Snapshot of a slump

Auctions fail to fire, 10% drop predicted

It was the week the property slump hit the nation's auction rooms once the fast-beating heart of a booming housing market.

The Sunday Star-Times watched 21 houses in the three main centres go under the hammer in the last five days not one sold on the night and not one sold post-auction. Many struggled to get a bid.

Experts say there is worse to come, with predictions house prices will fall up to 10% this year in what could be the start of a five-year decline.

Auctioneers say just 30% of homes are selling at auction now half the rate of a year ago as interest rate hikes, easing migration and global credit conditions cool the once over-heated market.

ANZ National Bank chief economist Cameron Bagrie said the market was 25-30% overvalued which meant it would take about five years to correct. This year's expected tax cuts would not make a dent in mortgage repayments, he said.

"I don't think $20-$30 a week in people's pockets is going to do much to support property prices."

With households spending $1.14 for every $1 they earned they would need an "astronomical" tax cut to feel comfortable about rising mortgage rates and increases in living costs.

ASB Bank and ANZ National Bank lifted their mortgage rates last week and others including Kiwibank indicated they would follow.

A two-year fixed mortgage is now 9.7% with ANZ National and 9.5% with ASB, while the floating rate is 10.75% with ASB.

With vendors putting houses or investment properties up for sale to ease their financial strain, the extra supply will also drive down prices.

Worrying signals of a slump continue to mount:

Falling immigration numbers. Net migration broke even in December and January after dropping by hundreds of people a month during 2007. The last time migration flatlined was in July 2005. Experts predict New Zealand is about to see the first net migrant loss since the great brain drain of 1999-2001.

A National Bank study of 40 cities and districts shows an 80% increase in apartments and sections on the market since October. Areas popular with speculators such as Auckland City, Thames/Coromandel, Taupo, Tasman, Northland and Queenstown were most at risk.

The average time to sell a house has remained at a seven-year high of 40 days since November.

Home ownership is down to its lowest level in 50 years, with 67% of households owning a home in 2006 compared to almost 74% 20 years ago.

In January the median price fell to $340,000 after reaching $352,000 in November double what it was six years ago.

ANZ chief economist Nick Tuffley said the market had reached a pivotal point where sellers were not getting what they wanted.

"We're now at that stage where something's got to give, and either a whole lot of people have got to resign themselves to not selling their house and waiting until the market gets better, or they're going to have to start accepting some of the lower offers.

"It implies we're going to go through a period where house price growth is subdued enough that income growth is capable of exceeding it slightly, and that will help to partially restore that affordabilty imbalance that's built up over the past five years."

 Economists say Auckland house prices are most at risk from negative migration flows because of its large numbers of apartments and the region historically taking half of new migrants.

Over the past 12 months New Zealand's net migration gain was 4800 people well below a 14,100 migrant gain for the same period last year, and less than the annual average gain of 10,000 people. BNZ economist Tony Alexander said the sharp drop in net migration at the end of last year was "astonishingly quick".

- © Fairfax NZ News