Fix for two years, economists recommend

Every month, it uses 10 gauges to predict the future direction of house prices. Of those, only migration is pointing solely up this month.

Affordability, servicing, interest rates, consents and house sales, liquidity and globalisation are pointing to flat or declining prices, and supply factors are leading to flat or increasing prices.

The largest monthly drop in median rents in eight years was a factor likely to depress prices, the report said.

The economists said two-year mortgage rates were the most attractive. Floating rates have increased but two-year rates are still below where they were in March. The discounts on two-year terms meant the rate would have to rise by almost 200bps over the next two years to make it worthwhile fixing at near 7% now, the report said.

It said the six-month rate had also been useful as a proxy for floating but that could be about to change. “A strategy of rolling successive six-month fixes has worked well so far, and is likely to work well going forward. However this rate is on borrowed time below 6%. We expect the RBNZ to resume tightening in March, so if one fixes now for six months, one will have limited, if any, time to re-roll at such a low rate at maturity if markets gravitate to that view by then.”

The report also studied Census data from last year and said it was clear rising prices for land had made the “quarter-acre dream” unattainable for many households.

The proportion of standalone houses has fallen from just over 80% of the private dwelling stock in 1991 to just over 75% by 2013.

But houses that are being built are bigger than average, and on bigger sections, the report said. The average consent for a new residential dwelling averaged 198 sq m in the March 2013 quarter, compared to just 174 sq m in early 2001 and 138 in the early 1990s.

An despite a drop in the number of people per dwelling, the Census showed there were proportionately more houses with more bedrooms. In 1991 less than 20% of all private dwellings had more than three bedrooms. By 2013 this has risen to more than one quarter.

“So while New Zealand might bemoan housing shortages and affordability issues, it no doubt partly reflects supercharged expectations on what the modern day house needs to be like. Though we do note that with the price of sections and developments costs it is simply not economic in some instances to place smaller units on the land,” ANZ’s economists wrote.