New Zealand's House-Price Inflation Slows for Second Month

Business Materials 12 November 2007 05:12 (UTC +04:00)

New Zealand's house-price inflation slowed for a second month in October, adding to signs higher borrowing costs are curbing domestic demand.

House prices rose 12.7 percent from a year earlier, according to a report released by Quotable Value New Zealand Ltd., the government valuation agency, in Wellington today. That's slower than the 13.2 percent annual pace in September.

Reserve Bank Governor Alan Bollard, who raised the benchmark interest rate four times between March and July to a record 8.25 percent, said last week there had been a ``sharp downturn'' in home-loan approvals. New Zealand's dollar fell amid speculation that a slowing housing market makes it unlikely the central bank will raise rates again.

``The Reserve Bank is getting endorsement of its policies,'' said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. ``They will be getting a little bit of comfort that the housing market is going the way they expected.''

Still, prices may fall more rapidly next year than the central bank forecasts. ASB expects prices will stagnate in 2008 whereas the Reserve Bank forecasts 2.5 percent growth.

That needn't be a reason for Bollard to cut interest rates, said Tuffley.

``Housing is not the only thing driving domestic inflation,'' he said. Bollard ``needs to be cautious'' about the outlook for inflation in 2008 amid rising food prices, a record-low jobless rate and the prospects of tax cuts in an election year, he said.

Just three of 16 economists surveyed by Bloomberg News expect Bollard will cut rates before June 30. Eleven forecast no change and two predict an increase.

New Zealand's dollar bought 76.16 U.S. cents at 12:50 p.m. in Wellington from 76.41 cents in late New York trading Nov. 9.

Adding to signs the housing market is slowing, home sales fell 23 percent in October from a year earlier, according to a Real Estate Institute report on Nov. 9. It took 34 days to sell a house in October compared with 29 days a year earlier.

Consumers are more pessimistic about whether it is a good time to buy a house, according to an ASB Bank survey published on Oct. 31. A net 18 percent of 600 people surveyed said it was a bad time to buy, compared with 14 percent in the previous poll in July.

The average interest rate on a two-year mortgage was 9.1 percent in September, up from 8 percent a year earlier, according to central bank figures.

``The effect of higher interest rates and lessening buyer confidence is now reflected in a general slowdown in activity,'' said Quotable Value spokesman Blue Hancock. ``All predictions are for a gradual easing in the market.'' ( Bloomberg )