Housing boom over so rates 'should not change'

The Reserve Bank is likely to leave interest rates as the boom in house prices appears to be all but over, economics house Infometrics says.

Senior economist Gareth Kiernan said June quarter house prices from Quotable Value last week were evidence that the five-year boom was "all but over".

"Over one-third of local council areas experienced price falls over the June quarter, and the nationwide increase in house prices was just 1 per cent. Both figures were the weakest since 2001."

Mr Kiernan said higher interest rates, and the effect of the high kiwi dollar on export incomes, had finally combined to affect property prices in provincial areas.

"Kaikoura and Mackenzie are now experiencing annual price declines, with other provincial areas such as Otorohanga and Westland at risk of the same fate."

Mr Kiernan believed the house price data would reassure the Reserve Bank its methods were working ahead of tomorrow's official cash rate review.

Infometrics' latest property forecast puts national house price inflation slowing to below 2.5 per cent a year by next September.

It expects economic growth to accelerate to above 2.5 per cent a year by the second half of 2007 - "a rate that is still sufficiently slow to ease inflationary pressures further over the next year".

It predicts that the Reserve Bank will not start to lower the official cash rate before December next year.

- NZPA