Larry Williams: Correction on house prices is coming

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Opinion

Listen to Larry Williams on Newstalk ZB from 4pm to 7pm. Today he looks at Auckland house prices.

The Herald series "Home Truths" on the rise and rise of house prices tells me one thing - prices are stark raving mad.

It's not a matter of "if" but "when" there's a correction.

Yes, its supply and demand, but when a million dollars buys you a pretty average home in Auckland you just know there's danger ahead. It can't last. It's out of control.

The concerning thing is that people are so desperate to get into the market, they are borrowing to the hilt to buy pumped up, overvalued, mediocre homes. Even some of the new homes are clearly minimum code of compliance but the price doesn't reflect that. You get better bang for your buck in Sydney, another overpriced market.

If the Reserve Banks drops the OCR further, which they are expected to do, it will exacerbate the problem. House prices are in part being fuelled by increased borrowing.

There is this belief that the market can only go one one-way... up. There's also the feel-good factor of increasing wealth for those already on the property ladder.

Well look at Ireland, the UK, the US, Spain and Greece to see evidence that the market can go down. Housing markets do "crash".

Now, some experts will point to the lack of supply and record immigration levels that are pumping up the market and that is all true, but I point to "sanity".

It's insane and Auckland is certainly at the very least a "correction" waiting to happen.

If the correction turns into a "crash" it will reap carnage.

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