The question has been posed today in the media that NZ properties are overvalued by 25% – according to a report from the Economist entitled “House of Horrors“. It should be pointed out that this report was reported by Interest.co.nz a couple of weeks ago.
The Ecomomist’s report is certainly worth reading, as well is the data which lies behind the report for it shows that the headline of a 25% overvaluation for NZ property is hard to identify. The full table of data is presented here. It should be noted that The Economist cites Statistics NZ as the source of the data for the report.
The report states that “Based on the average of the two measures (analysis of value to rents & value to income), home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden“.
The specific data for NZ shows that when assessed on the value to rents NZ is 66% overvalued, whilst when assessed on value to income NZ property is just 4% overvalued. Australia by comparison is 38% overvalued when assessed to income and 53% overvalued to rents.
The UK is judged to be 20% overvalued when assessed to income and 28% overvalued to rents, with the US 22% undervalued when assessed to income and 8% undervalued to rents.
The chart also highlights that NZ property is showing a 0.1% increase in price as compared to last year and a 4% fall since 2007. Whilst the countries cited in the headline such as Belgium, Canada and France have seen year on year increases of over 3% up to 7.7% and increases since 2007 of between 6% and 22%.
The Economist provides as part of the data report an excellent interactive chart. This has given me the opportunity to analysing some great comparatives of both property prices and value comparatives which I have detailed below.
Comparing property prices on an index basis since 2000 shows the relative position for NZ matched to Australia and the US. All three countries enjoyed rapid growth through the first 6 years of the decade before the US started its spiral down, over the past 4 years NZ has flatlined whilst Australia has forged ahead.
The analysis of property prices based on real terms rather than actual price as in the index chart is very illuminating – this chart which shows NZ and Australia highlights the fact that the current property prices in real terms are back to where they were in the Q2 of 2005 – over 6 years ago – such is the inflation impact on property prices. By comparison Australian property prices in real terms are 20% up as compared to Q2 of 2005.
The Economist report made comparison of valuation to both income and rental and these next 2 charts present the data for NZ and Australia against these two measures. Based on income NZ Property prices are now around 17% overvalued compared to the status in 2000, by comparison Australia is 42% overvalued. NZ and Australia were tracking on a comparable basis up until the last 2 years when NZ has fallen as a ratio of price to income.
The comparison of property prices to rents for NZ and Australia shows a chart where the two markets are exactly aligned comparing Q1 2000 with the current data – both are showing a 60% appreciation of prices to rents over the period, with both markets tracking in line through the period.
As a final analysis it is interesting to compare NZ with two markets that has fared the worst in the property crash of the last decade – the US and Ireland. In this chart showing property prices in real terms the NZ property prices in real terms are up just over 50% in the 11 years, by comparison both Ireland and the US have seen the bubble followed by the crash which in both cases shows that property prices in real terms are back to 2000 levels – a lost decade for these property markets.