Sunday, March 2, 2008

Housing slump looms in New Zealand

Experts are predicting that house prices in New Zealand will fall as much as 10 percent this year, in what could be the start of a five-year decline, Esther Harward writes in the Sunday Star Times of March 2.

"Auctioneers say just 30 percent of homes are selling at auction now - half the rate of a year ago - as interest rate hikes, easing migration and global credit conditions cool the once over-heated market," Harward reports.

One of the "experts" she questioned about the housing situation in New Zealand was ANZ National Bank chief economist Cameron Bagrie, who said the market was 25-30 percent overvalued. This meant it would take about five years to correct.

Mr Bagrie added that this year's expected tax cuts would not make a dent in mortgage repayments. "I don't think $20-$30 a week in people's pockets is going to do much to support property prices," Harward quotes him as saying.

With New Zealand households spending $1.14 for every $1 they earned, they would need an "astronomical" tax cut to feel comfortable about rising mortgage rates and increases in living costs.

ASB Bank and ANZ National Bank lifted their mortgage rates last week, and others, including Kiwibank, indicated they would follow suit. A two-year fixed mortgage is now 9.7 percent at ANZ National, and 9.5 percent at ASB. The floating rate at ASB is 10.75 percent.

Harward says that, "with vendors putting houses or investment properties up for sale to ease their financial strain, the extra supply will also drive down prices".

Among the "worrying signals" of a slump, she says, are the following statistics:

* Home ownership in New Zealand is down to its lowest level in 50 years. Sixty-seven percent of households owned a home in 2006, compared with almost 74 percent 20 years ago.

* In January, the median house price fell to $340,000 after reaching $352,000 in November - double what it was six years ago.


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