NZ Home Prices Fall For First Time Since Feb 2005

Source : The Business Times, August 12, 2008

(WELLINGTON) New Zealand's house prices fell from a year earlier for the first time in more than three years in July as record-high interest rates eroded demand for property.

No takers: Soaring home-loan interest rates have forced buyers out of the market and require vendors to accept lower prices

Average prices dropped 2.2 per cent from a year earlier, Quotable Value New Zealand Ltd, the government valuation agency, said in a report released in Wellington yesterday.

That's the first decline since the monthly series began in February 2005.

Home-loan interest rates have soared the past year, forcing buyers out of the market and requiring vendors to accept lower prices.

Reserve Bank of New Zealand governor Alan Bollard said in June that house prices will fall 7.7 per cent this year and won't start rising until 2011.

'We expect to see more weakness in house prices over the coming months,' said Jane Turner, economist at ASB Bank Ltd. in Auckland. 'Housing turnover has been on a steady decline since mid last year.'

House sales fell for a fourth straight month in June, reaching a 16-year low, according to Real Estate Institute figures published last month.

Home-loan approvals in July fell 27 per cent from a year earlier, according to the central bank.

'Many sellers are accepting the state of the market and dropping their expectations accordingly,' said Blue Hancock, a spokeswoman for the government agency. 'The questions has now changed from when will prices stop rising to when can we expect to see them stabilise?'

Prices in Auckland, the nation's largest city, fell 3.6 per cent. Wellington prices dropped 1.6 per cent, the agency said.

Global turmoil in credit markets has prompted lenders to raise borrowing costs by about one percentage point the past year, even as the central bank kept its benchmark interest rate unchanged at a record high.

Mr Bollard cut borrowing costs last month for the first time in five years and said further declines are possible.

The decline in prices adds to signs Quotable Value's quarterly price index may fall for the first time in more than seven years. -- Bloomberg