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House prices to rise 4% - Westpac

Wednesday 27th April 2011 3 Comments

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House prices are set to rise by 4% this year, boosted by the RBNZ decision in March to cut the OCR, according to Westpac.

In its April Economic Overview the bank said house prices began to stabilise around October last year, and that the RBNZ rate decision in March "may contribute to further housing market zing."

"We now expect 4% house price growth this year," the bank said.

"I think that house sales are on the rise in most regions except for Christchurch," said Westpac chief economist Dominick Stephens.

While citing interest rates as the main driver for house price rises this year, Stephens said they could also prompt falls further ahead.

"What I think is house prices fell in 2010 due to tax changes that occurred that year and low net migration. Now as interest rates fell through the middle of 2010 and net migration picked up I haven't been surprised to see some stabilisation in the housing market recently. Going forward with the latest drop in mortgage rates, that has prompted us to predict a rise in prices this year. However we do expect mortgage rates to rise and possibly rise quite rapidly over 2012 and 2013 and that will send the housing market back to flat price action. We're forecasting zero house price growth in 2012 and 2013. I certainly wouldn’t rule out decline as a possibility."

Stephens also cited the tax changes as a driver behind the rising rents seen in Auckland.

"The quite predictable impact of that has been a drop in house prices because obviously there's less of a tax favourable situation for landowners, but also a rise in rents because there are fewer wiling landlords now. This explains why we went through a period in 2010 where rents were rising and house prices were falling," he said.

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Comments from our readers

On 27 April 2011 at 4:48 pm Ronan Antonio said:
Are you stupid? I think banks work like the media... if we tell a storey long enough people will start to believe it!! House prices are still unreal, I think the probable and most likely scenario is house prices will fall another 12% over the next year. The demand is low, market saturated and money is too difficult (bank policy) and expensive (risk vs. reward) to buy. Who wrote this??
On 27 April 2011 at 11:10 pm dr panopticon said:
I'm with you, Ronan. This country's real estate will remain uniquely overinflated as long as the NZ govt. continues to ignore tax laws of every other civilised country on the planet and refuses to enact a capital gains tax. No wonder foreign ownership is rife, usual we are the nice guys who come last. They're laughing AT us, guys, not WITH us.
On 28 April 2011 at 1:06 am Grant Quinn said:
Oh please! Its going to be at least a financial cycle before any recovery, if that. I'm surprised someone from the Real Estate Industry has not been holding hands with this guy during the articles preparation. Correct me if im wrong but mid boom "if you did not buy property now you'd never be able to afford one as they would keep going up & Up. You don't lose money on property" Rasssssp! Gees buddy, as a bank i'd be worried about a future dollar value drop pushing up overseas commodittees hence raising living costs. Increased living costs during a recession. WOW we know where that leads to don't we! That will also challenge mortgage repayments severely and bank profits.
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