Optimism creeps into real estate market

By BRIAN FALLOW

The housing market, in the doldrums for 18 months, is showing tentative signs of life.

In the ASB Bank's quarterly survey, confidence in residential real estate has improved.

The rise, to a net 37 per cent thinking now is a good time to buy, is modest compared with the dramatic recovery in business and consumer confidence, but the earlier weakness was more muted too.

The interest rate outlook is more benign than late last year.

Fixed mortgage rates have dropped over the past three months and the financial markets are pricing in at least one and maybe two 25-basis-point cuts in the official cash rate, driver of floating mortgage rates, by the middle of the year.

ASB economist Rozanna Wozniak said there was widespread anecdotal evidence of an increase in inquiries and turnover in the real estate market.

But the pick-up was off a low base and was to some extent a seasonal effect, and late at that.

"The economy has got a bit of momentum and, given the outlook for interest rates, you would have to say the improvement in confidence and the small pick-up in activity should be sustainable. Just don't expect too much of it," Ms Wozniak said.

The slowdown in the world economy would have an impact here, Ms Wozniak felt, and the housing market, especially in the main centres, still had an oversupply problem, despite sharp falls in new residential building.

Household debt levels remained high and population growth slow, she said.

New dwelling consents last year were down 24 per cent on 1999.

But Ms Wozniak said the number issued, around 20,000, was still larger than the increase in New Zealand's population (17,000) over the same period.

In general, the trend of the past year has continued, with new homes selling better than existing ones and houses in the middle and upper price range selling better than lower priced ones.

Quotable Value New Zealand's house price index - which adjusts for distortions arising if a disproportionate number of upmarket or lower-priced houses sell in any given period - recorded a 0.1 per cent drop nationwide in the December quarter, as in September.

There was more of a decline in Auckland, however - 0.7 per cent in the December quarter and 2.5 per cent over the past year.

Ms Wozniak said Auckland tended to have a more pronounced cycle. It also overshot on the upside.

"Investors have been staying away for the last few years, especially from the bottom end of the market because of uncertainty about the impact the change to income-related rents for state house tenants has on rents generally."