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NZ housing market 'looks slightly spongy,' no sign boom is returning, Bollard says

Monday 8th February 2010

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New Zealand’s housing market hasn’t worked itself up into another boom as initially feared, with weaker sales, less home building and lower mortgage approvals, Reserve Bank Governor Alan Bollard said.

“Initially I was a bit worried that we would see house prices go back into a boom – we’re not seeing that at all,” Bollard told Television New Zealand’s Q+A programme yesterday. “It’s looking slightly spongy at the minute actually.”

Bollard said New Zealand’s tax system has encouraged “quite unusual” household balance sheets, with kiwis “relying heavily on houses and house capital growth for retirement and for income.”

Figures from real estate firm Barfoot & Thompson showed Auckland house prices slid 8.6% last month as sales fell. While new listing rose, the number of sales fell 10%.

“Weak sales and a rise in the supply of unsold homes can only put downward pressure on prices,” Michael Gordon, economist at Westpac, told BusinessWire.

House values rose 4.4% in the year through January in what was a “patchy” first month for 2010, according to figures released today from QV Valuations. The average sales price rose to $409,807 last month from $404,671 in December, QV said.

“Market activity in January appears to have been patchy,” said spokeswoman Glenda Whitehead, in a statement.

Property prices rose through 2009, stoking optimism for a return to buoyant demand for housing and prompting Bollard to warn consumers against rushing back into the market. The Tax Working Group recommendations for tax reform include a land tax.

Some investors wound back their expectations for the timing of a hike in interest rates by the central bank last week after government figures showed the jobless rate climbed to 7.3% last quarter.

Bollard said yesterday that unemployment probably peaked in the fourth quarter and the data also showed an increase in the number of people wanting to get back into work.

New Zealand’s economy resumed its expansion in the second quarter of last year, but growth partly reflects government stimulus, stimulatory monetary policy, restocking by companies, and strong prices of commodities such as dairy products. But domestically “it is still fragile.”

He reiterated the RBNZ may raise interest rates around the middle of the year. He said the kiwi dollar at around 70 U.S. cents may be a little over-valued on its fundamentals.

Bollard said New Zealand is unlikely to catch up to Australia wealth and income, which have been driven by demand for that nation’s abundant raw materials. But New Zealand can still benefit from the “crumbs” off Australia’s table including the opportunities that may emerge of Australian manufacturers are forced overseas by the high currency.

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