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New Zealand house price growth slows as demand cools

(WELLINGTON, New Zealand) House prices in New Zealand rose at the slowest pace in a year last month as record-high interest rates and rising living costs curbed demand for property.

Prices climbed 8.9 per cent in January from a year earlier, moderating from a 10 per cent increase in December, Quotable Value New Zealand Ltd, the government valuation agency, said in a report released in Wellington yesterday.

A cooling property market will further slow an economy that expanded at the slowest pace in a year in the third quarter.

Reserve Bank of New Zealand governor Alan Bollard raised the benchmark interest rate four times last year to 8.25 per cent, straining the budgets of lower-income homeowners and forcing some property investors to renegotiate finance.

‘Over the course of the year, we will see prices drop on a national basis,’ said Nick Tuffley, chief economist at ASB Bank in Auckland. ‘Sales are slowing but the number of houses on the market is rising, so many sellers are going to have to look at the price they are willing to accept.’

The number of house sales in December slumped 32 per cent to a seven-year low, the Real Estate Institute said on Jan 16.

Mr Tuffley said that people are seeking to sell properties that they had been using as an investment, while buyers are ‘on the sidelines’ because of the increasing cost of home loans.

The average price of a New Zealand house was NZ$390,636 (S$437,500) in January, yesterday’s report showed.

In December, the interest rate on a two-year fixed mortgage was 9.38 per cent, up from 8.18 per cent a year earlier.

The cost of mortgage repayments on a median-priced New Zealand home was about 82 per cent of the nation’s average income in December, a measure of housing affordability that is close to the record low, according to the website interest.co.nz.

‘Higher mortgage interest rates are affecting property owners on low discretionary incomes,’ said Blue Hancock, a Quotable Value spokesman. ‘There are increasing reports from our valuers of properties going to mortgagee sale, with the number of these sales likely to increase.’ Property price growth has already stalled in some parts of the country, Mr Hancock said.

Source: Bloomberg (Business Times 12 Feb 08)

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