17 Sep 2013

House price inflation expected to moderate

7:52 am on 17 September 2013

The pace of house price inflation should moderate in coming months although maybe not as much as the Reserve Bank hopes, an economist says.

Figures from the Real Estate Institute show house prices in August were 9.5% higher nationally than a year earlier, with Auckland house prices up 17.9%.

There were 6548 houses sold in August, 8.5% more than in August last year but 3.4% fewer than in July.

Deutsche Bank economist Darren Gibbs said a number of factors should combine to depress the rate of house price inflation, which for the past three months had run at about 8.5%.

The Reserve Bank indicated last week it expected to see that pace continue for the next couple of quarters. However, the impact of the loan-to-valuation-ratio restrictions, increasing construction activity and then eventually some conventional monetary policy tightening should all work towards slowing the rate of house price inflation next year, Mr Gibbs said.

"I've got a degree of confidence that it will slow the rate of house price inflation. Whether or not it slows it as much as what the Reserve Bank is assuming well, I guess we just have to wait and see."

Much would depend on whether the economy could sustain the current rate of growth, he said.