BNZ talks down housing market crash

Chief economist Tony Alexander says he doesn’t think economic fundamentals suggest the housing market is going to fall sharply.

“Since late last year our view has been that at some point in the June quarter we would see the housing market starting to flatten out because special factors were driving the strong growth from late last year,” he says in the bulletin.

We are now seeing the housing market flattening out because of the extra 1% rise in interest rates in recent months and deteriorating net migration inflows, he says.

“We don't believe average house prices are likely to fall but the annual rate of inflation is likely to go below 5% over the next 12 months.”

The main factors depressing the market will include the rise in debt servicing costs, perhaps some worries about what the government may do to restrain the housing market in light of concerns about housing affordability and below average net migration inflows.

The housing market is likely to remain supported, however by the tight labour market and a boom in some rural sector incomes likely to underpin housing markets in the regions.

“One should also throw in the search down south for oil,” says Alexander.

“It does look like things are going to flatten off for a longer period than we saw from late
2005 and early 2006. But we would be surprised if average house prices do in fact fall.”