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NZ housing market buckling under rates pressure

New Zealand's housing market is buckling under the pressure of higher interest rates

(See attached file: NZ_REINZ_13feb08.pdf [full release with charts])

According to the REINZ's January housing market report, the median house price fell from NZ$345,000 to NZ$340,000. The median house price has fallen NZ$12,000 from the recent peak in November. What is more worrisome for the housing market outlook, however, was the substantial drop in sales volumes and spike in the number of days to sell a property. The number of sales has dropped 31%oya and is now at the lowest level since January 2001 - before the housing boom began. The number of days to sell a property spiked to 49 days in January, up for 36 days in December, and points to a further decline in the median house price (chart). The annual rate of house price appreciation has now dropped to just 4%oya.

The REINZ report follows the QVNZ report released on Monday. The QVNZ report showed a slight increase in the median house price in January, but the annual rate of house price growth continued to decline. It is important to note that the QVNZ data is recorded at the date of settlement, and due to the three month moving average methodology, is a smoother, slower turning, lagging indicator of house prices. The REINZ data is more timely and quicker in reflecting turning points in the market, but is more volatile as a result.

JPMorgan maintains the view that the RBNZ will keep interest rates on hold at an elevated 8.25% for at least the next two quarters, with the one material risk being another rate rise to 8.5% before the October/November parliamentary election. New Zealand's housing market is seven months into what is going to be a prolonged slowdown. At best, New Zealand's housing market is likely to track sideways (0%oya), if not post a small contraction, in 2008.


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