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Over-valued houses mean nothing for prices: Alexander

New Zealand may be one of the most over-valued housing markets, but that doesn’t mean prices are going to fall any time soon, says BNZ chief economist Tony Alexander.

Tuesday, August 21st 2012, 12:00AM 4 Comments

by Susan Edmunds

The Economist magazine has released a report showing that while globally the years of soaring house prices seem to be at an end, New Zealand is bucking.

In terms of price versus rental return, New Zealand houses are second-most expensive in the world. When compared to disposable incomes, New Zealand house prices are sixth most overvalued.

Alexander said reports such as the Economist’s were common.

“It’s been that way for quite some time. It’s no surprise at all. But valuation measures give no insight into where prices are going to go.”

He gave the example of the exchange rate. “If someone said to you ‘this exchange rate is 20% overvalued’, you’d expect that it was going to fall. But at one point it was 10% overvalued, then 15% overvalued, and it kept rising. There’s nothing to say it won’t eventually be 80% overvalued.”

He said house prices had proved very resilient. During the world’s biggest economic crisis of recent times, prices fell just 11% on average and were now back above their 2007 peaks.

During that period, perks for investors such as LAQCs and depreciation were removed. “Still prices are rising,” Alexander said.

He said what was important were the facts on the ground. “People are prepared to pay these prices. We have an undersupply of housing in some parts of the country and there’s a growing awareness that the undersupply won’t be corrected for a great period of time.”

« Rest of country will catch up to Auckland: WestpacWhere have the big gains been? »

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Comments from our readers

On 21 August 2012 at 1:26 pm anon said:
Shouldn't we - as a nation - be thinking about doing something about increasing disposable income then? Why keep trying to bring house prices down. The former is progressive thinking, the latter regressive anyway.
On 21 August 2012 at 5:04 pm whatthatman said:
Economists are not comparing like with like. We are not building enough cheap high rise apartment blocks that is why our data is skewed. They are comparing a 3 bedroom pigeon hole in Mumbai with a 3 bedroom on 500sqm in Auckland. That's why we are so expensive. But try buying that same 3 bedrooms on 500sqm in Mumbai and it will cost you millions of dollars. So how is $540k average prices in Auckland expensive?
On 21 August 2012 at 9:14 pm Jimmy said:
Its quite simple maths: Supply vs demand. House prices will continue to rise because the cost of building is ridiculously over-inflated. Factor in things such as increased Council consent fee's, Watercare services massive infrastructure growth charge, the cost of third party inspections (because councils want to pass off liability), huge increases in building many materials partly due to an over-regulated building code (stainless anyone?) and in some areas you're up to $100k before you get the digger onsite. The developer certainly isn't going to eat this cost and if rented by an investor, they'll want to at least cover their costs... and we wonder why we have a housing shortage? No wonder so many are leaving in droves to Aussie...
On 30 August 2012 at 10:59 pm William said:
Prices have moved rapidly. In Onehunga it’s tough to find a standalone place under $500k. This is one of the few. http://www.realestate.co.nz/1844968
The thing is that suburbs like this are trendy and considering Auckland's attraction as an international city still good value. Olive trees, fruit trees, a harbor view and a safe quiet area… Most people in first world countries would say that’s a good deal.. Prices aren’t bad when you put our lifestyle into the mix.

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AIA - Back My Build 5.44 - - -
AIA - Go Home Loans 7.99 5.99 5.69 5.69
ANZ 7.89 6.59 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
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ASB Bank 7.89 5.99 5.69 5.69
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BNZ - Rapid Repay 7.94 - - -
BNZ - Std 7.94 5.99 5.69 5.69
BNZ - TotalMoney 7.94 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 5.79 - -
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Co-operative Bank - Owner Occ 7.65 5.99 5.75 5.69
Co-operative Bank - Standard 7.65 6.49 6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.40 6.10 -
First Credit Union Standard 8.50 7.00 6.70 -
Heartland Bank - Online 7.49 ▼5.65 ▼5.55 ▼5.55
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.00 6.50 -
ICBC 7.49 5.99 5.65 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
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Kiwibank 7.75 6.89 6.59 6.49
Kiwibank - Offset 8.25 - - -
Kiwibank Special 7.75 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.44 ▼6.39 ▼6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
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SBS Bank 7.99 6.95 6.29 6.29
SBS Bank Special - ▼6.15 5.69 5.69
SBS Construction lending for FHB - - - -
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SBS FirstHome Combo 5.44 ▼5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.69 6.79 6.49 6.49
TSB Special 7.89 5.99 5.69 5.69
Unity ▼7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
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Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
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Westpac Special - 6.29 5.79 5.79
Median 7.99 6.17 5.79 5.69

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