Bank headed off property crash

[Rampage]

http://www.telegraph.co.uk/money/mai...ixcitytop.html

[Josko]

WOW 83.9% probability to crash, that is a scary indicator!!

[mals69]

Good post

The way Ive always looked at it is what sets property prices is supply and demand.
Everyday the world population grows and land gets used up.
Property prices have increased of a rate of 10% compounded since records have been taken in New Zealand since the early 1900's.
So if you are in for the long hall like any astute property investor is there is nothing really to worry about in the big scheme of things no matter how hard the media tries to paint a picture for a news story.

[kieran]

83.9% probability to crash,

Yeah right! I don't believe so...

I have already been contacted by a reporter today who I have supplied my own analysis to. My analysis, in contrast, reveals that we are pretty much the least likely country (out of NZ, Aust, UK and USA) to suffer a crash and the UK is actually the most at risk (by far)!

I believe the OECD have made an error in judgement based on a potentially flawed assessment but rather than explain it in detail here I want to wait for the local reporters story to reach the media first.

I guess the doomsayers will love the OECDs 'findings' but the best news for us as investors is that this sort of story (whether it's true or not) can dent vendors expectations and enhance the current 'buyers market' we are in!

[leapy]

"Based on a 1% rise in interest rates and another year of steady growth."

Come now - are either of these things very likely?

The figures do not appear to have addressed the likelihood of such a scenario, but merely what would happen in the event of this scenario.

Looks like an attempt to cheer up some pessimistiic Brits.

[Mark_B]

I think people are focussing too much on the graphic.

Read the article carefully and it says this:

Using complex economic tools, the Paris-based OECD discovered that the probability of house prices "peaking", or slumping, is currently only 4.6pc. If the Monetary Policy Committee raised borrowing rates to 5.5pc, the probability would rise to 8.9pc, and if rates were hiked to 6.5pc, the chances of a crash would rise to 13.2pc.

Did anyone else pick up what happened there?

In the space of a paragraph, property prices "peaking" became synonymous with them "crash[ing]"

That is the journalist first used the former term (peaking), before later using the latter term (crash) as though they both have the same meaning.

What constitutes a property "crash" is debateable, of course. But "peaking" property prices and "crashing" property prices are two different things.

The journalist then continues to use the term crash for the rest of the article, for example:

The OECD research shows that, if prices were to continue rising this year at the same rate as in 2005, and if interest rates rose by a percentage point, Denmark, New Zealand, France and Sweden would be almost certain to suffer a crash, with Danish property owners the most vulnerable.


What I suspect the journalist really means is this:

According to OECD research, if house prices in Nex Zealand (and other places) were to continue rising this year at the same rate as in 2005, and if interest rates rose by a percentage point, then prices would almost certainly peak.


Unfortunately (for the journo) this is isn't nearly as dramatic.


Mark

[mals69]

Forget all the hype and stick with the basics of economic law - supply and demand.
If applied to NZ prices they could stagnate with the current way out of whack wages compared to weekly borrowing costs on average.
I herd a few years back english prices were over hyped so know surprise if they are coming back.
Some people hear think they have increased over the top but are around where they should be if Mr Don Brash had not been so conservative when he was governor of the reserve bank for ten years.
What needs to increase here fast is wages or prices will have to come back as there are only so many New Zealanders that can afford the repayments of $800 per week on an average priced $400 000 home.