Whether hedge funds assist the adjustment process or whether they make it more abrupt and costly, is debatable. Many countries have seen pronounced strength in property markets over the past decade. Strong residential property markets have often gone hand in hand with strong consumer spending. New Zealand has been a leading example.
House prices have risen substantially as a ratio to income over the past five years. As longer term interest rates have risen recently in New Zealand, and housing turnover has slowed, the elevated level of house prices has looked increasingly unsustainable.