New Zealand house prices under threat

Wednesday 9 June 2004

New Zealand's recent property boom may soon end in a dramatic correction that could see house prices fall by more than 15% over the next few years, the international weekly magazine Economist says in its latest issue.

By The Landlord

New Zealand, a recent addition to the Economist's quarterly survey of global house price indicators, recorded the largest increase in prices across 16 developed economies in the first quarter of this year, rising 22% compared with the same period a year earlier.

In second place was Australia where prices rose 17.9% over the same period.

The magazine said Australia's housing bubble could be the first to burst and had already weakened.

The most recent figures showed prices had fallen by an average of 8% in Sydney and 13% in Melbourne in the first quarter of 2004. Anecdotal evidence suggested they had continued to fall since then.

The main reason for falls in Melbourne and Sydney house prices appeared to be that: "first time buyers have been priced out of the market".

Another factor was a dry-up in demand from buy-to-let investors following net rental yields falling below mortgage rates.

The magazine said house prices might eventually return to levels consistent with long term average price-to-income ratios.

Under such a scenario, over the next four years, New Zealand house prices would fall by 15%.

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