Property market weak, prices fall 1.4pc in May

The REINZ Monthly Housing Price Index fell 1.4 per cent in May. Photo / Greg Bowker

House prices fell 1.4 per cent across New Zealand in May, according to the latest REINZ Monthly Housing Price Index, released this morning.

In the three months to May, house prices rose by 0.7 per cent. Compared to 12 months earlier, the index was up by 2.3 per cent.

This latest research shows that house prices are now 5.1 per cent below their peak in November 2007.

The Real Estate Institute said that Auckland prices were up 3.7 per cent from May last year, while Wellington houses were up 4.4 per cent and Christchurch up 4.2 per cent.

In other information released this morning, REINZ said the median residential property prices fell from $356,000 to $350,000 in May, while the number of homes sold was only one fewer, at 5,206, than April.

ASB economist Jane Turner said house sales were staying at "very weak levels" in May, and were down 17 per cent on a year ago.

"Budget uncertainty and looming interest rate increases were likely weighing on housing market sentiment throughout May."

"New listings remain very low. However, with demand also very subdued this has allowed total housing supply to remain around average levels on the Auckland market, and slightly above average on a nationwide basis."

"The changes to tax policy announced by the Government in May do reduce some of the attractiveness of owning rental properties. However, we do not expect this to translate into a landslide of sellers," said Turner.

"The fundamentals for the housing market remain fairly weak over the next year. Along with the tax policy changes, rising interest rates and slowing net migration are also likely to reduce demand for housing. As a result, we expect the housing market to remain in favour of buyers over the second half of this year," she said.

Goldman Sachs JBWere economist Philip Borkin said it was not news that the real estate figures released today were "soft."

"More interest in our eyes will be how the housing market responds to the tax changes announced in the Budget. We will not get a good feel for this until June, but probably July," said Borkin.

"Our views on the housing market remain unchanged. We see the potential for some pent-up demand to emerge given that the announced tax changes were unlikely to be as aggressive as some were fearing. This could possibly see turnover levels improve."

But with inventory at reasonable levels, migration waning, more restrictive credit conditions and the Reserve Bank tightening monetary policy "we see a number of headwinds for the market," said Borkin.

"We continue to believe house price growth will moderate over the remainder of this year and remain somewhat modest for the foreseeable future."

ANZ economist Mark Smith said while the removal of policy stimulus by the Reserve Bank would be influential, he expected that "with the Budget uncertainties out of the way and with income growth returning (courtesy of higher export incomes and a strengthening in employment) a recovery in residential investment activity is in prospect".

"Prospects for later in 2010 should improve, as pent up demand sees a cyclical recovery in the housing market, eventually flowing through into residential investment activity."

"It is good to see the market retain its strength and prices stay stable during a period when some buyers would have been concerned about potential tax and interest rate changes," said Real Estate Institute of New Zealand President Peter McDonald.

"While slightly down on the April figure and the March median of $360,000, the May median is still 3.7 per cent up on the median price of $337,500 in the same month in 2009, so we are still not seeing any significant fall in property values," said McDonald. "With tax changes and interest rates now settled, property investors are already talking about returning to the market to cater for the growing demand for domestic rentals."

Nationally the number of median days to sell rose from 40 to 43.

The total value of residential sales, including sections, in New Zealand in May was $2.27 billion, up from $2.24 billion in April.

The breakdown of the values of the properties was 195 for $1 million plus, 601 for $600,000 - $999,999, 1311 for $400,000 - $599,999 and 3099 under $400,000.

-NZ HERALD