Brash out to dampen buying frenzy

By ANNE GIBSON

How hot is too hot?

Reserve Bank Governor Don Brash is trying to take some warmth out of the booming residential housing market - as well as other sectors of the economy - by raising interest rates this week.

An unexpectedly rapid rebound in consumer and business confidence, the strength of retail sales, employment growth and the housing market are all fuelling fears about inflation.

Even those working in the residential housing market are surprised by how hot the sales are running.

One executive in a prominent Auckland residential sales office this week cited the extraordinary case of an Epsom house which had sold for $600,000 in November but went for $800,000 in March.

Housing sales are sizzling to the extent that advertising revenue in property publications has dropped by a quarter in the past 12 months because properties sell so fast there is barely time to have the photograph taken and place the ad.

Nor is there any great need to spend advertising dollars because the buyers are lining up at the agents' doors.

The same real estate executive who saw the Epsom house increase by $200,000 also said this week that buyers at Auckland auctions were shaking their heads at the crazy prices being paid and simply walking out of the auction room before making a bid.

"Is this 1987 all over again?" he said.

Bayleys Real Estate has found Aucklanders' appetite for mansions unsatisfied, reporting this week also that it sold 51 per cent more luxury homes ($428,000-plus) in the January quarter than the previous one. Three factors are commonly acknowledged as the driver for the real estate boom: low interest rates, net migration and confidence about job security, all improving people's economic outlook.

If anyone was in any doubt about the boom, the Real Estate Institute released its February sales figures on the same day that Brash increased the official cash rate.

"Record-breaking residential property figures reflect NZ economic health," said the institute's headline, followed by news that the national median sales price for February was the highest recorded, standing now at $186,000.

The median Auckland price jumped from $245,000 in January to $258,000 in February. North Shore prices are blistering, rising from $268,000 to $290,000. Waitakere's median rose from $195,000 to $208,000.

"Residential property has always provided a snapshot of the public's attitude to the economic environment and currently there are many positive influences at work," said institute president Rex Hadley.

But Brash fears exactly this mentality, as we gear up with debt which is often up to 90 per cent of a property's value, hit the credit card harder, spend our weekends in shopping malls and slide further into the red.

Brash said this year that household borrowing increased by $45 billion during the 1990s alone, from 57 per cent of disposable income in 1990 to 110 per cent in 2000.

"Unlike most developed countries ... houses make up the overwhelming bulk of our relatively modest net wealth," he noted.

Instead of being a nation of thrifty savers, we are a nation of mortgage-hungry property investors.