House prices to rise ­-- report

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Monday 5 July 2004

Gains in house prices are predicted during the second half of this year, according to a report by First New Zealand Capital.

By The Landlord

"The market is clearly over-valued but that doesn't necessarily mean a crash is on its way," New Zealand First Capital economist Jason Wong said.

The report says homeowners can expect to make further gains over the second half of this year at about 5% ­ less than half the rate it has been in recent times. The latest upward cycle has been shorter in duration than the median of upturns and downturns over the past 30 years by about six-to-nine months, the report said.

However, based on an analysis of house price cycles over the past three decades, First New Zealand Capital predicts a downturn from early 2005.

"Our analysis of previous cycles suggests that the current cycle is still a bit young by historical standards and we expect further price gains over the second half of 2004. Thereafter, the prospect of a prolonged period of weakness in house prices is likely."

This is despite house prices being 16% above trend in the March quarter ­ the greatest deviation in 29 years.

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