Daily Briefing, Tuesday February 12, 2008

The debate about what will happen to house happens has been a regular over barbecues up and down the nation through this endless summer.
Now we have some statistics from Barfoot and Thompson showing house prices beginning to fall quite sharply in Auckland and sales volumes crashing 40% just as extra supply slams onto the market.
This has quite rightly raised the question: how much might house prices fall?
The next question to ask is how over-valued is housing in New Zealand. There's a couple of ways to approach this. The first way to do it is to look at housing affordability. Interest.co.nz produces the Fairfax Media Home Loan Affordability survey, which looks at the percentage of after tax income needed to afford the home loan on a median house price.
The survey shows that nationally it currently takes 81.9% of take home pay for a median income to afford the loan on a median property. If wages were to keep growing at current rates and if interest rates were to stay the same, then house prices would need to drop 30% to get that affordability ratio back down to the 40% level most bankers say it should be.
That would mean the median house price would have to drop from around $345,000 now to around $240,000 by the end of the year.
Looking at it another way, this chart shows the trend for the value of New Zealand's housing stock. It's clear the market took off in 2002 and is now at least 40% over valued by comparing current housing stock values with the trend over the last 28 years.

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