real estate risk

PHOTO: Will opening the borders make house prices go up or down? Getty Images / OECD. The AM Show

New Zealand’s inflated real estate prices have seen us named the “frothiest” housing market in the world in a new report by Bloomberg Economics.

The news outlet released its latest ‘bubble ranking’ on Tuesday (NZ time), rating countries by averaging five criteria – price-to-rent ratio, price-to-income ratio, real price growth, nominal price growth and annual credit growth.

The higher the reading, the greater the risk of a correction – and unfortunately for the OECD, a correction looks likelier than ever. Bloomberg reports ratios are higher than they were in the lead-up to the 2008 global financial crisis.

“A cocktail of ingredients is sending house prices to unprecedented levels worldwide,” economist Niraj Shah wrote in Bloomberg’s Property Bubble Gauges Flash 2008 Level Alert.

“Record low interest rates, unparalleled fiscal stimulus, lockdown savings ready to be used as deposits, limited housing stock, and expectations of a robust recovery in the global economy are all contributing.”

If things are looking bad in the OECD, they’re abysmal in New Zealand.

A poor performance across the five indicators saw us top the rankings, ahead of other ‘frothy’ housing markets like those in Canada, Sweden, Norway, the UK, Denmark and the US.

Bloomberg Economics' bubble ranking.
Bloomberg Economics’ bubble ranking. Photo credit: Bloomberg / OECD