The housing market is over valued - so what?

The BNZ’s report on housing prices isn’t necessarily telling us anything new on prices. We know the market is over-valued, and that it has to fall.

Just look at the hundreds of stories we have seen in recent month on home affordability.

All markets go through cycles where assets get over-valued and then come back. Often, like the New Zealand sharemarket at present, they actually become under-valued and present investors with great buying opportunities.

If you go through a sharebroker’s price list at the moment you will see nearly every decent company listed on the NZX is trading at a discount – that is you can buy the shares for less than what their assets are worth.

It’s like having an Easter sale again.

The question for the housing market is how far will house prices fall and will there be “cheap” houses for sale? No doubt about it – yes there will. But not every house will be “cheap”.

People need to be careful about taking predictions about where prices are going and then apply it to every sale.

One of the issues though is that it is getting harder and harder to borrow money from banks.

In the past week the big banks have started to tightened lending criteria and some of the smaller, non-bank players are under pressure too. Some have disappeared already and many of the lo-doc lending products used by property investors have been pulled.

Added to that rates are high. We track home loan rates on landlords.co.nz and there is nothing below 9% and plenty of rates at or over 10%.

Money is expensive.

But the good news is that the housing market won’t crash. Buyers waiting, there is strong employment and at some point (maybe this year) lending rates will come down.