House prices set to rebound says Infometrics

House prices are expected to surge 11 per cent next year as first-home buyers and investors take advantage of lower interest rates and snap up bargains, according to economic consultancy Infometrics.

The housing market has shown signs of stabilising lately, it says.

Sales volumes have recovered and properties are selling faster.

"Although house prices are still lower than a year ago, some upward momentum looks to have appeared since the start of 2009.

"Nationwide house price growth is forecast to average 8 per cent over the next three years," Infometrics says in a report commissioned by mortgage insurer QBE.

The Wellington property market is patchy and price increases will lag behind the national average for the next year, partly because of job security uncertainty in the public sector.

As job security slowly improves, house prices in the region will generally keep pace with the national average and should be 22 per cent higher in three years, Infometrics says.

The recent surge in sales nationwide probably reflects pent-up demand of the past year to 18 months, and will probably slow during the second half of this year as bargains dry up and owners look to avoid selling at the bottom of the cycle.

Banks have also increased most fixed-term interest rates in the past week in anticipation of a rise in the official interest rate in January, despite the Reserve Bank's indications that it has no plans for an increase till the latter part of next year.

"A more sustained rebound in housing turnover is forecast in 2011 and 2012 as strong economic growth and a turnaround in unemployment increase people's willingness to take on debt again," Infometrics says.

Prices are also being held up by a shortage in the number of new houses built to cater for underlying demand of about 21,000 new homes a year and a growing population creating competition among buyers.

The combination of factors is expected to lead to a "significant rebound in house prices over the coming 12 months", Infometrics says. By June next year national average prices are forecast to have increased by 11 per cent on June this year.

That growth rate will slow for the following two years, but prices are still expected to be 24 per cent higher by June 2012 than the same month this year.

Despite house prices falling sharply since 2007, the market is still 15 per cent overvalued and continues to be one of the imbalances in the economy that has not been rectified by the financial crisis.

Though overvaluations have improved from 36 per cent a year ago, it could balloon back toward 30 per cent, Infometrics says.

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