House price boom slowing, latest figures suggest

1.00pm - By ANNE GIBSON

Interest rate rises and declining migration numbers are hitting the housing sector, particularly cheaper properties.

Quotable Value's house price index released today showed price growth pulling up fast, dropping from a 5 per cent index change in the March quarter to just 1.9 per cent in the June quarter.

Quotable Value spokesman Blue Hancock cited interest rates and migration as the two main factors behind the turnaround.

"Continued annual house price growth at current levels is not likely to be sustainable in the medium term, given increasing interest rates and the downward trend in net migration," Mr Hancock said.

Although quarterly growth slowed, the annual house price index increased by 22 per cent, up on the 15.5 per cent growth rate to June last year, the data showed.

But Mr Hancock said how long this would continue was "unknown".

Areas like the stellar performer Nelson were one of the first to show a quarterly decline on the index of -2.5 per cent but this result came on the back of "phenomenal and unsustainable growth" in the past two years, Mr Hancock emphasised.

ASB Bank's analysis of the data showed Queenstown also suffering, down -2.4 per cent provisionally for the quarter. Its economist Kate Skinner said areas which had exuberant rises were now seeing corrections. Tasman, which includes Richmond and Motueka, was down -8.0 per cent.

Mr Hancock said the index also showed declines in Central Otago, Buller and Carterton and although the drops were largely confined to some smaller rural-based townships, the picture emerging was sporadic.

Many areas showed exceptional growth between the quarter to June last year compared to the latest quarter, including Napier up 30 per cent, Dunedin up 29.5 per cent, Tauranga up 28.2 per cent, Christchurch up 27.8 per cent, Invercargill up 25.2 per cent, Waitakere City up 24.5 per cent and Auckland up 20 per cent.

Kate Skinner said the data showed a turning point in housing.

"The net migration inflow is easing, interest rates are increasing and a strong supply of new housing is coming on stream," she said.

House prices were still rising, but the magnitude of the quarterly rise was declining, she said.

The Quotable Value figures reinforced data released this week from the Real Estate Institute which showed fewer lower-priced house sales, with volumes for houses worth under $400,000 sinking from 8712 in July last year to 6337 last month.

Institute president Graeme Woodley is concerned by the pattern emerging.

"This tends to indicate that recent interest rates increases appear to be having more impact among those buying cheaper houses than those buying more expensive homes, something which is to be expected," Mr Woodley said.

He attacked Reserve Bank Governor Alan Bollard for pushing up rates which had "impacted most on those who can probably least afford for their mortgage rates to rise," Mr Woodley said.

Deutsche Bank chief economist Ulf Schoefisch praised the Quotable Value data, saying it showed a more accurate picture than the Real Estate monthly figures because it was not distorted by compositional factors.

More expensive houses were still selling well, skewing the median sales price data which became overstated, he said.

House prices will be put under more downward pressure by weak migration, rising interest rates and changes in Auckland where the housing market was reaching more of an equilibrium, he said.

"The supply/demand balance in the housing market is returning to more normal levels," Mr Schoefisch said of Auckland.

But the price of goods and services for house building is escalating rapidly. Statistics NZ's capital goods price index, also out yesterday, showed its biggest increase in four years and the housing component was the biggest contributor.

The residential building index rose 2.6 per cent in the June quarter, up 9.8 per cent for the annual period which Statistics NZ said could be attributed partly to the rising costs of subcontractors' charges but also to construction material price rises.

What changed?

House prices were driven up by low interest rates and high migration.

But now:

Migration peaked at around 42,541 people in the year to May 2003. Now, we are only expecting 14,000 people this year

Interest rates were at their lowest in 2002, at around 6.75 per cent. Now, the floating rates are more than 8 per cent

Early next month, the Reserve Bank is expected to increase the official cash rate by either .25 per cent or .5 per cent which could put house prices under even more pressure.