Provinces next to suffer

First Aucklanders were hit by falling house prices, then the smaller centres. Now it's the turn of our farmers. House prices across New Zealand will keep falling, according to a gloomy economic forecast contained within the Budget.

AndANZ National bank economist Cameron Bagrie thinks the continuing decline, largely city-focused until now, will hit the provinces hard.

"As the global recession filters through to the dairy sector, we'll see falling house prices across the rural region."

Dairy districts, in particular, have been hit by a reduced milk price, which may force some off their farms entirely, and will leave all of them with less spending money. That will hurt everyone in rural New Zealand.

The Treasury blames rising unemployment for a predicted 8 per cent drop in house prices in the year to March 2010, and a further four percentage points in the year to March 2011 - on top of last year's 9 per cent fall.

The economic and fiscal update predicts this decline "will not only affect households' perceptions of wealth but will also severely constrain the ability of households to borrow against their houses to finance spending".

Residential investment will fall by just under 23 per cent in the March 2010 year, following a 25 per cent fall in the March 2009 year, the Budget predicts. Banks will continue to seek larger deposits before issuing home loans and annual building consents are at their lowest in more than 25 years.

"It is unlikely that the housing market will stage a significant recovery any time soon, with the risks tilted towards further declines in house prices as 2009 progresses."

It's grim, but not surprising, says economics writer Bernard Hickey, who runs interest.co.nz.

To read the full NZ Herald article click here

Posted: 31 May 2009

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