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Realtors bite their nails over coming statistics

By Chris Hutching

Friday 10th March 2000

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Real Estate Institute president Max Oliver is anxiously awaiting the release of statistics next Thursday which may indicate the extent of a downturn in confidence facing the residential property market.

This week he was in talks with ASB Bank economist Rozanna Wozniak analysing whether the bank's regular confidence survey heralds a long-term downward trend or more of a blip on the horizon.

The statistics Mr Oliver is waiting for will show whether the softer trend has continued throughout February.

He said real estate agents had been aware of a downturn that began during October and extended through to January but, like Ms Wozniak, he is at a loss to understand why this is occurring at a time of relatively strong economic fundamentals.

"I think that to some degree it might simply be that many people are already stretched to service debt. I'm told from other business acquaintances that car sales are also slow at the moment.

"Maybe people just don't have the money to buy at the moment. At the same time, there are only about 10% of the respondents of these surveys who are ready to buy at any particular time.

"So it might be useful to ask people what their intentions would be if they had the money available today."

Mr Oliver said there were also clear regional differences. The Wellington area had been more buoyant than Southland, Auckland and Hawke's Bay.

A brief survey of banks this week revealed none are tightening lending criteria. Most banks are lending up to 90% of the value of house purchases with a trial in Auckland by Westpac allowing lending up to 95% of the value of a home.

Both Mr Oliver and Ms Wozniak said the fear of high interest rates was proving a deterrent along with other fears about the effect of lower state housing rentals, and possible stalling of the economy by heavyhanded Reserve Bank monetary tightening. Low population growth was another significant factor.

But Ms Wozniak is tipping interest rates will peak at around 9% by the end of the year and not go beyond 10%.

While the interest rate rise might be a concern it should be viewed in the context of the relatively lower rates that have been enjoyed since mid-1998. During 1997 rates hovered around 9.5%, she said.

"There's historically been a strong correlation between economic fundamentals and the property market so I think many people who responded to the latest survey were probably over-reacting.

"At the same time, a fundamental change has affected residential property investment when compared to previous decades and for some time I've signaled that returns from the sector will be more modest in the current low-inflation environment."

The latest ASB Bank quarterly survey of housing intentions revealed 38% of respondents thought it was a good time to buy, down from 55% the previous quarter and down from a peak of 71% a year ago.

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