Whilst a number seem to have stabilised, it seems the New Zealand property market could be on the brink of going bust. So, how likely is this and what would going bust actually mean?
Global investment bank, Goldman Sachs, have stated that New Zealand has the most over-valued housing market in all of the G-10 economies. They produced a stark warning that the market is in danger of going bust, potentially meaning that house prices will fall 5% or more in real terms, which means after inflation adjustments have been made.
The G-10 countries are those with the 10 most-traded currencies in the world. After studying their housing markets, Goldman Sachs found that they were most elevated in small, open economies such as the one found in New Zealand.
The bank used three standard metrics to examine the house price levels, including the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation and found the New Zealand property market to be the most over-valued in the G-10 after experiencing soaring prices in recent years.
New Zealand was closely followed by Canada, Sweden, Australia and Norway. Goldman Sachs predicted that the likelihood of the New Zealand property market going bust over the next five to eight quarters was 35-40%.
Whilst the New Zealand market looks to be in trouble, the future looks far from rosy for Sweden either. Goldman Sachs put their risk of going bust at 35%, whilst Australia faces a risk of 25%.
What would going bust mean?
Fears over the market going bust include the effects on construction and the ensuing job losses. This in turn would create a ripple effect throughout the wider economy and therefore the bust situation would be as bad for the country and its economy as continually rising prices.
Whilst some are more sceptical about the predictions, it is widely felt that the New Zealand housing boom could well be coming to an end. It is reported that the New Zealand government has measures in place to influence supply and demand within the market through regulatory activity and house building programmes.
Whatever the house prices may be, New Zealand is certainly experiencing a house building boom, with 30,000 properties under construction, a third of which will be found in Auckland where house prices have experienced a very slight decrease recently.
Buyer beware seems to be the main message being sent to investors from Goldman Sachs and the New Zealand government itself. Whether the market goes bust or not, the lifting of the global economic situation means that a previous lack of supply and long-term low interest rates are likely to come to an end in the not too distant future, which is likely to affect every buyer in the market, as well as those who already own a home.
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