are mortgage-free. Your property goes down like everyone else's, so you could still sell and move if you wished. However, if you have a mortgage the size of Africa, what happens then? What would you advise?
Have a cuppa, sit tight, and in some cases watch your pennies.
The 40 per cent comes from global investment bank Goldman Sachs. It looked at the ratios of house prices to rent and house prices to household income, as well as house prices adjusted for inflation, in the countries with the 10 most-traded currencies in the world.
"Using an average of these measures, house prices in New Zealand appear the most over-valued, followed by Canada, Sweden, Australia and Norway," it said. "According to the model, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35 to 40 per cent."
The first thing to note is that financial forecasts are often wrong. Just this past week, Reserve Bank assistant governor John McDermott said in a speech, "More often than not, the world does not turn out as we forecast." Note that he didn't say sometimes, but more often than not.
Second, Goldman Sachs defines a bust as house prices falling 5 per cent or more after adjustment for inflation. A 5 per cent drop wouldn't be too upsetting for most of us - although of course the drop could be much bigger.
Even so, as you say, those with a low or no mortgage haven't got much to worry about. If you're planning to sell in Auckland and buy somewhere cheaper - as our next correspondent did - and prices drop more in Auckland than elsewhere, you'll be worse off.
But most people in that situation will still do pretty well.
Of course, it's more of a concern if your house becomes worth less than your mortgage, so you have what's called negative equity. But even then it's okay if you keep paying down your mortgage, preferably faster than you have to. After a while, prices are sure to stabilise and then rise again.
New Zealand house prices are volatile. They have fallen no fewer than five times over the past three decades. But they always recover.
The big worry is if you can't meet your mortgage payments - keeping in mind that mortgage rates could well rise. If you're forced to sell for less than your mortgage, you'll end up with no house and a debt to the bank. Ugly.
With that in mind, owners of homes or rental properties with Africa-sized mortgages would be advised to live more frugally - perhaps cutting back on travel, cars, clothes or entertainment - and attack your mortgage. Talk to your lender about committing to larger regular payments to get that balance down.
If you're really worried, consider trading down now to a cheaper home - or selling a rental property. But don't panic. Desperate sellers do badly.
Meanwhile, let's not overlook those who are struggling to buy a house, or have given up. Finally, things might be looking up for them.
Piggybacking on Super
I retired in 2014 and we sold our Auckland properties and live in a small Waikato town with a couple of rentals, all debt-free.
I contribute the minimum to KiwiSaver to get the tax rebate. Since the sum I accumulate is never going to be huge (currently $28,500), should I stick with growth to maximise the amount I do get?
Most people your age would be in a lower-risk KiwiSaver fund. They plan to spend the money soon, and don't want to take the risk that, right when they withdraw their money, the markets are down.
In your case, though, I can see two possible other scenarios:
• You're getting enough income from your wife's Super and the rental properties, so you don't expect to spend the KiwiSaver money within the next 10 years or more.
• You might spend the money sooner, but it doesn't matter hugely if the balance has fallen. If you're short, you can always sell a rental. So you're prepared to take a punt.
If either of those applies, stick with the growth fund. There are no guarantees that will maximise your amount, but it's a good bet.
He says, "The fund has also significantly outperformed a simple passive fund-equivalent (our reference portfolio) by $5.5 billion, and did so by getting more return per unit of risk than the passive alternative. The data on returns, benchmarks, and investment risk appetite is on the fund's website." Do you have any comment on Mr Orr's analysis?
Sure do. But first, to put this in context, I have for years recommended long-term investing in a passive or index fund, which invests in the shares or bonds in a market index. This is cheaper than active investing - where the fund managers choose what to buy and sell - so passive fees are lower.
Every year maybe half active managers do better than index funds and half do worse. But only a small number keep outperforming year after year. And It's practically impossible for an ordinary investor to judge in advance which they will be. Given the fee difference, it's better to stick with index funds.
More background: the NZ Super Fund was set up to help pay the rising costs of NZ Super in the decades to come. The Government put in money from 2003 to 2009, and is scheduled to restart contributions from 2020/21. The fund is worth a little more than $34 billion.
Okay, now for your question. Adrian Orr made that statement in response to comments that, "NZ would be better off managing the NZ Super Fund as a passive fund." Soon after, Orr's chief investment officer, Matt Whineray, responded to the same comments in more depth.
And you may be surprised at what he says, as follows: "Active investing is difficult and not worth doing in many markets, and we agree that active investing costs more.