Wary Mood Slows New Zealand Real Estate Activity

Threatened lending rate hikes, along with a seasonal slump, have lead to a wary mood surrounding New Zealand’s real estate market. However, the impact on prices should be …

Threatened lending rate hikes, along with a seasonal slump, have lead to a wary mood surrounding New Zealand’s real estate market. However, the impact on prices should be minor compared to the aftermath from the global crash. Limited new supply and a growing population should sustain prices and counter the impact of unsold inventory. See the following article from Property Wire for more on this.

Residential property prices in New Zealand are still rising, but at a slower rate with some experts predicting that they will fall around 4% in the next 12 months.

The latest residential house price index from state owned valuer QV is up 4.1% in the year to July, down from 5.2% in the year to June and a 5.6% rise in May.

The volume of sales is about a third below the long term average said QV research director Jonno Ingerson, with buyers putting off plans to enter the market in favor of reducing debt.

‘The lack of buyer demand, combined with an increasing supply of unsold houses is causing values to gradually drop. Unlike 2008 when the overwhelming negative sentiment of the global economic crisis drove house values down, we are now seeing more of a do nothing sentiment,’ he explained.

While property values declined according to QV’s index, the average sales price increased slightly to NZ$407,191 in July from NZ$404,715 in the prior month.

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The traditional winter slowdown combined with concerns about rising interest rates and job security could conspire to keep the market slow for some months yet.

A report prepared by business researcher Infometrics is predicting house prices will fall 4.1% by next June due to tax changes, cautious households and the prospect of mortgage rate rises.

The report prepared for QBE LMI, which provides lenders’ mortgage insurance, said house price growth was forecast to lift to 10% a year by the middle of 2013. That would put house prices 11% above their current level, but after adjusting for inflation real property values were expected to be 1.1% below their June 2010 level, the report said.

It was estimated that changes announced by the Government to the tax treatment of property would reduce house prices by 13% during the next one to two years, compared to what house prices would have done without the changes.

The report also says that uncertainty about potential policy changes earlier this year had taken the momentum out of the housing market, leaving the market sensitive to other negative factors.

The prospect of considerable rises in mortgage rates during the next two years was weighing on purchasing decisions, particularly in more expensive urban areas, the report said.

With real house prices about 20% above their long term trend, property still appeared to be overvalued, limiting strength in sales activity and house price growth in the near term.

The range of factors that could cause house prices to fall was offset by a lack of new house building during the past two years.

‘Although New Zealand’s population growth has been relatively strong, building activity has fallen away as result of the economic downturn, and continues to be constrained by a lack of funding for developers,’ the report said.

As economic recovery continued during 2011 and 2012, the undersupply of new building was expected to put a floor under house prices. That would prevent more significant declines and result in accelerating house price growth in 2012 to 2013, it concluded.

This article has been republished from Property Wire. You can also view this article at
Property Wire, an international real estate news site.

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