Surprise as house prices hit record

A fresh surge in house prices took economists by surprise yesterday and raised fears of another round of mortgage interest rate rises.

Westpac chief economist Brendan O'Donovan said the housing market was giving mixed signals but appeared to have rebounded strongly.

"The question is, how long will this last," he said of the $280,000 record-breaking national house price median for March released by the Real Estate Institute.

"The jury is out on whether this rebound is just temporary or a real second wind, because if price rises continue, it puts more pressure on the Reserve Bank to push up interest rates."

He picked a revision of economic forecasts and a rethink on interest rates, which are expected to stabilise.

Economists expect the Reserve Bank to leave interest rates on hold when it next reviews them on April 28.

BNZ chief economist Tony Alexander said sales volumes for March were down 8 per cent on last year, but an early Easter, which delayed purchase decisions, might have artificially depressed them.

It was taking only 28 days to sell a house now, down from 31 days in February, he said.

Institute figures showed the national median rose 16.4 per cent in the past year. It also climbed last month, to $280,000 from $269,200 in February.

Auckland prices rose 16.2 per cent in the past year and Wellington's were up 10.72 per cent.

But the house price situation can be contradictory. The institute's monthly figures, gathered from real estate agents' deals, show a big price jump.

QV Valuations calculates a monthly index based on sales data and capital values to create a total index for an area. Its latest showed the boom slowing, which critics put down to a fluctuation rather than a trend.

Real estate firm Harcourts gathers national monthly figures before commission is paid. Its most recent figures recorded a 117-year high.

Barfoot & Thompson, another big agency, uses Auckland house sales only on a commission-paid basis to produce an average sale price. These showed an 82-year high.

Last month, Mr Alexander warned first-home buyers to stay out of the market, picking a 10 per cent price drop in the next three years.

Westpac economist Donna Purdue is predicting a 5 per cent fall this year, although Mr O'Donovan said this might now have to be revised.

On April 11, QV Valuations said the house price boom was continuing to slow and its spokesman, Blue Hancock, said index figures showed a gradual slowdown.
Some auction clearance rates are also down. A Bayleys auction of 18 Auckland and Waiheke Island homes this month failed to sell a single house under the hammer. Many properties did not draw a single bid.

But Real Estate Institute president Howard Morley yesterday attacked the doomsayers.

"Despite predictions otherwise, the latest increases show beyond doubt that the residential property market is in good heart, with the regions, rather than the major centres, contributing much of the overall price increases in the past year."

He said many high-priced sales had pushed up the median.