New Zealand home prices fall in June

(WELLINGTON) New Zealand house prices fell for the second month in a row in June, according to official data yesterday, offering further evidence that the central bank can afford to be gradual in raising interest rates.

Quotable Value (QV) said its residential house price index rose 5.2 per cent in the year to June, slowing from a 5.6 per cent rise in May.

Although the index is still up on a year ago, the gain is mostly due to a big rise late last year and the recent decline indicates that prices have effectively been falling for the past two months, the government agency said.

It added the market has retreated with fewer properties up for sale and buyers being cautious and selective.

'There are still sellers who have unrealistic price expectations in the face of present slow market conditions,' said QV valuation manager Glenda Whitehead.

She said properties seen as being poorly maintained were also being bypassed, while forced or mortgagee sales were weighing on prices as well.

The softness in the property sector, once a key inflation concern for the central bank when it raised rates to a record high, is now seen as one factor why it will be cautious as it raises them.

'I think house price growth will flatline for some time and for the Reserve Bank it will be a factor in them pausing eventually in their tightening,' said Goldman Sachs JBWere economist Philip Borkin.

The Reserve Bank of New Zealand (RBNZ) last month raised its cash rate to 2.75 per cent from a record low 2.5 per cent where it had been held for a year.

Financial markets are pricing in an 84 per cent chance of another quarter percentage point rate rise to 3 per cent on July 29. In the latest Reuters poll 19 of 20 economists expect a rise this month, with the cash rate seen at 3.75 per cent by year's end.

QV said there was no sign yet that a pending clampdown on the favourable tax treatment enjoyed by rental property outlined in the May budget is having any impact on the market.

'Any changes . . . will likely take effect over the next twelve months as the various tax changes are implemented, and will also depend on whether investors decide to sell as a result of the changes,' said Ms Whitehead.

The national average sale price in June rose 0.4 per cent to NZ$404,715 (S$395 860), against a 0.5 per cent rise in May.

House prices in Auckland, New Zealand's biggest city, were 7.9 per cent higher compared with 8.8 per cent in May. -- Reuters

Source: Business Times, 13 Jul 2010