NZ’s housing market ranked most at risk
New Zealand’s ‘‘frothy’’ housing market makes it, of 19 OECD countries, the most vulnerable to a hard landing, a global economic news company says.
Bloomberg Economics analysed price-to-income ratio, price-to-rent ratio, real price growth, nominal price growth, and credit growth in each country, and ranked them by taking an average of each measure.
The higher the score, the greater the risk of a price correction was found to be.
New Zealand topped the ‘‘at risk’’ rankings with a price-to-income ratio of 143.9, a price-to-rent ratio of 156.8, real price growth of 27.6%, nominal price growth of 23.1%, and credit growth of 1.5%.
The Czech Republic and Hungary were ranked second and third, followed by Australia at four, and Canada at five.
The United States was in the seventh spot, while the UK was at 15.
But all 19 countries had combined price-to-rent and home priceto-income ratios that were higher today than they were ahead of the global financial crisis in 2008.
Bloomberg reported global monetary tightening was squeezing home buyers and increasing the risks of a slowdown that could ripple through the economy.
‘‘Falling home prices would erode household wealth, dent consumer confidence and potentially curb future development.’’
But it also said a 2008-style collapse was unlikely, as lenders had tightened standards, household savings were still robust, and many countries had housing shortages and strong labour markets, which provided an important buffer.
Infometrics principal economist Brad Olsen said the fact New Zealand ranked so highly overall, as well as in each of the five measures, should ring alarm bells.
His company’s research showed the country’s housing affordability was at its worst in 65 years but, despite all the bluster of politicians, little was really being done to address the problem, he said.
‘‘While house prices have started falling, they are doing so at a much slower pace than interest rates are rising, so affordability is getting worse. We need to start making concessions to ensure positive change in the housing market or we will be faced with enormous challenges as a society.’’
But independent economist Tony Alexander said there had been dozens of similar assessments of the housing market over the years, and they had zero impact on the decisions of buyers and sellers.
‘‘New Zealanders are influenced by domestic factors rather than overseas commentary and I would anticipate it will be the same this time as in the past.’’
The market moved in cycles and, after a boom period, prices, sales and construction all slowed down, and outsized pessimism developed, Alexander said.
‘‘Central banks are all trying to crunch their economies, they want to have some rapid slowing in growth rates, so people being negative is what central banks want to see.’’
In New Zealand, house prices have been falling since late last year and the latest Real Estate Institute figures showed the national median was up 2.4% in May this year compared with May last year.
That compares with an annual increase of 8.8% in April and more than 30% at the peak of the market.
Commentators have different expectations for how far prices might fall but ASB and Westpac banks have predicted prices could drop 20% from recent market peaks, when adjusted for inflation.