Slight increase picked for house prices
House prices are only likely to rise around three per cent in the next 12 months, although the number of sales will probably pick up by 10 to 15 per cent over the same period.
Monday, October 11th 1999, 12:00AM
by Paul McBeth
House prices are only likely to rise around three per cent in the next 12 months, although the number of sales will probably pick up by 10 to 15 per cent over the same period.
That's the view of BNZ Chief Economist Tony Alexander, who says the effect of rising interest rates on sales will be offset by higher exporter incomes and the new housing developments in Auckland (apartments and terrace housing) encouraging people to try a change. He's also expecting migration outflows to ease and then turn positive.
Alexander, writing in the bank's latest New Zealand Observer, still expects floating mortgage rates to increase two or three percentage points over the next 18 months and says there's still the risk fixed rates could rise further as US inflation fears haven't gone away.
For mortgage borrowers, Alexander remains keen on a mix of floating and two-year fixed (currently at around 7.85 per cent) as his personal favourite. He says three-year rates near 8.35 per cent are too expensive compared with the floating rates at 6.5 per cent and just above where the bank thinks floating rates will average over the next three years.
While one-year rates are around 6.95 per cent, which is less than forecast floating rates for the coming year, "borrowers must ask themselves what they will do in a year's time when floating rates are much higher and fixed rates may also still be rising".
"Will you have the guts to stay floating, or panic and fix long-term at rates above those you can currently get?" Alexander says.
"My belief is that, based on last year's experience when many people ignored our comment that fixed rates should not be touched 'with a bargepole', borrowers will panic once again in late 2000 and fix high all over again.
"Hence, a preference for two-year fixed at about 7.85 per cent, offering insurance against uncertain floating rate changes at not too great a cost compared with current and forecast floating rates, and with a maturity date beyond the period when both floating and fixed rates are likely to have peaked."