New Zealand’s housing boom is over, says Westpac bank. The number of houses sold has fallen by one-third in a year and sales are running at just half of 2003’s boom levels.
The bank’s economists believe houses are now grossly overvalued, but New Zealand’s strong economy and relative shortage of housing supply will prevent significant price declines.
The effects of rising house prices combined with rising interest rates on affordability are all too apparent now:
Housing (Un)affordability
to service an 80% mortgage on average house
There is little prospect of a quick fix from lower interest rates. The bank expects mortgage rates to rise next year, increasing the pressure on the housing market.
Westpac expects house price inflation to be flat for several years, with prices in five years’ time similar to today’s.
Looking on the bright side, New Zealand’s banks have not indulged in the super-lax lending bonanza that has backfired so spectacularly and led the US, UK, and Irish housing sectors into trouble. By New Zealand standards, 100% mortgages are extreme. 110% mortgages, subprime mortgages, no-doc loans, and negative amortisation are all thankfully absent.