Property investment is a large part of the nation's economy with 70% of the country's net worth tied up in real estate valued at $600 billion. But the relatively small drop in prices last year is regarded by some economists as a precursor to a big price fall in coming months.
It is a sharp drop in sales volumes that is being cited as the cause for concern. Some areas saw a 60% drop in volume. In November 2003 when the property sector was booming 10,774 residential properties were sold. In November 2008 just 4,279 were sold.
The time it takes to sell a property has also dropped dramatically. Figures from the Real Estate Institute show it took an average of 24 days to sell in 2003 and now that has more than doubled to 44 days.
The Reserve Bank is predicting a 16% fall in property prices by 2010. 'Further downward adjustment from current overvalued prices is expected over the coming year or so with next to no recovery of substance over the remainder of the projection,' its latest statement said.
Economist Rodney Dickens believes it will be 'housing hell' in 2009. 'The average rental income will have to increase 71% or the median house price will have to fall 42% if historical average rental yields of 7.7% on residential property were to apply,' said Dickens, who worked for the Commonwealth Bank of Australia and ABN Amro before setting up his Strategic Risk Analysis business.
The Real Estate Institute is predicting a more conservative 5 to 10% drop. 'Economic confidence, interest rates and employment security will be major factors,' said the institute's president Mike Elford.
David McEwen, managing director of Auckland's IRG Investment Advisors, which provides research equities analysis, is on the pessimistic side of things. He believes that the credit crunch will exacerbate the housing situation this year.
Brendan O'Donovan, Westpac chief economist, predicts that by the end of this year prices will be down 13%. 'We expect house prices to continue falling in 2009. 'A second consecutive year of house-price decline is not something New Zealand has experienced since at least the 1950s,' he said.