House prices tipped to lift 4 per cent this year
Date: 28 April 2011
According to Westpac, prices are tipped to rise 4% this year. Commodity prices world wide are rising, raw & manufactured material prices in New Zealand are going up all the time, with a recent round of material price rises from our suppliers in early April. So there wont be a better time to get in
House prices are set to rise 4 per cent this year, with the market led by Auckland, but borrowers should expect floating mortgage rates to rise sharply over the next three years, according to Westpac Bank forecasts.
The drop in mortgage interest rates last month was adding “zing” to the housing market, Westpac says, but floating rates would start rising early next year and may rise 200 basis points or more by 2014, as the Reserve Bank eventually pushes up the official cash rate to 6 per cent.
“There could mean substantially higher business and [floating] retail interest rates in three years from now,” said Westpac chief economist Dominick Stephens.
The markets were not pricing in rising interest rates in 2013 and 2014, which were part of Westpac’s view, he said. “The official cash rate hikes won’t start until there are cranes on the skyline in Christchurch. But once interest rates do start rising, they could rise rapidly.”
With the expected building boom in Christchurch, the Reserve Bank would keep pushing up rates through 2012 and 2013 to keep inflation in check.
Rising interest rates would crimp activity elsewhere, but the economy was expected to grow 4.6 per cent in 2012, according to Westpac’s forecasts.
Despite an expected 4 per cent lift in house prices in the coming year, the long-run outlook for prices was “fairly flat”, Mr Stephens said, as mortgage rates rates rose next year.
House prices are still relatively high compared with incomes, but fell about 20 per cent after adjusting for inflation between the peak in 2007 and the end of 2010. That adjustment was needed after house prices became “a bit over-valued” in the past decade, he said.
“The end of declining house prices is a positive sign for retailers, though nobody is talking of a return to the helter-skelter [spending] of the last decade.”
Retailing was miserable last year and there should be a lift this year from that subdued level. Sales had risen about 1 per cent a month in the past few months, but that was unlikely to be sustained.
Overall household spending was expected to rise about 3.8 per cent, after inflation, for the year to June 2012, including both shop sales and services. “That’s a decent increase and the strongest since 2007,” Mr Stephens said.
House prices have been flat for some time, hit by tax changes and weak net migration last year. As mortgage rates fell and migration improved the market steadied, and sales volumes had improved from extremely low levels.
“Prices are rising now in Auckland, [are] stable in many parts and falling in others,” Mr Stephens said, but the big cut in mortgage rates in March would add zing to the market.
“The reduction in rates makes life easier for first-home buyers, makes property more attractive for investors and makes upgrading the house more affordable.”
In the past decade, Auckland, Wellington and Christchurch have led the rest of the property market.
Auckland’s recent lift was a “leading signal” for the rest of the market.
However, Wellington faces government retrenching and public servants receiving low or no pay rises, leading to “under-performance” in the city’s property market.
The Christchurch market’s future was also highly uncertain since the February quake.
On balance, house prices were expected to fall there. “Prices will probably be down a bit in both Wellington and Christchurch,” Mr Stephens said.
The regional housing market would be boosted eventually by “very strong returns for farmers” from high commodity prices.
Key Forecasts
In its latest quarterly economic overview, Westpac predicts overall economic growth of just 1.3 per cent this year after the $4 billion disruption to the economy caused by the quake in Christchurch.
Economic growth:
1.3 per cent this year
4.6 per cent in 2012
House prices: up 4 per cent this year
Reserve Bank to start lifting official cash rate early in 2012
Cash rate to rise from 2.5 per cent now to 6 per cent in March 2014
- BusinessDay.co.nz
http://www.stuff.co.nz/business/4934748/House-prices-tipped-to-lift
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