Housing market under pressure

Photo / Herald on Sunday

House prices have hit an all-time high but economists remain sceptical, saying higher mortgage interest rates are dampening the market.

Figures from the Real Estate Institute out yesterday showed that at $360,000, a new national median house price record was established.

But Bernard Doyle, New Zealand investment research strategist at Goldman Sachs JBWere, said December was unusual and he adjusted the numbers to show a fall in sale volumes.

REINZ revealed that only 4957 houses were sold last month compared with 6059 in November. In December 2007, 5597 houses were sold and in December 2008, 4302 houses changed hands.

Doyle highlighted the volume dips.

"Seasonally adjusted house sales declined 3.5 per cent month-on-month in December, the third consecutive monthly fall. Sales turnover is now 17 per cent below the levels achieved in April, 2009. The median days to sell (seasonally adjusted), at 36 days, remains reasonably low by historical standards. However, this is beginning to rise and along with the drop-off in turnover, is pointing to a waning in housing market momentum. Irrespective of solid net migration gains, it appears that recent fixed mortgage rate increases are contributing to easing housing market demand," he said.

"The 2010 outlook for the housing market appears a lot more balanced than last year. We do expect house prices to post modest gains over the year. However, this is likely to be at a more gradual rate of increase than over 2009, with interest rates set to rise, net migration gains potentially to slow as the Australian economy outperforms, and the labour market remaining subdued. The wildcard, of course, is also around changes to the tax treatment of housing.

"The Tax Working Group is due to report back its recommendations to the Government this week. We suspect housing will be a key pillar of those recommendations."

ASB economist Jane Turner also cited turnover last month as being well below average levels, recalling that between 1993 and last year agents were selling 7200 houses a month on average, compared with December's lacklustre numbers.

Last April was the best month for sale volumes in the past year, she said, citing 6659 deals. She noted it now took longer to sell and said the market might be heading down.

"Demand pressure may be ebbing after a period of recovering demand outstripping modest supply," she said.

REINZ said November's $355,000 record was eclipsed by an extremely active market during December, when prices were up in many regions.

REINZ president Peter McDonald fretted about the extremely low sale volumes, which he described as concerning.

But he said it was comforting that houses were taking an average of just 33 days to sell, one of the shortest periods in the past year.

The average number of days it took to sell a house in November was also 33, well down on December 2008, when it took 45 days to sell.

Last month $2.15 billion-worth of houses were sold. Auckland accounted for the largest number of sales and $918 million of turnover.

McDonald predicted a bumper year, saying house sales were being fuelled by a shortage of properties for sale.

Prices rose 1.4 per cent between November and December, he said.