Housing market heats up

The housing market's renewed burst of life is continuing, with prices as measured by the Real Estate Institute's housing price index gaining 1.9 percent in September.

In the September quarter the index, recently introduced by REINZ as a measure of the housing market's strength, increased 2.5 percent. The index is now up some 5.3 percent on its year-ago level and prices are now just 4.4 percent below their November 2007 peak.

Most of the new heat in the market is being generated in the main centres. Compared with a year ago, Christchurch prices are up 10.2 percent, Auckland prices 9 percent, and Wellington 8.7 percent.

The national median price for houses sold in September was $350,000, up from $346,750 in August and $330,000 a year ago.

The increased prices are coming on the back of rising numbers of houses sold and, crucially, fewer days needed for sales to be completed.

The number of days on average for properties to sell in September was 33, down from 34 the month before and 52 a year ago.

In September there were 6464 sales, up from 5878 and a whopping 43.7 percent ahead of the 4499 sales recorded in September last year.

Newly elected REINZ president Peter McDonald said the latest figures indicated improved confidence of buyers and sellers in the marketplace.

"We're seeing a slow, but steady, appreciation in sales values and we're now back to the prices being fetched in the corresponding period in 2007, when the median price was $351,500," McDonald said.

While the rising prices are good news for people who own a home, the Reserve Bank, for one, is unlikely to be thrilled.

The central bank has already voiced its concerns about the emerging signs of heat in the housing market and the potential for that to feed into inflation.

Today's figures will add further fuel to the argument that the RBNZ will be forced to raised official interest rates much earlier than the bank has to date indicated. RBNZ Governor Alan Bollard has repeatedly stated that the Official Cash Rate will remain at or below its current 2.5 percent level till late next year.

Economists are already speculating that in fact the RBNZ might have to hike rates as early as March.

Overseas investors have been happily pumping money into New Zealand in the belief that interest rates will rise to their benefit sooner rather than later. This has been the main reason the New Zealand dollar has been rising.

The Kiwi dollar was reignited this morning by the house sales figures, sharply gaining from about US73.3 cents earlier in the day to over US74c a short time ago.

ASB economist Jane Turner said the RBNZ was likely to be uncomfortable with the current degree of tightness in the housing market.

"The very low number of days to sell suggests more house price inflation pressure is likely over the next few months. However, a strong housing market and rising house prices are likely to attract new listings and encourage new building, and we expect the supply and demand imbalance will soon correct. However, in the meantime house price inflation has been slightly stronger than we had been expecting," Turner said.

"...While we do not expect the RBNZ to increase the OCR until June 2010, we see the risks skewed to an earlier start."

- © Fairfax NZ News