Bruce Morris: Is it a good time to buy?

Reserve Bank Governor Alan Bollard doubts Auckland house prices will 'rip away'. Photo / Mark Mitchell

Has the market bottomed out - is now the time to gather the deposit, pick up a mortgage and buy?

If capital gain is the mission, most real estate agents and at least a couple of economists think so (they're predicting a 4-6 per cent lift in prices over the next year). But you wouldn't bet your house on it.

Agents will always make such assessments because their business depends on stoking demand to match supply. And in a steady market that has had time to settle off its highs, there is logic in the "now's a good time to buy" mantra if buyers do their homework and are looking for a home to live in rather than chase for a quick profit.

But that prediction of a 4-6 per cent rise - how does that stack up? A little shakily, you'd think, if it was to be applied across New Zealand, including the rural towns and provincial cities that are subdued at best and depressed at worst.

"I just cannot see where the economists imagine we're going to find 4 or 5 per cent growth over the next year or so," says one provincial valuer. "They've got to be dreaming."

The economy is still stressed and, while confidence is gaining, the streets aren't full of people clicking their heels, though GDP is expected to grow around 4.5 per cent in 2012 on the back of the Christchurch recovery.

Job security has improved but even if wage rises hit the 4-5 per cent mark suggested by the Prime Minister they will have little impact on the equation showing New Zealand's house prices are still among the highest in the world when set against household income.

Even with the decline in values, rental yields are still low, reducing price competition from sidelined investors in the lower-priced outer suburbs.

Four years on from a boom that took prices in some areas to silly levels and hurt a lot of people, it's hard to see any more than a continued leveling of values over the winter months with a gentle nudge upwards through the spring and summer. Along the lines of 2 per cent in Auckland and Wellington, perhaps, and flatness and even further decline elsewhere, say other commentators.

The spur to Auckland gains will be the lack of housing stock and continued population growth, with Christchurch refugees joining migrants from within the country and beyond.

Add that mix to record-low interest rates and lending banks breaking off their shackles and you have an environment that could fuel a sudden jump in house prices.

But if that happens, it will be short-lived, surely. Interest rates have only one way to go and the Reserve Bank will use the Official Cash Rate and its influence on the banks to douse any heat in the residential market.

A 6 per cent mortgage rate sounds great now, putting the annual cost of a $400,000 interest-only loan at $24,000. But when rates start to climb next year, economists are picking they will move quickly. A 1 per cent shift in the same mortgage will bring the annual cost to $28,000.

First-home buyers especially need to be certain they can handle the future debt; but, as economist Shamubeel Eaqub told the Herald last month, "By and large, New Zealanders are being much more cautious about the honey trap of cheap credit."

Reserve Bank Governor Alan Bollard also had his say: "There are signs the housing market has bottomed out and it is showing the signs of a bit of growth, but we are really not seeing the preconditions for any big sort of rise in house prices.

"Are we going to see Auckland house prices really rip away? I don't think so."

Good time to buy? Perhaps so, if the idea is to make a home rather than hay.

* From the New Zealand Herald's quarterly 'Property Report' - a guide to house prices and great places to live.