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Houses in Auckland - Source: ONE News -
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A new report forecasts house price growth rising to 11% a year by next June, but the improvement in the property market will come at a cost to the economy.
The report, prepared by Infometrics for mortgage insurer QBE LMI and published on Tuesday, said house prices were expected to be 24% higher in June 2012 than in June this year. After adjusting for inflation, the rise represented a 17% increase in real property values over the three-year period.
In Auckland, prices were expected to rise 26% over the three years to June 2012, a 19% rise in real terms, with the region having one of the most critical housing shortages in the country.
Data in recent months had provided some evidence the housing market was stabilising after the significant downturn of late-2007 and 2008, the report said.
A current surge in sales most likely reflected pent-up demand of the past 12 to 18 months, with turnover levels expected to ebb in the second half of 2009.
Despite the relatively soft outlook for house sales in the near term, the outlook for house prices was more positive.
A lack of house building had put a floor under property values, and strengthening population growth would maintain buyer competition across what was expected to be a constrained supply of housing for sale.
While upbeat about the outlook for house prices, the report does acknowledge a continuation of expensive housing was one of the imbalances in the New Zealand economy that did not appear to have been adequately rectified by the current financial crisis.
"Along with the large current account deficit, high debt levels, and poor national savings rate, the imbalance in the housing market is one of the factors that threaten to lead to a downgrade in New Zealand's creditworthiness by the middle of next decade," the report said.
Inflation-adjusted house prices were now an estimated 15% above their long term trend line, which was down from 36% in mid-2007.
They could climb back towards 30% above the long term trend line by the end of the forecast period.
The median house price quarterly average had peaked at $349,000 in the final quarter of 2007, dropping to $330,000 by the March 2009 quarter, a fall of 5.4% since December 2007.
But in the past few months house prices had started to drift higher, and by the June 2009 quarter were down just 1.2% from June 2008.
A rise in sales volumes from the very low levels of last year had been driven primarily by a large drop in mortgage rates since mid-2008, the report said.
Anecdotal evidence suggested demand was patchy. Property in more desirable suburbs was selling quickly, but in less popular suburbs the stock of houses for sale remained relatively plentiful.
Turnover in well-presented mid-priced properties in popular suburbs was strong as existing homeowners took advantage of low interest rates to trade up.
When it came to the outlook for house prices, a key factor was the supply of new dwellings.
Building consent numbers had fallen to just 14,000 in the year to June, and activity was being constrained by a lack of available finance for developers.
With underlying demand of about 21,000 new houses a year, a significant shortage of new houses was developing, the report said.
Residential consent numbers were forecast to climb back towards 1500 to 1600 a month by the end of this year, and hold in the 1700 to 1800 range throughout 2010. Further growth in building activity was expected in 2011/12.
