The housing market has been much stronger for much longer than Bank of New Zealand economist Tony Alexander expected but he’s still only expecting house prices to drop between 5% and 10% over a two to three year period once the inevitable downturn finally arrives.
That’s despite the fact that he also thinks the longer the housing market takes to cool, the greater the impact on pricing.
More than a year ago, Alexander was predicting negatives affecting the market would have begun biting hard by about September last year.
"The new thing is the better labour market, higher job security and better wages growth and therefore a more solid underpinning than was the case last year," he says.
New Zealand’s unemployment rate fell to 3.6% in the December quarter, its lowest level in 20 years, and Alexander says it will probably fall to 3%. This is offsetting a host of factors which are expected to hurt the housing market including booming supply from new houses being built, falling immigration, rising interest rates, would-be first home buyers opting out of the market and growing evidence of an over-supply of rental properties and static or falling rents.
Alexander says that since the beginning of 2001 and the end of 2004 rents around the country rose 8.9%.
But the average house price rose 56% in the same period. He notes the Reserve Bank is forecasting average house prices will fall 4.8% in 2006 and a further 1.9% in 2007.
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