NZ ripe to mimic Australian house price slump: expert

By NZPA

Wednesday 26th May 2004

The New Zealand house market is ripe to mimic the crumbling of houses prices in major Australia cities, an expert from an Australian property research firm said.

Sydney house prices, which had doubled over a period of five years, crumbled 7.5 percent in the first quarter of this year and Melbourne prices plunged a "nasty 12.9%.

In comparison, NZ prices have risen 42% over the last five years with Auckland prices up 40% and Wellington prices up 44%.

Louis Christopher, head of market research at Australian Property Monitors, said prices over the Tasman could easily fall by 15-20% from their peak if the Reserve Bank of Australia did not relent on interest rates later this year.

He said the auction clearance rate (the percentage of houses that actually sell under the hammer at auctions) is close to record lows experienced a couple of years after the 1987 share market crash.

"The New Zealand housing market has also experienced a boom similar to what occurred in Australia and it's a little bit more than coincidence that that has happened," he said.

Similar booms had occurred since the end of 2000 in Britain, the United States and other industrialised countries. The decline in global interest rates and the fallout from the collapse of the dot.com bubble fuelled the housing boom.

"Going forward there is a good chance that we might see a global decline in housing prices as global interest rates move up."

The Reserve Bank of Australia lifted interest rates in November and December and that has been largely responsible for the housing market descent.

The Reserve Bank of New Zealand lifted the Official Cash Rate in January and in April, and it is widely expected by economists to lift the rate on June 10 at the next review and probably again on July 29.

Housing affordability fell to record lows in Australia whereas in New Zealand in the year to March it has only dropped 6.3%.

Latest Real Estate Institute of New Zealand figures show the median house price has risen 19.2% since April 2003 to $242.000. However, the same figures showed that national sales, often a leading indicator of price movements, fell 15.6% from 11,371 in March to 9594 in April.

Christopher said there was a "probability there will be a knee-jerk reaction" if the Reserve Bank lifts interests on June 10.

"I would suspect that given a rise in interest rates that you will probably see a turnaround in the housing market in New Zealand as well."

He put the chances of prices falling as better than even.

"It's not going to take much at all to turn around the housing market."

Prices were still falling in Australia.

Most houses in Australia are sold by auction and the auction clearance rate that hit a record 80% in April 2002 is down to half that today and not far off the record low of 33% in June 1989.

Christopher said over supply of new houses and particularly apartments was affecting the market in big Australian cities and that could be a factor here with building activity at historically high levels.

Have you got your subscription to the Official NZ Property Investors magazine? Get your copy here

Comments from our readers

No comments yet