Property price fall expected to hit 13pc

House prices are expected drop by up to 13 percent for the 12 months to early next year, according to economic forecasters Infometrics.

However, with rapidly falling interest rates and sellers becoming more realistic about prices, house sales volumes may start to pick up by late next year, after this year's massive slump.

In a report for QBE Lenders' Mortgage Insurance and completed several weeks ago, Infometrics expected median house prices to fall as much as 10 percent in the year to early 2009 and weaken further in the first half of next year.

Since the report was finished, the global credit crisis has worsened, with a virtual freeze on lending between banks preventing New Zealand banks from borrowing overseas.

"The world had shifted more rapidly than normal," Infometrics senior economist Gareth Kiernan said yesterday.

As a result of the recent financial meltdown, Infometrics expected prices to drop between 12 percent and 13 percent for the 12-month period. The Reserve Bank expected house prices to drop 15 per cent over time.

"The risks on house price falls are slightly further on the downside [from 10 percent], but only slightly," Mr Kiernan said.

Nationally, house prices in the three months to August were down 3 percent on the same period last year - the first annual decline since 2001. QV figures out last week showed a 6.8 percent annual fall in property values, to an average sales price of $379,290.

While house prices are falling, new construction is also diving sharply, reducing the expected supply of homes, which may limit the extent of price falls.

Annual building consents have fallen dramatically this year. Nationally, monthly building consents have collapsed more than 40 percent since the middle of last year to the lowest point since 1983.

That posed the risk of an undersupply of homes, especially with migration and population growth holding steady, Mr Kiernan said.

On the other hand, the credit crisis could extend the housing market downturn.

There was growing concern that banks were unwilling to lend for property development, and it could be the second half of next year before things start to return to normal, he said.

There had been a huge downturn in the volume of sales this year - a drop of almost 45 percent for the first half of 2008, compared with the same period a year before.

- © Fairfax NZ News