What happens to a country with record-high interest rates.
New Zealand House Sales Fall 42% on Year, Prices Drop (Update1)
By Tracy Withers
July 11 (Bloomberg) -- Sales of New Zealand houses slumped for a fourth straight month in June as record-high interest rates curtailed demand for property.
The number of homes sold dropped 42.4 percent to 4,305 from 7,474 a year earlier, according to a report from the Real Estate Institute of New Zealand Inc. e-mailed to Bloomberg News today. Sales were at the lowest level since December 1991.
A cooling real estate market and rising debt levels are eroding the spending power of consumers, and may have pushed the economy into a recession. Reserve Bank Governor Alan Bollard last month said it is likely he will cut the benchmark interest rate from a record-high 8.25 percent later this year as slowing domestic demand eases pressure on inflation.
``Households are coming under financial pressure from all fronts,'' said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. ``The Reserve Bank will continue to expect further weakness in the housing market, given that the imbalance between supply and demand remains.''
Investors are deferring decisions on buying or selling until a clearer trend emerges, the institute said. Lower prices are being accepted to complete faster sales.
``There isn't a lot of confidence in the residential property market,'' Murray Cleland, the institute's national president, said in a statement. Still, ``the market is finding its own level and there is certainly no indication of any significant slump in values.''
House Prices
The median house price fell 2.2 percent from a year earlier to NZ$340,000 ($258,000). Prices declined NZ$5,000 from May. The median time it took to sell a house increased to 53 days, the highest since January 2002, from 49 days in May.
Housing makes up about 80 percent of the total assets owned by New Zealand households. As values fall and high interest rates increase credit costs, householders are becoming more reluctant to borrow and spend.
Household spending fell 0.4 percent in the first quarter, while the overall economy also contracted. Eight of 13 economists surveyed by Bloomberg News expect the economy also shrank in the second quarter, pushing New Zealand into the first recession in 10 year.
A second report today showed New Zealanders' average net wealth posted the biggest fall in almost 10 years in the first quarter as house prices and stocks declined while rising interest rates increased debt.
Stocks, Pensions
Net wealth, which includes the value of homes, investments and bank deposits less debt, dropped 1.6 percent in the first quarter to NZ$369,250, according to the report from Auckland- based financial adviser Spicers.
The value of stocks and pension funds fell 1.8 percent while debt increased 2.2 percent, Spicers said in the report e-mailed to Bloomberg News.
Falling net wealth adds to signs household spending may slow, curbing economic growth. Consumer confidence fell to a 17- year low in the first quarter and the economy contracted 0.3 percent.
``We expect the value of housing assets to remain under pressure for the foreseeable future,'' Spicers said. ``Houses are taking longer to sell, prices continue to come under pressure and household budgets are straining.''
In Australia, net wealth of a median family was A$326,000 ($313,000) in 2006, according to a government-commissioned report published this month.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net. |
