News

House prices could surge by 24pc

By ADRIAN CHANG - BusinessDay

Last updated 12:09 11/08/2009

Housing prices are set to jump by 11 percent by next year, and by 24 percent by 2012, according to Infometrics.

In its QBE LMI New Zealand Residential Property Overview released today, the economic think-tank's report said low interest rates, combined with a shortage of new housing, will drive prices up by 24 percent over the next three years. 

It predicted median housing prices by June 2010 would be up 10.9 percent on this year's June median of $339,000, up by another 4.0 percent by 2011 and another 7.2 percent by 2012.

Residential property was also taking a significantly shorter amount of time to sell, where across the country, median time on the market has dropped from 58 days in July 2008 to 41 days in June 2009.

The report said June quarter house sales volumes lifted by 41 percent compared to last year, and largely credited the downward movement in mortgage rates since mid-2008, which improved affordability for both investors and first home buyers.

Insurer QBE LMI's chief executive Ian Graham said housing affordability was a major factor in reviving interest in the housing market.

"With improved credit conditions and record low interest rates, the motivation for first home buyers and investors to enter the housing market have never been more compelling."

The report said it expected the Reserve Bank to keep the Official Cash Rate at 2.5 percent until the middle of next year, then raise it to 4.5 percent by December 2010 and then to 6 percent by early 2012.

"The effect on retail interest rates is clear. Two-year (and longer) fixed mortgage rates are forecast to remain higher than the floating rate through until early 2011, by which stage they are expected to be close to 8%."

"The effective mortgage rate is expected to reach its low point early next year, and climb throughout the rest of the forecast period (until 2012)."