New Zealand house prices could fall by up to 25% in the near future with a devastating impact on the economy, a leading investment analyst is predicting.
Brian Gaynor, executive director at Milford Asset Management,has told interest.co.nzthe housing market is "a major medium-term concern" because there's no question in his mind that at some it will come back down, though he doesn't know when.
"And it will come back 10, 15, 20 or even 25% and that will have a really devastating impact upon the New Zealand economy because of the high level of debt," Mr Gaynor told the interest rates website in an interview.
"Will it be this year? Probably not, but it could be. Will it be next year? I'm not sure. It could be two or three years time but it will happen at some stage," he said.
"Asset prices don't keep on going up year after year although most New Zealand investors believe that they do," Mr Gaynor added.
Mr Gaynor predicts the strong finish to 2014 for the housing market, driven by Auckland, will continue into 2015 because increased housing supply doesn't look like it's coming this year.
"So I can see housing going even higher," he said.
But the "massive momentum to the property market" won't last forever, he predicted.
Asked what could trigger a significant fall in house prices, Gaynor said supply and the Australian economy were key factors.
"It's supply. It's a big increase in supply and a big upturn in the Australian economy. When all of a sudden Australia does better you get people leaving, going to Australia and you get less New Zealanders coming back here, and at the same time there's a big increase in supply," he said.
"Supply is normally the major thing that kills it and we're not getting the supply this year, and particularly in Auckland we're not getting anything like it."
He added: "There's talk about the amount of houses we need to build but we're not building them. A lot of the companies are very cautious. They're finding it difficult to make money building houses because although prices are high the cost of materials and the cost of labour, (is also high)."
Mr Gaynor said there's a huge amount of job ads on Trade Me for people in the construction industry and property industry.
"It's a sign that the big companies just can't find the skilled people to work on these projects, and when they do get them they're having to pay them very high wages," he said.
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