Real estate to 'take a pause - then boom again'

Auckland's skyline is continuing to grow, but prices may fall. Picture / Nigel Marple

National house prices will take a breather in the next few months but by later next year they will bottom out and another boom will begin, according to an analysis released today.

The PMI Residential Property Overview predicted a 4 per cent price slide nationally next year, picking apartments and cheap housing to suffer the most.

But the slide will pull up fast towards the end of next year when prices will begin rising again in Auckland, where the recovery will take the firmest hold.

But first the grief.

The slowdown in house sales nationally is yet to dent prices heavily but the lull will not last long.

By early next year, many homeowners will begin delaying sales because they will notice the price slide. Already, property sales volumes in Wellington are falling at their fastest rate in more than a decade.

"Vendors will simply refuse to sell property for prices below their expectations," the report said.

The analysis, conducted by forecasting firm Infometrics, found that an easing of population growth in Auckland would continue to put pressure on market activity which would be subdued until the second half of next year.

Then the good news.

More stable population growth and falling interest rates would force a recovery by late next year.

In three years' time, Auckland house prices will be up 13 per cent, the study predicted.

"The outlook for house prices in Auckland is not as optimistic as it was six months ago. However, house price growth is still expected to remain positive over the forecast period, reaching a low of 2.2 per cent over the year to June 2005. This will be followed by a bounce in prices over 2005/06 as mortgage rates retreat from their peak levels and there is a moderate lift in buyer demand.

"Above-average population growth in Auckland means that property values in the region will rise faster than the national average," said the report, predicting a 13 per cent rise in Auckland house prices in the three years to June 2007.

The World in 2005, just published by The Economist magazine, criticised New Zealand as being one of the world's most overvalued housing markets, along with America, Australia, Britain, France, Ireland, the Netherlands and Spain.

House prices in many countries had lost touch with reality but next year they would come back down to earth, said the British publication.

"From London to Los Angeles and from Melbourne to Madrid, everybody is obsessed with the value of their home," it said, noting cracks already appearing in many countries and predicting a price rot to set in.

Owners of inner-city highrise Auckland apartments could be in for some real grief.

"The high number of building consents for apartments suggests that a significant oversupply will develop in this section of the property market as buildings are completed and become available for occupation," the report said.

It cited applications to build 3064 units in the city in 2003 which rose to consents to 4382 units in the 12 months to June this year.

But Statistics NZ released consent data yesterday pointing to the apartment building frenzy continuing. Consents for 708 units were issued in October, compared to consents for just 295 units a month earlier.

Building consents are running at their highest since 1974 - permission was given for 31,534 new dwellings in October, up 8 per cent on the year to October 2003.

Where to for house prices in the next three years?

The answers are in a survey which projected economic indicators onto the housing sector to come up with changes between now and June 2007.

* Auckland: one of the countries frothiest markets but more stable population growth and falling interest rates will lead to a price improvement.
Forecast: prices up 13 per cent;

* Northland: on the coast and in the smaller towns is best.
Forecast: prices up 13 per cent;

* Waikato/Bay of Plenty/Gisborne: houses not as overvalued as elsewhere and the area has a positive outlook.
Forecast: prices up 13 per cent;

* Taranaki/Manawatu/Wanganui: mixed prospects, given increases in values this year despite interest rate rises and the area's negative population growth.
Forecast: 3 per cent price rise;

* Hawke's Bay: although property values are well up due to demand for coastal land, the area lacks fast population growth.
Forecast: prices down 2 per cent;

* Nelson/Marlborough: leading the housing downturn. Vendors are only selling when they are forced to.
Forecast: prices down 3 per cent;

* Canterbury/Westland: improving population growth will be sustained. Houses are most overvalued in areas furthest from Christchurch.
Forecast: prices to rise 4 per cent;

* Otago/Southland: among the most over-valued area nationally.
Forecast: house prices will drop 5 per cent.