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21-08-2012

Over-valued houses mean nothing for prices: Alexander

Landlords.co.nz

New Zealand may be one of the most over-valued housing markets, but that doesn’t mean prices are going to fall any time soon, says BNZ chief economist Tony Alexander.

By Susan Edmunds

The Economist magazine has released a report showing that while globally the years of soaring house prices seem to be at an end, New Zealand is bucking.

In terms of price versus rental return, New Zealand houses are second-most expensive in the world. When compared to disposable incomes, New Zealand house prices are sixth most overvalued.

Alexander said reports such as the Economist’s were common.

“It’s been that way for quite some time. It’s no surprise at all. But valuation measures give no insight into where prices are going to go.”

He gave the example of the exchange rate. “If someone said to you ‘this exchange rate is 20% overvalued’, you’d expect that it was going to fall. But at one point it was 10% overvalued, then 15% overvalued, and it kept rising. There’s nothing to say it won’t eventually be 80% overvalued.”

He said house prices had proved very resilient. During the world’s biggest economic crisis of recent times, prices fell just 11% on average and were now back above their 2007 peaks.

During that period, perks for investors such as LAQCs and depreciation were removed. “Still prices are rising,” Alexander said.

He said what was important were the facts on the ground. “People are prepared to pay these prices. We have an undersupply of housing in some parts of the country and there’s a growing awareness that the undersupply won’t be corrected for a great period of time.”

Source: Landlords.co.nz

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