House sales volumes fell by a record amount in the first half of 2008 and the South will be the hardest hit by a downward spiral in house prices, a report by economic consultants Infometrics shows.
Findings released today show property sales volumes slumped 44.3 percent compared to the same period in 2007, exceeding the previous record decline of 39.4 percent set in the second half of 1974.
The data is in a report prepared for mortgage insurer QBE Lenders' Mortgage Insurance.
A downward trend in median house prices has developed since 2007 with the Christchurch, Hawke's Bay and Taranaki/Manawatu/Wanganui regions experiencing the worst home value declines over the year to June 2008.
Nationally, the average price over the three months to August 2008 was 3.1 percent lower than a year earlier.
Infometrics senior economist Gareth Kiernan said the annual price decline was the first across the country since 2001.
Looking forward, annual growth in the median house price could dip as low as minus 10 percent in early 2009 and nationally, prices were forecast to fall 5.8 percent by June 2009, he said.
Otago/Southland with -9.5 percent, Northland with -9.1 percentand Nelson/Marlborough with -7.6 percent were expected to experience the most pronounced fall in house prices to June 2009.
Christchurch with -3.3 percent and Hawke's Bay with -3.2 percent would experience the smallest declines.
Turning to the rental market, gross rental yields lifted from a low of 4.3 percent in May 2007 to 4.7 percent by August 2008. Rental yields, driven by strong national demand, were at their highest in over three years.
Higher interest rates, economic recession, increases in food and fuel prices and drought pressures affecting the agricultural industry were seen as catalysts for the slowdown.
QBE LMI chief executive Ian Graham said that with interest rates on the way down, a pick up in business and consumer confidence, and vendors revising their price expectations, sales volumes were expected to recover from their current low level.
"More buyers are likely to be drawn back into the market in 2009-2010 in search of housing bargains," he said.