- The first house price increase (to June 2010) merely takes us back to where we were in December 2007 in nominal terms.
- Real house prices don’t re-reach their peak for another year after the nominal level returns.
- However, house prices remain 30% overvalued – structural factors imply that this is an “equilibrium”, although not a very nice one.
- Ultimately, in the long-run, we agree with Bernard Hickey and Gareth Morgan that prices need to go back to “fair value”. Our argument is only over the transition path. There is a difference between saying that they economy needs to rebalance (true) and assuming it just magically will – we don’t think it will in the short-term.
Driving growth is:
- Loosening credit conditions,
- Low interest rates,
- Limited supply on the basis of a weak build rate
- Limited supply on the basis that people don’t really want to sell (unemployment stays moderate, interest rates low, lack of forced sales).