Goldman Sachs warns of a "bust" in New Zealand housing prices, but a 5 per cent reduction would actually be a "reasonable adjustment", says Prime Minister Bill English.
The US investment bank said there was a 40 per cent chance New Zealand will suffer a housing market bust in the next two years, meaning prices would fall 5 per cent or more.
However, English said some prices in Auckland had already fallen by that much over the last nine months.
"Most New Zealanders would regard that as a pretty sensible adjustment in what's been a hot market.
"It sounds to me like the language they are using is exaggerating what they are describing, which sounds like a reasonable adjustment in house prices," he said.
It would be "good for everybody if the market settled down", he said, but he would not say he wanted to see prices fall.
Goldman Sachs judged prices as 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.
Behind New Zealand, 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.
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."
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."
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