Editorial: When will the bubble explode?

MORE often than not conversations about New Zealand's level of debt will glaze the eyes of many and have the rest running a mile. And that's largely because it's a topic we shy away from. Boring for some, unexciting for others but, for the majority of the population, we haven't got a clue what's going on.

But there have been some disquieting murmurings from some financial commentators that the property bubble - driven mainly by Auckland but now filtering to places like Hamilton and Tauranga -is about to burst. It won't be a small pop, either. Those same experts are saying it will be messy.

Fund manager Brian Gaynor was reported as saying the stars have aligned to the point where "we've almost got the perfect storm". That "storm" is being seeded by rising house prices and a correspondingly scary hike in debt levels.

Gaynor reckons things like not enough building, restrictions on development, low interest rates and banks all too happy to lend for property investment are in the mix. The last time there was the perfect storm was in the 1980s. Things just went up and up and people believed they were bulletproof.

But it is this latest cycle that has these commentators very worried and we should heed their concern. They say the problem is that there's no easy way to get out of this cycle, but if house prices fall - as they say they must - then highly leveraged investors and many home buyers will be terribly exposed.

When the bubble bursts what follows is distressed selling and a massive plunge in consumer confidence. Remember post-1987? It took years to recognise any sort of recovery from that. What compounds the problem is that Kiwis are not great savers. We're avid consumers and aren't worried about racking up debt to get involved in it.

Some commentators believe the banks have to tighten up and restrict the volume of mortgages they approve. That wouldn't be a popular move, but it's something that's probably prudent.

So when will the bubble be pricked? Some analysts said it would happen when there's a big increase in housing supply and a turnaround in the record immigration NZ's currently experiencing. They all acknowledge they may not know when it will happen, but happen it will.