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19-07-2007

House prices drop but little danger of market collapsing

The Reserve Bank governor - at his wits' end in trying to knock the stuffing out of one of our longest-running housing booms - finally got to hear some sweet music.

To repay his endless interest rate rises, Bollard has been rewarded with a slip in the national median house sale price, one of the important indicators measuring his success in nurturing the economy.

But satisfaction for the governor would have been as much in the words that accompanied the data as in the statistics themselves.

The Real Estate Institute's official statement declared the residential property market had cooled its heels in June, "with signs the market may be in for a period of consolidation".

For an industry in which accen- tuating the positive and talking up the market are required skills, this was some concession - not least when it was backed by the national president going out of his way to reject earlier QV data suggesting things were still trucking on.

 Down in Palmerston North, the Reserve Bank gathered more encouragement in its mission to kill Kiwi confidence in the certainty of real-term residential property capital gain. Palmy has been the best-performing North Island provincial city over the past year, with median house prices up 21 per cent in the 12 months to June 30. Just over half of that growth has come in the first six months of this year, suggesting that boom town is still booming.

But Richard Lunn, a 20-year veteran of real estate and manager of Harcourts' operation in town, had a different story to tell.

"Interest rates are biting and it is definitely slowing," he said. "It's taking longer to sell and we're getting sales below council rating valuations set late last year. I can't see that changing in the short term."

Lunn said Palmerston North had had an "exceptional" three years after a period of "artificially low prices" in which other regions and cities had powered ahead. But the city had now caught up and the surge was over. "That's healthy," he said. "Now we're in for a period of consolidation with no great gains, but I don't see prices collapsing."

Elsewhere in the regions, Wanganui's four years of double-digit growth seems to have slowed to a halt, with no change in the median price over the first half of the year. Cities such as Gisborne - up 15 per cent - and Whangarei - up 12 per cent - are still in catch-up mode, but how long before they peter out?

In Auckland, three-month median statistics, used by the Herald on Sunday to more accurately reflect price movements, showed a rise of 5 per cent between March 31 and June 30, and a 6 per cent increase for the first six months of 2007.

But in another helpful nod to Bollard, REINZ national president Murray Cleland said he felt prices were easing, partly because of higher mortgage interest rates. However, a shortage of houses, especially lower-priced properties, was underpinning the market.

In the first six months, all the Auckland districts except for Rodney North and Franklin County beat the annual rate of inflation, and Bollard will be looking for more expensive mortgages, especially for those coming off fixed terms, to turn that around.

The big movers this year (excluding the Waitakeres and rural Manukau, where sale numbers were too low to be representative) were led by the Gulf islands, primarily Waiheke, with a 17 per cent jump. But even here, low sales with wide variation in values meant there was some distortion.

The same could be said of Upper Harbour, which slipped into second place in Auckland with 16 per cent growth so far this year and a whopping 24 per cent for the 12 months to June 30. This slightly surprised local Barfoot and Thompson manager Mike Petersen, but he saw it as a reflection of confidence as investment was confirmed in better transport and commercial development.

"This is an area that's been in and out of favour over the years as decisions have been made and then set aside," he said. "But now there's the sense we're going places - we're in for a good time - and that will have an impact on property values."

Price prediction website SuburbWatch (www.suburbwatch.co.nz) sees price growth strength in Upper Harbour in the short term but identifies some potential for weakness over the medium term.

Out in Ellerslie-Panmure, things have also been humming, with 14 per cent median growth so far this year, and prices up 24 per cent over the last year.

Chris Swann, manager of Barfoots office in Panmure, said it had been a "phenomenal" year, given real impetus by a "huge" March.

Prices were still robust, encouraging agents to market properties without a specified figure, and he saw no sign of a decline.

In Bollard territory, the Capital is showing statistical signs of a slow-down. Only Otaki-Paekakariki, with 11 per cent growth so far in 2007 and 26 per cent for the past year, still seems to have steam left in the weatherboards.

Bollard has a house in central Wellington, and he will be pleased for the economy but perhaps a little anxious about his property portfolio. The median price is down 5 per cent since January - and about the same level as it was in April 2006. In real terms, that's going backwards, and more of the same is what he'd like.

NZHERALD

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