House prices to rise 4% - Westpac

Wednesday 27 April 2011

House prices are set to rise by 4% this year, boosted by the RBNZ decision in March to cut the OCR, according to Westpac.

By The Landlord

House prices are set to rise by 4% this year, boosted by the RBNZ decision in March to cut the OCR, according to Westpac.

In its April Economic Overview the bank said house prices began to stabilise around October last year, and that the RBNZ rate decision in March "may contribute to further housing market zing."

"We now expect 4% house price growth this year," the bank said.

"I think that house sales are on the rise in most regions except for Christchurch," said Westpac chief economist Dominick Stephens.

While citing interest rates as the main driver for house price rises this year, Stephens said they could also prompt falls further ahead.

"What I think is house prices fell in 2010 due to tax changes that occurred that year and low net migration. Now as interest rates fell through the middle of 2010 and net migration picked up I haven't been surprised to see some stabilisation in the housing market recently. Going forward with the latest drop in mortgage rates, that has prompted us to predict a rise in prices this year. However we do expect mortgage rates to rise and possibly rise quite rapidly over 2012 and 2013 and that will send the housing market back to flat price action. We're forecasting zero house price growth in 2012 and 2013. I certainly wouldn't rule out decline as a possibility."

Stephens also cited the tax changes as a driver behind the rising rents seen in Auckland.

"The quite predictable impact of that has been a drop in house prices because obviously there's less of a tax favourable situation for landowners, but also a rise in rents because there are fewer wiling landlords now. This explains why we went through a period in 2010 where rents were rising and house prices were falling," he said.

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