Houses look good compared to shares
People have opted for houses instead of shares, because of poor market returns.
Thursday, July 11th 2002, 12:32AM
by Jenny Ruth
New Zealand’s booming housing market is part of a global trend but, unlike the US, Britain and Australia, we aren’t suffering a "bubble" market, at least not yet, according to Bank of New Zealand.
Fears that the global residential property bubble may be near to bursting are growing, particularly in the US where only the buoyant housing market has kept consumer confidence positive in the face of carnage in equities markets.
"The fear is that when the Federal Reserve finally gets around to raising rates, the housing bubble could burst, throwing the US economy into recession. Similar concerns are held for the Australian and UK economies," BNZ says.
The key driver of global housing markets has been that financial asset classes have performed so poorly recently.
"Investors are clearly very shy of putting money into equity markets," it says. Further enhancing the attraction of residential property has been low interest rates. The Fed’s key interest rate is still just 1.75%, its lowest level in 40 years.
While the Reserve Bank has hiked our rate to 5.75% so far this year, it is low by historical standards.
BNZ says New Zealanders still own too much property relative to other assets – housing is about 61.4% of our total assets compared with only about 34% in the US. But the proportion in the US has risen sharply while it has declined from a peak of 65% in 1990 in New Zealand.
A further indicator that we aren’t suffering a housing bubble is that while the value of US housing stock has risen to 163% of gross domestic product, in New Zealand it has declined from a peak at 175% of GDP in December 1997 to 147%.
While house prices have been rising at above 10% annually recently, the longer term picture isn’t very alarming. House prices in New Zealand grew 16.4% between December 1995 and December 2001. In the same period, they leapt 45% in the US and 33% in Australia.
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