Housing boom in Auckland – repeat of US housing market collapse?

On New Zealand’s TVONE last night the current affairs programme “Sunday” ran a segment on the booming property market in Auckland. There were some interesting interviews with real estate people plus economists – namely BNZ Chief Economist Tony Alexander and New Zealand Institute of Economic Research (NZIER) Principal Economist Shamubeel Eaqub. The economists were a lot more rational in their thoughts as to buying a house – for example:

* Have you actually done the sums?
* Can you afford to repay the mortgage if there is a 3% interest rate increase?
* We could see a US style housing collapse.
* Auctions are a good example of buying on emotion with all the hype.

Loads of behavioural economics in the programme. You should be able to see the following:

Herding – People tend to follow the herd, especially information is uncertain, incomplete, and asymmetric (some people are more informed than others).

Relative Positioning – is a concern people have regarding their own economic and social status relative to other people.

Overconfidence – is a belief, fed by emotions, that you can predict movements better than you actually can. When you’re overconfident, you’re not as smart as you think you are.

Institutional Failure – Investment decisions that can be bad for society but good for the individual can be a product of the institutional environment. If decision makers face little or no downside risk when making very risky decisions, they’ll take those risks.

Here is the link to the programme – “Sunday – Going, Going, Going”

House Prices

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