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Falling NZ house sales may indicate faltering economic recovery

Thursday 11th February 2010

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Falling New Zealand house sale volumes and prices in January may indicate a domestic economy that’s struggling to maintain momentum, according to economists.

Commenting on house sales data briefly put on, and then removed from the Real Estate Institute’s website, Goldman Sachs JB Were economist Philip Borkin said house sales tumbled 17% to 4,488 last month compared to January 2009. The median price fell $10,000 to $350,000 over the same period, while median days to sell remained constant at 36 days.

“The housing market’s running out of steam – and quickly,” Borkin said. “Again, it highlights the fragile nature of the recovery to date. As a good gauge of domestic demand, the weak housing turnover raises concerns over the sustainability of the recovery to date and emphasizes to us that monetary policy support will not be removed before June at the earliest.”

The institute said it briefly posted the figures on its website in error today and doesn’t plan to release the report officially until tomorrow. Sales volumes have fallen over 31% over the past six months; close to the depressed lows of 2008, the figures show. The drop in turnover suggests the possibility of the economy experiencing another dip over 2010, said Borkin.

“While there is some merit in the view that the housing market is still being held back by a lack of quality properties listed for sale, we suspect that increases in fixed mortgage rates over the past few months has dented optimism,” Borkin said. “Nevertheless, on the back of these numbers, we would expect to see house price growth ease over the coming months.”

Westpac Banking senior economist Donna Purdue said the bigger influence on January’s house sale figures was a concern over potential changes to the tax treatment of housing.

“John Key’s speech has ruled out the introduction of a capital gains or land tax, but changes to the tax treatment regarding depreciation will make property investment less attractive,” Purdue said.

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