Investors to sell their 'crap' houses while housing frenzy lasts - economist

A Kiwi economist is expecting investors to sell off their worst properties during New Zealand's housing frenzy.

Tony Alexander told The AM Show he predicts house prices will continue to rise strongly in 2021, but expects the return of loan-to-value ratio restrictions (LVRs) to impact the market.

"After the next two months, when I think there is still some frenzy left in it, we are going to see a slow down in the rate of price gain," he said on Tuesday. "There's a lot of things that are driving people into a frenzy at the moment, a bit of FOMO (fear of missing out), a lot of people are looking to beat the return of the LVRs, the higher minimum deposits."

New Zealand recorded an 11 percent increase in house prices over 2020, with some Westpac economists forecasting a rise of 15 percent in 2021.

But Alexander said he doesn't think the skyrocketing prices will last.

He said investors are now going to be selling off their faulty properties while the market is still hot.

"It's not going to continue like this, there will be a slowdown," he told The AM Show. "Some of it is going to be natural in that the deposit that you have got to come up with is going to be too big. And some of the investors who have been around for a number of years, generations, they know what to do when the frenzy comes along - you sell off your crap, the stuff that needs a new roof, or the new floorboards, you start flogging that off."

When asked if prices will fall, he said it's "pretty rare".

"Generally it only happens when the country is physically in a recession and that doesn't look likely in the near future. And then for prices to really slow down, to get close to a 0 percent change, you need interest rates to go up."

But he pointed out if they do, it would be a great opportunity for first home buyers to get onto the property ladder.

"When prices fall, all of the first home buyers -who we are concerned about at the moment - they are going to go 'I'm not going to buy because the prices are going to fall'. It's the best opportunity for them to buy but they pull back and wait until everyone else dives in."