NZ house prices over valued, says IMF

In its latest report on New Zealand the IMF said there was some uncertainty though around the 15-25% estimate which was based on the OECDs house price to income ratio as at September last year, which did not take into account Statistics New Zealand's recent upward revision to household income.

Under the OECD model real house prices rose by 150% in the 15 years to 2007, the IMF said, making it one of the strongest house price increases among advanced countries, though since then house prices have fallen by more than 10%.

A new model developed recently that takes into account income, demographics and interest rates, suggests house prices in New Zealand are over-valued by 20-25%, the IMF said.

Yet another model that uses demographics, mortgage interest rates and the terms of trade instead of future income indicates house prices are over-valued by 15-20%.