Housing sector still weak

Economists say house sales remain weak, despite an optimistic interpretation placed by real estate agents on figures they released today.

Darren Gibbs, chief economist for Deutsche Bank in New Zealand, said that with valuations still "stretched" house prices were likely to continue dropping before beginning to stabilise in 2010.

And Shamubeel Eaqub, director of research for Goldman Sachs JBWere has cast doubt on the Real Estate Institute (REINZ) calculation of a drop of just 2.2 percent -- to $330,000 -- in the national median house price over the past year.

"We suspect house prices are instead falling at a more rapid pace," said Mr Eaqub.

The warning came on the eve of the Reserve Bank making a further cut tomorrow in the official cash rate (OCR), predicted by many analysts to be a drop of 100 basis points, to 2.5 percent.

Mr Eaqub said that median house prices were not the best measure of house prices over time, as they were not adjusted for changes in the composition of sales.

Quotable Value QV housing data -- which was adjusted -- showed house prices actually fell 8.9 percent for the three months to February compared to year-ago levels.

"Housing demand remains weak and is likely to remain so as consumer confidence remains soft," he said.

The 23.7 percent lift in the number of days a property took to sell was actually "indicating oversupply of homes for sale".

Economic uncertainties and reduced job security will continue to curb interest in the housing market despite below-average mortgage rates. And agency data suggested there was a large overhang of listings on the market.

"With the large excess of supply, buyers will remain in a position to drive prices lower," said Mr Eaqub.

ASB Bank economist Jane Turner said that after adjusting for the usual post-holiday period "bounce" sales had recovered only 8.3 percent -- following from the previous month's 6.8 percent fall.

"We place little weight on this month's recovery: the trend in house sales remains flat (despite some monthly volatility) with housing demand yet to make a convincing recovery," she said.

Big drops in interest rates on mortgages had prevented housing demand falling further, but the level of house sales remained weak.

"Potential house-hunters are either waiting for house prices to fall further, or feeling cautious due to economic uncertainties," Ms Turner said. "Higher deposit requirements are another hurdle for first home buyers."

She said a big jump in the median number of days to sell up to 54.9 days (seasonally adjusted), suggested there remained "a large mismatch between demand and supply".

Prospective house buyers were able to take their time in a low-demand market, and an unwillingness by sellers to accept lower prices might also be propping up the times taken to sell.

"The housing market remains oversupplied and we expect this to continue to push house prices lower," said Ms Turner.

But Mr Gibbs was more optimistic, saying that anecdotes from some the major agents suggested tentative signs of a pick-up in home sales.

"In absolute terms the housing market remains sluggish but there are increasing signs that confidence is returning to the market," he said.

But he doubted that the recovery in 2009 will prove substantial "in light of the general weakness we are observing across the economy".

"We do expect a marked lift in housing market activity in 2010, with the cumulative impact of very low mortgage interest rates likely to be reinforced by a strong pick-up in net migrant inflows and a lift in general confidence levels as the economy and labour market prospects begin to stabilise," Mr Gibb said.

He said the improvement so far seen in the housing market reinforced views that the Reserve Bank should cut the OCR by no more than 50 basis points tomorrow

NZPA