'Boom times are back for housing (but not for long)', Westpac says (Update 1)

"It is fair to say house prices are booming again," Westpac economists said in their latest research piece on New Zealand's housing market. The economists' research forecasts the annual rate of house price growth will head over 10% by mid-2010 before the market turns as interest rates rise, migration slows and house building increases. (Update 1 includes full piece.) "New Zealand housing is displaying all the symptoms of a bull market," Westpac economists said. "House sales have risen sharply, and now stand around their long-run average. The time taken to sell has shortened. The number of houses listed on the market has fallen. All indicators are typical of a market upturn, and point to a significant price increase," they said. The economists said the market revival was being led by the major urban centres, especially Auckland.

So what is causing all the excitement? Improved economic confidence is no-doubt playing a role. In addition, there are two key factors driving prices higher:

• Strong population growth combined with lack of building activity has created a shortage of new houses.
• Low mortgage rates.

Both of these drivers are necessarily temporary. This bulletin details our thoughts on the current market. The conclusions are:

• Conditions will favour rising prices for some time yet. We expect the annual rate of house price inflation to go double-digit by the middle of 2010.
• In 2010 we expect interest rates to rise, net migration to slow, and a strong increase in house building. This will negate the market's short-term strength and cause a downturn, possibly involving another brief period of house price decline, or a longer period of house price stagnation.
• We have the downturn tentatively pencilled in for late-2010, but the timing is extremely difficult to pick, and depends mostly on when the Reserve Bank acts to raise the OCR.

Your views? Comments below please. Housing Encore