House prices could fall by up to 10% this year, improving affordability and providing a boost to new home construction.
Forsyth Barr analyst Rob Mercer said a contraction in the number of new houses built, higher interest rates and reduced affordability were driving the drop in house prices.
He pointed to median house prices falling 2% in December and 1.4% in January, the average time taken to sell a house increasing to 49 days in January and net migration now at the lower end of the three-year range.
In addition, there was a trend for people on higher incomes to rent a property rather than buy, which had driven up rent values.
‘‘We expect house prices to fall by 10% over calendar year 2008, thus improving affordability and stimulating an increase in new dwelling consents heading in to calendar year 2009,'' Mr Mercer said.
A decline in house prices would not cause a sustained decline in residential building activity, but Mr Mercer said a 10% drop in house prices was needed to improve affordability. The number of new housing consents peaked at 26,900 in June 2004 and latest statistics showed that had now fallen to 23,200, while house prices peaked last November at a median price of $352,000 - a 45% lift since June 2004.
This had harmed housing affordability, outstripping a rise in household income. The increase in time taken to sell a house was larger than expected and Mr Mercer said there was evidence of an increase in the number of listings.
The outlook for non-residential buildings was more positive, with consents up 7.3% for the six months to January 31 this year, driven by increased construction activity in roading and energy.
‘‘We believe the market will be positively surprised over the next couple of years by the pull-through of earnings from increased commercial construction activity.''
