KEY POINTS:
House prices have dropped sharply and people are taking longer to sell in what appears to be the first sign that rising interest rates are biting.
The Real Estate Institute yesterday released home sale data from almost 20,000 agents and described the pattern which emerged as "disconcerting".
The figures showed the national median price had dropped $2500 between June and July from $347,500 to $345,000. That comes after persistent rises this year and a record high of $350,000.
Auckland's median was static at $445,000. However, prices in suburbs such as Manukau and Papakura dropped drastically though others like the North Shore and Waitakere showed big rises.
It took longer to sell throughout New Zealand, a key economic indicator for banking economists who hailed the change as a turnaround. Volumes also dropped from 7474 property sales in June to 6600 last month - the lowest July total since 2001.
Shamubeel Eaquab at Goldman Sachs JBWere in Auckland, described the new data as "awful" and said it could impose a new level of agony on people to take the real heat out of the market.
"The Reserve Bank will be pleased to see this evidence but the pain is required to persist for some time to alleviate inflationary pressures," he said.
House prices fell 13.9 per cent from July last year to last month, he said and were down 9.5 per cent between June and July.
Higher interest rates were beginning to hit people hard, Mr Eaquab said.
"This reflects the first real evidence of monetary policy traction," he said.
High rates were not the only cause of the slowdown. He also cited slowing in net migration and the general loss of momentum in the economy as other factors. Migration had fallen from around 14,700 people last year to 5500 people in the first half of this year and that was having a big effect on house prices.
"It has caused a significant reduction in demographic demand," he said.
Tony Alexander, Bank of New Zealand chief economist, said the latest data showed a pullback from over-exuberance.
"We're into a more sustained flattening pattern in the housing market." Bad weather in the last two months had a big effect but latest employment data showed particularly high job security and low unemployment, he said.
Murray Cleland, the institute's president, said the drop always occurred in winter. A low number of sales had exaggerated the situation but he said the sector was undergoing a consolidation.
"At best, you could say the July residential property market was 'seasonally challenged'. While some of the regional figures look a bit disconcerting, we don't believe the market is going into a full-scale retreat, with the chances that the new two warmer months will witness a recovery of median prices in many of the areas which fell in this latest month."
Unionists yesterday cried out against high house prices. Ross Wilson, president of the Council of Trade Unions, told Parliament's commerce select committee inquiry into housing affordability that workers were struggling.
Low incomes and low wages meant getting a house was increasingly out of reach for low and middle income New Zealanders, he said.
