Investment bank Goldman Sachs says there is a 40 per cent chance New Zealand will suffer a housing market "bust" in the next two years.
It has put out a report that looks at housing markets in the G-10 countries, according to Bloomberg. It reportedly found New Zealand's was the most over-valued and at risk of correction.
But to qualify as a "bust", prices would only have to fall 5 per cent or more, after inflation.
It judged prices over-valued based on the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation, Bloomberg said.
Sweden was next likely to suffer a bust, at 35 per cent, followed by a 25 per cent chance in Australia.
Property commentator Olly Newland said a 60 per cent chance that there would not be a fall in prices of 5 per cent or more was still good odds for those in the market.
He said it seemed more likely that prices would flatten, rather than fall rapidly. There are already signs this is happening in Auckland – Real Estate Institute figures show prices there up only 3 per cent year-on-year in April.
"A crash would have to be a 20 per cent [drop in prices] or more," he said. "You can read the figures any way you like but it's highly unlikely, it's headline grabbing."
He said it would take a significant economy-derailing event, either in New Zealand or internationally, to seriously dent house prices.
But Gareth Kiernan, chief forecaster at Infometrics, said Goldman Sachs was being too conservative.
He said a 5 per cent fall was "hardly bust territory given where New Zealand is at the moment. It's hard to know with Auckland but in the grand scheme of things they are probably underestimating the probability."
One of the Goldman Sachs measures is improving - Kiernan said rental inflation had hit an eight-year high in the December 2016 quarter, of 5.8 per cent. It slipped to 4.5 per cent in March.
ASB senior economist Chris Tennent-Brown said even a 10 per cent to 15 per cent price fall, it would only take prices back to where they were a year or 18 months ago. "When everyone was writing saying how expensive housing was."
"You could have a reasonable correction and what was a $1 million house becomes $900,000. It's still a very expensive home."
He said just because houses were expensive, that did not mean their prices would automatically fall.
ASB is forecasting modest growth or a sideways movement in prices for some time, although Tennent-Brown said price growth could pick up again if migration remained strong.
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