KEY POINTS:
Auckland house sale figures show the number of homes sold in May fell by more than a half, but prices rose slightly.
Auckland real estate company Barfoot & Thompson says the number of residential properties it sold last month fell to 515, down from 1,109 in May last
year.
The average sale price increased 2.7 per cent to $534,254 from $520,380 in April. This, says Barfoot & Thompson, is the highest monthly average so far this year.
Managing Director Peter Thompson said the company's monthly sales figures were representative of "a flat, rather than falling market".
"We have seen remarkably consistent market conditions since the middle of last year with the level of activity dropping off but prices holding pretty steady. It's interesting to note that the May 08 average price is pretty close to the average for the 2007 calendar year which was $538,478."
Thompson says the company noticed an increase in buyer enquiry and activity over the past month - though this may not yet be translating into sales.
The Barfoot & Thompson news came just hours after Reserve Bank Governor Alan Bollard said house prices may fall by as much as 13 per cent from their 2007 peak
This fall in house prices rises to 22 percent when inflation is taken into account. After the first oil shock in the 1970s real house prices fell 38 percent, the bank noted.
Bollard's predictions of house price falls are contained in his statement published today outlining how the economy is expected to contract in coming months.
The Reserve Bank today said it expects the annual inflation rate to leap to 4.7 per cent this year, the highest level in 18 years, but Bollard still signalled a cut in interest rates.
As expected, Bollard left the official cash rate unchanged on 8.25 per cent.
He painted a bleak picture of the economy and because of that said the bank would cut the Official Cash Rate (OCR) later this year despite the rampant inflation.
Part of this bleak picture is confirmation of a big fall in house prices.
"In real terms, we are projecting a 22 per cent fall in New Zealand. This compares to a 38 per cent fall in New Zealand real house prices following the first oil price shock in the 1970s," says Bollard's statement.
"The speed with which the housing market has already slowed raised the risk that house prices will fall more quickly than we have assumed."
Bollard said there was also likely to be significant regional variation in the housing market, with some regions experiencing larger corrections than others.
"Further out, an eventual easing in mortgage rates is expected due to lower official interest rates and improvement in global credit market conditions."
He said these factors were projected to support a "gradual recovery" in the housing market, and return house price inflation to zero.
High mortgage rates, low net immigration, falling real incomes and rising building costs meant there would be a fall in residential property investment.
MAIN POINTS FROM TODAY'S ANNOUNCEMENT:
* annual inflation rate expected to leap to 4.7 per cent this year
* rate cut may come from central bank in October
* lack of growth in economy is Bollard's principal concern
* RBNZ forecasts house prices forecast to drop 13 per cent
* The bank projects the NZ dollar to fall faster than assumed
* Bollard calls for moderation in wage expectations and demands
* Most economists are applauding the bank's long-term vision
- NZ HERALD