Housing market toughens

House hunting is getting harder, with a combination of fewer homes for sale and pre-recession price tags making it even tougher for first-home buyers.

House prices in December were up nearly 10 per cent on the same month in 2008, fuelled by a tight market and low interest rates, Real Estate Institute figures show.

However, housing experts say prices may now level out.

The median house price in December was $360,000, compared with $328,500 a year earlier.

The institute's housing price index, which measures the market's overall strength and performance, is now just 3.8 per cent below the November 2007 peak.

Its figures back up those from Quotable Value last week, which put the market at 4.9 per cent below the peak. The institute figures showed increases in 11 of 12 regions, with just Northland recording a decrease.

As well as having to pay more, home buyers also have less choice. Fewer than 5000 homes were sold last month, the second-lowest number of sales during December since 2000. They took an average of just 33 days to sell.

Massey University professor Bob Hargreaves said the speedy bounce-back since house prices slumped 18 months ago was the result of the continuing housing shortage, a net migration increase and low interest rates. "There's a bit of a mismatch between supply and demand. It makes it pretty hard for people who don't already have a house."

But house prices were unlikely to rise much further. "My instincts are that it's probably going to flatten out a bit in 2010."

Although interest rates were likely to rise this year, it could be worth waiting for the Government's planned changes to tax policy. "There could be something for first-home buyers in there."

Institute president Peter McDonald said he believed house prices would rise slightly before stabilising.

Westpac senior economist Donna Purdue also expected house prices to level out during the next few months as interest rates rose and housing construction increased.

"We were looking at double-digit house-price growth by 2010 ... but the data released today is now suggesting that it would be a stretch. It looks like the housing market's topped out a little earlier and a little lower than we thought it would."

Westpac said the quick turnaround in house prices was part of "a convincing story of recovery" in the national economy.

Real estate agent Tim Duncan, from Harcourts Karori, said despite a shortage of properties for sale, there was "a lot of confidence" among buyers because of low interest rates. As rates rose during the year, prices would probably level out. "I don't think it'll have a strong increase over the next 12 months."

- © Fairfax NZ News