Despite being broadly favourable, the International Monetary Fund’s latest country report warns of the real risk of New Zealand house prices overshooting. With it being an election year and house prices being the centre of our political storm, it is perhaps unsurprising that words had been put into the IMF’s mouth and what started as ‘price overshooting’ is now being largely reported as a ‘housing bubble’.
Is the housing bubble being diagnosed by realists or scaremongers? In this three-part blog series, we ask selected industry experts to weigh in by asking them
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?
Bernard Hickey – Publisher, Hive News
The IMF has warned that New Zealand is in the top five in the world for house price inflation and on its measures of house prices relative to incomes and rents.
Most conventional measures of ‘bubbles’ look at the growth of prices relative to history and the returns on those assets relative to other assets and incomes. By those measures, New Zealand’s house prices are overvalued by anything from 30% to 80%.
However, this over-valuation is not new, although it has gotten significantly worse over the last 18 months.
Another measure of affordability or over-valuation is to look at ‘serviceability’ of the debt linked to those assets. By that measure New Zealand’s house prices are not over-valued at current interest rates and with current levels of unemployment.
Here’s some useful charts to illustrate the article. The bottom two charts are best.
http://www.imf.org/external/research/housing/index.htm
House prices in Auckland are...
