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The housing market is over valued - so what?

Friday, April 4th 2008, 9:28AM 4 Comments

by Philip Macalister

The BNZ’s report on housing prices isn’t necessarily telling us anything new on prices. We know the market is over-valued, and that it has to fall.

Just look at the hundreds of stories we have seen in recent month on home affordability.

All markets go through cycles where assets get over-valued and then come back. Often, like the New Zealand sharemarket at present, they actually become under-valued and present investors with great buying opportunities.

If you go through a sharebroker’s price list at the moment you will see nearly every decent company listed on the NZX is trading at a discount – that is you can buy the shares for less than what their assets are worth.


It’s like having an Easter sale again.

The question for the housing market is how far will house prices fall and will there be “cheap” houses for sale? No doubt about it – yes there will. But not every house will be “cheap”.

People need to be careful about taking predictions about where prices are going and then apply it to every sale.

One of the issues though is that it is getting harder and harder to borrow money from banks.

In the past week the big banks have started to tightened lending criteria and some of the smaller, non-bank players are under pressure too. Some have disappeared already and many of the lo-doc lending products used by property investors have been pulled.

Added to that rates are high. We track home loan rates on landlords.co.nz and there is nothing below 9% and plenty of rates at or over 10%.

Money is expensive.

But the good news is that the housing market won’t crash. Buyers waiting, there is strong employment and at some point (maybe this year) lending rates will come down.
« Bubble, bubble, toil and troubleAuckland house prices bad sign »

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Comments from our readers

On 4 April 2008 at 1:53 pm B Kennedy said:
It irks me not a little to read (and hear) constantly, that houses are over valued by 30%. By international standards, they are not! If you consider the main criteria by which such judgements are made, namely cost relative to income, there is another obvious answer to the problem : we are underpaid by 30%.

We know that compared to Australia, our middle and lower income earners suffer and we know that the problem is way more serious than anyone appears willing to admit. Sadly, like impotence, everyone knows it's an issue but no-one wants to admit to it. Who wants to admit they are struggling to feed and house their family?

If, as predicted, wages increase by 5% pa over the next 5 years and if houses stay relatively static, balance will be achieved. It still doesn't mean that houses are over-valued and it shouldn't need those who were unlucky enough or timid enough to miss the last cycle to pray for those whose (often) modest wealth is tied up in property, to lose their capital.
On 4 April 2008 at 4:25 pm dave milich said:
You are so right.....I am hearing all the time thet workers are getting payed $12 an hour...when I was paying my workers $10 years ago...
Croatian's are paying 1500 Euro for a squere meter of appartmant and as of the house God help you.
I have a few rentals and I am putting the rents up as thay are comming for renewal...rates...interest have all gone up...so I am looking for a good cash flow.
Nice to see somebody sees the present situation in the right light.
Chers for now
Dave
On 5 April 2008 at 8:47 pm Ross Pullan said:
The property market may fall. Who really cares?! It is only a short term problem of say 4 to 5 years at max. most probably alot less as property cycles are around 7 to 9 years. In the end things will increase again,this is the nature of the beast.
As for house prices being over valued. The truth is the average wage is 30% under valued. In some cases it maybe closer to 50%. As many experts have said we are living in a world economy. So on a world stage, they are not undervalued. Lastly I don't know of another country anywhere that will allow people living overseas to purchase land in their country, Unless they are citizens of that country.
On 21 April 2008 at 11:47 am marty said:
just a real pleasure to read these comments
Commenting is closed

 

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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 4.05 4.49
ANZ Special - 3.55 3.55 3.99
ASB Bank 5.20 3.89 4.05 4.39
ASB Bank Special - 3.39 3.55 3.89
BNZ - Classic - 3.49 3.55 3.89
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union North 6.45 - - -
Credit Union South 5.65 4.75 4.75 -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 ▼4.65 ▼4.80 -
HSBC Premier 5.24 3.54 3.54 3.69
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 3.97 4.05 4.39
Kiwibank 5.15 4.20 4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.45 3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.45 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.39 3.55 3.89
Sovereign 5.30 3.89 4.05 4.39
Sovereign Special - 3.39 3.55 3.89
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.19 4.35 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.39 3.55 3.89
Wairarapa Building Society 5.50 3.95 4.05 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.39 3.55 3.99
Median 5.34 3.97 4.05 4.39

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