Reserve Bank governor Graeme Wheeler today raised the risk of a “sharp correction” in the housing market.
He warned that “the more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability”.
Wheeler listed rocketing house prices in Auckland and Christchurch as one of the main risks to the economy.
Though expectations were that house prices in Christchurch would eventually settle, “in Auckland, much more needs to be done”.
All the serious, smart people are saying that Auckland house prices are a bubble, that we’re like Ireland, that we’re heading for a ‘correction’, a collapse, the threat of negative equity etc. I’m just a humble blogger, but it seems to me that the supply of Auckland housing is still incredibly limited, and the fierce demand is driven by a combination of population growth, migration, low interest rates, tax loopholes and various other demand-side factors that aren’t going to change in the foreseeable future.
When I was in Ireland in, I think, 2005, their property market was insane. People were building vast Spanish style beach resorts on the coast of Donegal, where it rains for about 350 days a year. That was a bubble, and it burst because those holiday homes purchased at over-inflated prices with 100% mortgages were more or less worthless. But how is Auckland property a bubble? If the price of a scarce resource that loads of people want to buy is increasing, that means that the market is ‘working’. Why would it correct itself?