Heat is coming out of housing boom: PMI

By NZPA

Monday 30th May 2005

The heat is coming out of New Zealand's five-year housing boom with Auckland, Wellington and Christchurch all showing the symptoms, a study has found.

The PMI Residential Property mid-year study found that while the residential property market was cooling, there would be no sharp price correction in the offing.

While price growth had continued in most regions so far this year, nationwide real estate activity had fallen 14% from its mid-April peak.

Residential property prices were likely to ease across 2006, but continued economic growth of between 2.5% and 3% would make a sharp price correction unlikely, the study found.

Falling interest rates over 2006 could also make real inflation adjusted property prices bounce in 2006/07.

In June 2007 property values would be lower than at present, the study found.

PMI Australia and New Zealand managing director Ian Graham said the study found that there was no "discernable impact on people's ability to service their mortgages".

"New Zealanders historically are diligent with the management of their mortgages and we could expect this to continue throughout this period," Graham said in a statement.

Looking at the regions, a lack of rental growth in Auckland was a "clear indication" of weaker net migration and slower population growth.

"First home buyers (in Auckland) are struggling with affordability, and investor demand is drying up given low yields and increased difficulty in finding tenants," Graham said.

In Wellington, sales volumes had softened in line with other regions, but house price growth, rental growth and new building activity had slowed more markedly.

"The result is that property in the region is unlikely to be overvalued as in some other parts of New Zealand," Graham said, picking the median to hold at $290,000.

In Christchurch, house price growth had failed to rally over the March quarter.

House price growth had slowed to 17% a year in March, from 31% in mid 2004, the city's population growth had softened and building activity had eased.

"The median house price (in Christchurch) is expected to stabilise at around $250,000 over the next two years," Graham said.

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