Property-buying frenzy may come to an end

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Though the latest statistics for February suggest the housing boom may be having a breather, the numbers are still pretty giddying, and with interest rates set to fall further, the question is when or why it might end.

Sunday, April 6th 2003, 8:32PM

by The Landlord

House price increases have been running at an annualised rate of 13 per cent in recent months, real estate agents are selling 60 per cent more houses than they did just a couple of years ago, so the frenzy continues.

These are national figures – it is more cosmic in certain locations, such as Auckland city and coastal property.

If we look at house prices in a long-term context, there is clear evidence that they have moved significantly above their long-term trend. The accompanying graph illustrates they have been running hot since the mid-1990s. The obvious question we all think about, but are too afraid to ask, is will they revert?

We first need to note what the key factors fuelling the "uprising" have been and whether they can keep it up. Here the speculation begins.

There have been three big drivers of the residential property market since 1994. They are faster population growth (driven by migration), continued falls in interest rates, and greater investment from foreigners and ex-patriate Kiwis in New Zealand real estate.

Coming on top of two general economic recoveries – one over 1994-1996 and the latest running since 2000 – there has been plenty to inflate property prices.

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