Rodney’s Ravings: Property prices prospects – the real story
With the latest house price data performing well some people may be getting excited about house and section price prospects (e.g. the REINZ median dwelling price in December 2009 was up 10.8% on the trough level in January and 2.3% on the previous peak level in November 2007). Despite having been one of the optimists about housing market prospects in early-2009 when most economists were preaching doom and gloom, I see the performance in 2009 as being an aberration. My analysis leads me to conclude that we are still early in the adjustment phase that will ultimately result in a significant fall in real or inflation-adjusted house and section prices, with the full adjustment likely to take another 5-10 years. What house and section prices do relative to prices in general is what ultimately matters, which is what real or inflation-adjusted prices measure.
This Raving looks at how house and section prices stack up relative to incomes, and how house prices stack up relative to rents and interest rates. This analysis forms the basis of my conclusion that real house and section prices are a long way from being out of the woods. It uses the 1973-74 mega-boom in house prices as a case study to help understand what happens to real property prices after a speculative bubble. It also looks at how price performance is differing materially in different parts of the country and in some selected sub-markets, with these case studies providing valuable insights into the dynamics at work and especially the important part psychology plays in the adjustment process.
REINZ data show fewer houses and sections selling in December 2009. Consistent with these falls and as covered in our pay-to-view Housing Prospects reports, the next phase of the adjustment in real house and section prices is not far away. Visit our website or contact me if you want to know about these reports.
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