Rise, stall then fall predicted for house prices

Tuesday 27 March 2012

House prices will rise 5% this year before higher interest rates put the brakes on, and the rapid price rises in Auckland and Christchurch will not be repeated elsewhere.

That is the view of Westpac chief economist Dominick Stephens, who predicts house prices will rise 5% this year, stall in 2013 then drop 1% in both 2014 and 2015.

In his update on the housing market Stephens says that while the nationwide housing market has strengthened over the past six months, the most remarkable feature has been the variation between regions, especially the price rises in Auckland and Christchurch.

"New Zealand hasn't seen anything like this degree of regional divergence since the 1990s," he said.

Stephens says there is a simple reason why prices have risen so markedly in Auckland and Christchurch - and why these increases don't herald a nationwide trend.

"Our analysis suggests that prices have been rising more quickly in Canterbury and Auckland because both regions are experiencing local housing shortages," he said.

"Auckland and Canterbury house prices have built up a premium over other regions in the past year. This premium can be expected to persist until builders correct the local housing shortages."

Stephens says the earthquake is the obvious factor behind the Canterbury regions housing shortage, while Auckland is suffering from "an extended period of low building activity and high population growth."

He said that over a three year period to June 2011, Auckland's population increased by seven people for each new dwelling consent issued.

Regions unaffected by housing shortages where prices have also risen, such as the rest of the North Island, have been given a "shot in the arm" by low interest rates, Stephens said.

However, he predicts that substantial rate rises over the 2013-2015 period, "would put the brakes on the housing market in short order."

Comments from our readers

On 28 March 2012 at 10:04 am nick said:
As an economist he first needs to go and check the price rises on building materials...everything almost 20 percent more expensive compared to a year ago...
On 28 March 2012 at 11:09 pm Larry said:
Drop 1% in both 2014 and 2015? I doubt it. Do not forget the fact that many property buyers, especially investers, are new immigrants. Their affordability is not affected by New Zealand's economy at all.
Commenting is closed

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