Commentary
The red-hot housing market is showing signs of cooling down, but it’s not just in America where this is happening. Globally, cities all over are feeling the crunch, with price-to-rent and price-to-income ratios skyrocketing. These two ratios are important measurements as they measure housing affordability in given housing markets. In New Zealand alone, the price-to-rent index is 156.8 and the price-to-income ratio is 143.9.
A mixture of low interest rates across the developed world has created equally low mortgage rates; add cheap money to construction material shortages, and a short supply of finished housing, and you have a supply and demand issue. That has created a surge in home prices. The surge is still raging on; but while part of the market is overheating, other segments of the market are starting to cool down. There are a lot of moving parts in the housing industry, but if we do get to the point where housing prices begin to drop, it is a good sign of a recession….