The median price of houses sold in the wider Manawatu region hit a "surprising" all-time high in December.
But the threat of interest rate rises and the ongoing impact of loan to value ratio speed limits is having an effect on the market, with fewer properties selling, new figures suggest.
The median price that a house sold for across the region rose by $30,250 compared to November to reach a new record high, the first since June 2007.
Real Estate Institute of New Zealand chief executive Helen O'Sullivan said sale numbers in December were the third lowest in the region on record.
"The combination of a dramatic fall in volumes and new record median price high are indicative of a significant reduction in buyers in the lower price brackets," she said.
REINZ Manawatu spokesman Andy Stewart said the market in December and January was always a bit hard to judge as there was always a slowdown over the holiday period.
But the fact that the Manawatu median house sale price had increased to $283,000 was still surprising, he said.
"It is interesting but you can have a few high price properties that go, and that puts the median up in a relatively small pool, so it could be a bit of an aberration."
What was not an aberration was the lack of properties selling, Mr Stewart said. Just 75 houses sold in Palmerston North in December, the first time there had been a drop to the 70s for a single month in more than three years, and well down from the 111 sales recorded in December 2012.
"I think the figures for December are likely to flow through into January.
"Last year we had 212 houses sell in Palmerston North in January but I think this year we will be lucky to break 100."
Loan to value restrictions combined with the threat of interest rate rises were causing buyers to lower their expectations on what they could afford, he said.
There were still people looking to sell, but there were far fewer first-home buyers and fewer investors.
In Feilding 18 houses sold in December, also well down on the 33 sales recorded in December 2012.
Mr Stewart said February would be a crucial month for the market, with normality resuming after the holiday break and if the volume of houses sold continued to be low it would be a "major concern".
Manawatu Property Investors' Association president Pauline Beissel said there were still bargains to be had in the market if investors knew where to look.
The threat of interest rate rises, which ANZ Bank predicted yesterday was likely to happen next week, would have a slight impact on confidence.
But interest rates on mortgages were not at levels to scare investors just yet.
- Manawatu Standard
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