Housing bubble slowly deflating say pundits

By ANNE GIBSON

New Zealand's world-beating housing bubble will not burst overnight, but it looks to be deflating slowly but surely.

That is the conclusion of a group of experts after yesterday's interest rate rise and the Economist article about the bubble.

Deutsche Bank chief economist Ulf Schoefisch is looking for a soft landing rather than a hard, jarring thump.

"I don't think we'll get into the situation of widespread forced sales. Instead, we may face a period where people simply will not sell if they can't get their desired price. That would lead to flat house prices rather than a down trend," he said.

The latest issue of the Economist ranked New Zealand at the top of a worldwide house price rise chart, citing a 22 per cent annual rise which put us ahead of 15 other countries including Australia (17.9 per cent), Spain (17.3 per cent), Ireland (12.9 per cent) and France (11.8 per cent).

Westpac chief economist Brendan O'Donovan is predicting "an orderly adjustment" in house prices but nothing too shocking or sharp.

He said rising prices were strongly aligned with big income and population growth and not the result of super-low interest rates as in many other countries.

Both economists noted last month that the peak of our housing cycle was September and that the sector was now going into a gradual cooling-off period.

Wizard Home Loan head John Grant said gloomy predictions that the bubble would soon burst took no account of the fundamental differences between New Zealand and other markets.

"New Zealand's fundamentals remain strong and I do not believe there are any substantial indicators that we are going to go in reverse."