26 Jul 2016

House prices will fall from December 2017 - Infometrics

1:23 pm on 26 July 2016

A correction in house prices is looming as the number of homes being built reaches a record high, says economic forecastor Infometrics.

The McLennan housing development in Papakura.

The McLennan housing development in Papakura. Photo: RNZ / Kim Baker Wilson

It predicts house prices will continue to rise, but only until December 2017.

After that they could fall by 11 percent over the period until September 2019, particularly in the regions outside Auckland.

Infometrics chief forecaster Gareth Kiernan said despite very strong house price growth right now "you are going to get to a position where you do have an oversupply of property at the same time as population growth will be slowing".

Earlier, Infometrics predicted that building approvals would increase rapidly, rising to about 40 percent up on current numbers by 2018.

Consents to build residential homes numbered 13,917 five years ago, 28,387 now and were forecast to reach 40,044 annually by June 2018, it said.

However, Mr Kiernan cautioned that the number of consents was shooting up from a "very low base" after the global financial crisis.

Infometrics expects a 17 percent increase in house prices over the next two years, followed by an 11 percent drop from 2019. But that would still result in an increase over current prices, Mr Kiernan said.

But he said those figures did not apply to Auckland, where it estimates there is a current undersupply of about 32,000 houses. The city had also experienced the country's most spectacular price increases.

"Ironically one of the places we're not predicting price falls in any significance is Auckland, because it will take longer than a couple of years to sort that problem (undersupply) out."

The Master Builders Association said the forecast jump in house building was so big it would put the industry into unknown territory.

But the experience of the Christchurch rebuild could provide some clues as to how to step up capacity.

The association said the previous record -of 30,000 consents annually in the 2000s - put the industry under pressure, but it could learn from the way it dealt with its last big challenge in Christchurch.

This involved training, enticing workers from other sectors, helping the unemployed into the industry and recruiting from abroad, it said.

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