Last week, we asked financial journalist, Bernard Hickey, to address key market indicators and discuss whether New Zealand is heading right into a housing bubble. This week, we put the same questions to NZPIF Executive Officer, Andrew King.
We asked Andrew
1. What are the warning signs of a growing house bubble?
2. Do you believe New Zealand (and in particular, Auckland) to be experiencing a housing bubble?
Andrew King – Executive Officer, NZPIF
A bubble situation is not just house prices getting high, it is where fundamentals have got so out of whack that there is a high probability of large price falls.
In the years leading up to 2008, this occurred in the US when they pumped the market full of cheap mortgage funds and removed requirements for deposits, which dramatically increased demand and prices. Too many houses were then built than was required. When the cheap interest rates increased to market levels, demand plummeted and there were large amounts of new homes with no buyers.
Do I believe Auckland to be experiencing a bubble? No. Auckland house prices are going a typical cycle. We have had low interest rates for a number of years and high levels of migration causing high demand for property. At the same time we have had low levels of homes being built. This is a classic case of excess demand over supply and property prices are reacting...
