House prices too high, warns expert

Auckland's house price surge has prompted a warning that over-valuations are creating a bubble that will burst and cause a painful property recession.

Barfoot and Thompson's November figures, out yesterday, showed a 23-month price high in the city of $550,217 although the number of sales was fairly low.

Institute of Economic Research principal economist Shamubeel Eaqub said the trend could have far-reaching and damaging effects.

"House prices are showing renewed over-valuation," he said. "This will intensify as interest rates rise. A correction in the housing market is necessary to reduce the economy's vulnerability to house price movements. The sooner there is a change, the less the likelihood of a larger and more painful recession further down the track."

Prices were now near the previous peak, suggesting valuations were also becoming very stretched.

To read the full NZ Herald article click here

Posted: 4 Dec 2009

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