Alistair Helm: Is NZ in a Housing Bubble?

Last week, we asked the EO of the NZPIF, Andrew King, for his take on whether NZ is in a housing bubble.  This week we are pleased to have the founder and CEO of Properazzi, Alistair Helm, sharing with us his views on the housing market.  

We asked Alistair

1. What are the warning signs of a growing house bubble? 

2. Do you believe New Zealand (and in particular, Auckland) to be experiencing a housing bubble?  

Alistair Helm – Founder and CEO, Properazzi

The principle of a property bubble is created when the value of properties being bought and sold reaches a level that is out of context with the principles of affordability coupled with the underlying financial structure of debt that is funding these property purchases is out of line with rationale financial decisions and backed by rampant speculation. In my view the financial markets are acting entirely rationally in supporting the debt of the property market. There is more prudence in the banking industry than there has been, certainly as compared to the middle of the last decade. Certainly there continues to be strong demand for property that is located in areas of the country that  are proximate to the economic growth, but that demand is not irrational and prices are being paid based on buyers ability to pay and service the debt.

I do not believe that NZ generally nor Auckland in particular is experiencing a housing bubble. I believe that we have already seen enough signs that the heated property market experienced last year has eased considerably with the lead indicator of property sales trend peaking in October of last year. That weakness in sales has already cut the growth rate in prices right across the country and in Auckland. The next 12 months will see further slowing of sales and property price inflation falingl to below 5%.

Underlying the property market though is a demand fuelled by immigration and coupled with that economic growth that will likely for many years continue to see strong demand placed on the Auckland market as it will continue to be the magnet for economic migration domestically and internationally. As a result of this it is likely that through 2015 the rate of sales will turn around and trend upward and as a consequence prices will, having found a new more stable base, begin to pick up again.