Houses getting too hot to handle (NZ)

Friday, 11 July 2003 - The Press (NZ)

[ back ] [ NZC News Archive ]

 

 

By KAREN CHAN

The housing market is showing signs of becoming overheated, as soaring house prices attract speculators, AMP said in its latest home affordability report.

It found a surge in house prices in the June quarter more than outweighed lower interest rates and a slight increase in wages, making homes less affordable.

AMP's home affordability index fell 3.2 per cent in the quarter, resuming the downward path it has been on since December 2001 after a slight improvement in the first quarter of this year.

"Given that low offshore interest rates will continue to push down fixed and floating mortgage rates, the fuel driving the strength in house prices will keep flowing for the time being," AMP managing director Ross Kent said.

The median house price rose 7.7 per cent in the quarter, to an all-time high of $210,000.

Mr Kent said signs the market was becoming overloaded were evident in high house prices compared to incomes, falling rental yields and the recent move of speculators into the market.

Massey University senior lecturer Graham Crews said the property market was in an "abnormal state", because the global economic situation might make it hard for the Reserve Bank to contemplate raising interest rates as it usually did when house prices rose on sustained buying.

But Mr Crews didn't believe a house price bubble existed now.

"There are hotspots of speculation, but speculation is not at the same level it was at in the mid 1990s," he said. "Buyers are a lot more prudent about decision making."

In five of the 11 regions surveyed, houses became less affordable in the June quarter, including Nelson/Marlborough, Hawke's Bay and Wellington.

Otago reported the strongest improvement in affordability, followed by Taranaki.

Houses became more affordable in just two regions for the year to June - in Northland and Manawatu/Wanganui - but less affordable in nine regions. Nelson/Marlborough reported a 35 per cent fall in affordability, followed by Otago, which had a 16 per cent drop, and Hawke's Bay, where home affordability fell over 13 per cent.

Paul Harvey, general manager of real estate agent Harveys Hawke's Bay, said demand in his region continued to outstrip supply, driven by an influx of national and international migrants, investors and first-time home buyers.

"There is no indication that the market will slow down any time soon," he said.