Market dispute
Prime Minister Bill English pours water on an investment bank’s warning of a looming ‘‘bust’’ in house prices.
Goldman Sachs warns of a ‘‘bust’’ in New Zealand housing prices, but a 5 per cent reduction would actually be a ‘‘reasonable adjustment’’, Prime Minister Bill English says.
The US investment bank said this week that there was a 40 per cent chance New Zealand will suffer a housing market bust in the next two years, meaning prices would fall 5 per cent or more.
However, English said some prices in Auckland had already fallen by that much over the last nine months.
‘‘Most New Zealanders would regard that as a pretty sensible adjustment in what’s been a hot market,’’ he said.
‘‘It sounds to me like the language they are using is exaggerating what they are describing, which sounds like a reasonable adjustment in house prices.’’
It would be ‘‘good for everybody if the market settled down’’, English said, but he would not say he wanted to see prices fall.
Goldman Sachs judged prices as overvalued based on the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation.
Behind New Zealand, Sweden was next likely to suffer a bust, at 35 per cent, followed by a 25 per cent chance in Australia.
Property commentator Olly Newland said a 60 per cent chance that there would not be a fall in prices of 5 per cent or more was still good odds for those in the market.
He said it seemed more likely that prices would flatten, rather than fall rapidly.
There are already signs this is happening in Auckland. Figures from the Real Estate Institute of New Zealand show prices in Auckland were up only 3 per cent yearon-year in April.
But Gareth Kiernan, chief forecaster at Infometrics, said Goldman Sachs was being too conservative.
He said a 5 per cent fall was ‘‘hardly bust territory given where New Zealand is at the moment’’.
‘‘It’s hard to know with Auckland but in the grand scheme of things they are probably underestimating the probability.’’
ASB senior economist Chris Tennent-Brown said that even a price fall of 10 per cent to 15 per cent would only take prices back to where they were a year or 18 months ago.
‘‘[That was] when everyone was writing saying how expensive housing was.’’