Housing recovery continues but gains look temporary

Sunday Star Times

DEMAND DRIVES SALES: The QV index for November, out today, shows national values up 1 per cent on a year ago and about 4 per cent better than the low point in April.

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House prices continue to recover, though there is a shortage of listings in a silent spring market.

An expected increase in listings is likely to slow down recent gains, according to government valuation agency QV.

The QV index for November, out today, shows national values up 1 per cent on a year ago and about 4 per cent better than the low point in April.

Nationally, prices remain about 6 per cent below the peak of the property boom in late 2007.

Low floating mortgage rates, a lack of listings, a slump in house building and rising net migration have all supported house prices in recent months, but trading has been slow this spring.

QV valuation manager Glenda Whitehead said total sales volumes remained low. There was a shortage of properties listed for sale, as possible sellers stayed put rather than try to sell. There were signs in recent weeks, however, that more properties were coming on to the market, especially in the main centres.

Though some banks expected prices to keep drifting up because of strong migration and a shortage of new construction, the Institute of Economic Research said "the residential property market looks stretched" and overvalued by as much as 10 per cent.

Low mortgage rates, increased immigration and the shortage of listings were all likely to reverse next year, it said.

House prices remained high compared with incomes, interest rates and rents. A rise in mortgage rates to more normal levels could result in the house market being overvalued by 25 per cent.

The Reserve Bank's next decision on official interest rates is due on Thursday. Though bank economists expected interest rates to remain on hold until April at least, they advised people on floating mortgage rates to expect a rise of three percentage points between the middle of next year and the end of 2011. Some floating rates are less than 6 per cent.

The November increase in QV values was mainly in the big cities, where prices were up 4.7 per cent from the April low. Provincial centres were up only 2 per cent. Rural houses have barely moved, up just 0.4 per cent since the low.

In the Wellington region, prices were up 2.9 per cent on a year ago. The city, along with other main centres, showed a fairly steady trend of increasing values, QV said.

"Well-presented homes in traditionally strong locations are still attracting good offers, and there seems to be a decent amount of activity in higher price brackets," QV's Kerry Buckeridge said.

But in the past couple of weeks there had been reports of more properties coming on to the market, which could be part of a late spring resurgence.

- © Fairfax NZ News