Read this and tell me if I'm nuts. House prices too high, warns expert
Auckland's house price surge has prompted a warning that over-valuations are creating a bubble that will burst and cause a painful property recession.
Barfoot and Thompson's November figures, out yesterday, showed a 23-month price high in the city of $550,217 although the number of sales was fairly low.
Institute of Economic Research principal economist Shamubeel Eaqub said the trend could have far-reaching and damaging effects.
"House prices are showing renewed over-valuation," he said. "This will intensify as interest rates rise. A correction in the housing market is necessary to reduce the economy's vulnerability to house price movements. The sooner there is a change, the less the likelihood of a larger and more painful recession further down the track."
Prices were now near the previous peak, suggesting valuations were also becoming very stretched.
"While prices are rising, sales volumes are slowing after adjusting for seasonal patterns," he said.
So, while prices have reached their all time high again, the number of houses being sold is falling. Lets take a limit case; 3 houses only are sold in the city during December. All three sell for exactly a million bucks. Will we see a headline saying that the average house price in Auckland has now reached a million? And will there be further warnings about an unsustainable bubble?
A bubble happens when two things align, too much money in circulation and a mania for a single type of object (tulips, houses, gold - anything in relatively, but not absolutely, limited supply).
We had a housing bubble and, as it deflates, there will be periods when the prices rise again for a variety of highly local reasons - including someone sells their Brisbane house at last and moves back to NZ where they buy a bit over the odds just to get the family settled etc.
But the fact is that banks are not lending if they can avoid it, people are feeling unsafe as their jobs look increasingly shaky and aren't going to take on new debt, in fact they are trying to unload their overpriced assets when they can.
I have a mate who was looking for an apartment in the city. The news reported a few weeks ago that real estate prices were rising again and 2 days later about 400 properties hit the market.
Tell you anything?
Apparently not our ever-boosting media who seem to see their job as "keeping our chins up" in tough times, mostly so we don't look down and, like Wile E. Coyote, realise that there is a gaping hole under our feet.