Window small for first-home buyers

Fairfax Media

SMALL WINDOW: Pressure on stock combined with low housing construction may cause the current trend of falling house prices to reverse.

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Hopes for a return to affordable first-home buying might be short-lived despite the apparent wind-down in house prices.

The residential property bubble is predicted to burst soon, with sales prices stagnant at best and dropping in many New Zealand centres.

But Massey University housing expert Bob Hargreaves said the increase in take-home pay through tax cuts and lower mortgage rates would amount to little compared to the increasing pressure on a static number of houses.

An upturn in sales activity recently was putting pressure on the existing stock of houses for sale, with tighter control on finances from banks and the return of residential property investors making life difficult for those looking to get into the market for the first time.

Building activity has been severely constricted by the economic downturn and improving migration statistics would start putting pressure on the available housing stock, Professor Hargreaves said.

New dwellings had halved from nearly 30,000 about seven years ago, to about 15,000 a year now.

A few years of "overbuilding" would help, but essentially there were too few houses being constructed for the amount of interest.

Majesty Mortgage Brokers owner Sloan McPhee said a large spike in demand in the past few months had real estate agents reporting multiple offers on properties.

Investment options were still limited, with deposit rates low and debate over whether it was time to start reinvesting in the sharemarket, so property was arguably more attractive for investors.

"The stock is pretty limited, there is no doubt about it.

"The good stuff is moving real quickly and the not-so-good stuff is moving well too," Mr McPhee said.

He suggested a full recovery in the housing market could come as soon as early 2010.

The fifth international housing affordability survey from Demographia listed five New Zealand centres Tauranga, Auckland, Christchurch, Wellington and Dunedin in the top 50 "severely unaffordable housing markets" from 220 international cities surveyed.

Interest.co.nz editor Bernard Hickey painted a more rosy picture, saying housing affordability would continue to increase this year.

He said the "only complication for first-home buyers is the increasing requirement by banks for a deposit of 20 per cent or more, which is making housing effectively less affordable". That "complication" could be the status quo for some time, Prof Hargreaves said, with banks unlikely to relax deposit requirements quickly.

There could be some grace before supply issues started to bite, but it took a long time to ramp up housing production .

"The downside happens faster than the upside. To suddenly increase your building rate by 10,000 dwellings requires a whole lot of skilled people. Unless they are sitting round unemployed you have to ask where they are going to come from."

- © Fairfax NZ News