Housing market strength worrying: Trass
The continuing strength of the housing market is starting to worry one property market analyst.
Thursday, October 6th 2005, 1:57PM
by Jenny Ruth
"It's starting to look decidedly concerning to me. I'm more concerned than I have probably been for five years," says Kieran Trass at Hybrid Group.While he isn't yet prepared to bet New Zealand is heading for a recession, that is becoming a distinct possibility.
"We have every likelihood of entering a recession if we carry on like we are. If we do, we have a (housing market) crash on our hands," Trass says.
After analysing the four housing market booms since 1970 in his latest monthly property report, Trass concludes that the current one is the largest since the 1970s one - that one was 50% bigger than the one we've (mostly) just had and occurred during an oil crisis and was followed by a difficult slump, he notes.
Trass is expecting further growth in house prices in the short term in most parts of the country.
Factors driving the market include property investors buying in lower socio-economic areas, a shortage of listings compared with buyer demand and continued buying by Australian investors, although he expects the latter is waning.
The fact that the Reserve Bank has repeatedly warned about the likelihood of higher interest rates but failed to actually raise rates is another factor, as is the strength of the jobs market which is keeping confidence high and making people more willing to take on bigger mortgages.
However, when the tide eventually turns, possibly in mid-2006, it is likely to turn quickly, driven by high oil prices, rising inflation, rising interest rates and negative net immigration. If the New Zealand dollar stays strong, that won't help either.
"The Reserve Bank has no choice now." It will have to raise interest rates now, even though it doesn't want to because of the likely impact of keeping the currency higher.
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