House prices set to ease

Northland first-home buyers should keep renting and wait for over-inflated property prices to drop by up to 10 percent, a leading economist says.
The real estate market will slow on the back of a massive residential construction boom and a drop in population growth, Bank of New Zealand chief economist Tony Alexander predicted.
"We have the biggest increase in housing supply in 30 years under way - there is a massive residential construction boom and first-home buyers are stepping back from the market, as are some investment buyers," Mr Alexander said. Any price drop would be small because the New Zealand economy was still strong, he said.
The Reserve Bank raising interest rates by a quarter of a percent last week had little impact on the market because more people were choosing fixed interest rates.
"More and more people are avoiding the floating rate which is all the Reserve Bank can influence. That's why it is having minimal impact."
He predicted house prices would drop between five and 10 percent over the next three years but did not rule out the possibility of prices simply staying static.
"The reason I don't think it will be major (drop) is because the labour market is still strong," Mr Alexander said.
He suggested that first-home buyers should wait for prices to drop.
"First-home buyers should look at renting rather than buying at the moment. The difficulty is stepping back from it all if you think house prices will go up. It's difficult to restrain yourself from buying.
"It's overpriced and there is an oversupply of housing - rents are also flat and falling and that's a leading sign that house prices will correct."
Mr Alexander has previously stated that houses were selling at prices 20 percent above what inflation rates and household spending indicators would predict.
His prediction is at odds with a PMI Residential Property Overview analysis released at the end of last year.
The analysis predicted that prices would drop by four percent nationally during the brief lull before entering another boom period, expected to lift Northland house prices by 13 percent over the next three years.
Because Northland lagged behind the rest of the country, the lull was not expected to hit until late 2005.
House price growth, however, showed Northland's property market was in good shape. Average house prices - $161,000 in 2003 - were projected to reach $199,000 by the end of 2006.
Northland District REINZ president Sue Glenn said Mr Alexander's predictions were not reflected in the Northland market.
"I think stabilising would be a better word," she said.
Economists had been saying for months that the real estate market was going to slow but house prices in Whangarei were still rising.
However, the Northland market did tend to lag behind the rest of the country.
Ms Glen said the industry would be pleased to see the market settle after a long boom.
"It would give us a bit of a breather to let everyone catch their breath," she said.