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House Prices To Start Falling In New Zealand Towards End Of Year Says Reserve Bank Governor

Property prices in New Zealand will start falling by the end of the year as the effects of higher interest rates start to kick in according to the Governor of The Reserve Bank Of New Zealand, Alan Bollard.

“We’re expecting that by the end of the year prices go negative,'’ Bollard was quoted as saying by Bloomberg while at a meeting of central bankers in Switzerland. “We are seeing the rate of increase slowing a lot.'’

New Zealand’s Central Bank has upped interest rates nine times since the start of 2004 and they now stand at 7.25% - in the UK they are currently 4.5%. And average price rises have been a main factor in these interest rate hikes, not least because of the effect that rising house prices have on inflation.

House prices in New Zealand increased by an average of 69% between 2000 and 2005 according to the Organization for Economic Cooperation and Development whose “Are House Prices Nearing a Peak?” report states that New Zealand’s property market is one of the most vulnerable to further increases in interest rates.

The report states that if prices continued to rise at the same rate as they did in 2005 and interest rates were to increase by a further 1%, there was an 83.9% chance of a fall in prices. Only Denmark was more likely to see price falls during such a scenario out of the 17 countries studied in the report.

House prices in have been plateauing for much of this year to date according to the Real Estate Institute of New Zealand (REINZ), but the number of sales has been falling. In Auckland for example, while prices have risen by 36% during the last three years, the number of transactions taking place fell from just over 4,000 in May 2003 to less than 3,000 last month.

All of the above would suggest that New Zealand is increasingly becoming a buyer’s market as far as property is concerned - which is good news for those looking to emigrate to New Zealand, but not such good news for those wanting to sell up and come back home.

The same is true of the New Zealand dollar which has fallen in value against the pound this year - great news if you are using your pounds to buy Kiwi dollars, not such great news if you want to do the opposite.

http://www.placeinthesun.co.uk/?p=104