Don't buy - house prices set to fall, banks warn

Bank of New Zealand chief economist Tony Alexander has predicted a 10 per cent drop in the next three years and Westpac economist Donna Purdue has predicted a 5 per cent drop this year.

Keen buyers should cool their heels and continue paying rent to take advantage of the market, Mr Alexander suggested.

House prices rose 55 per cent in the past three years, but rents were up by less than 10 per cent.

"In the previous housing boom, from 1993-97, both rents and house prices broadly rose together," he said. "This time only house prices have moved strongly."

Mr Alexander cited tumbling net migration, which had gone from a record 12-month gain of 43,000 people in May 2003 to just 12,800 in January.

He also said sales figures from Auckland's Barfoot & Thompson showed the average sale price fell from $443,000 in January to $429,000 last month, if one large sale was excluded.

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