RBNZ sees house prices falling 16% from their peaks and says bigger fall possible

The Reserve Bank of New Zealand has increased its forecast fall in house prices from their late 2007 peak to 16% from 15%, and now says there is a chance of a bigger fall. ""Indicators such as house sales and days to sell suggest that residential investment and house prices are likely to continue to fall over the coming quarters," the Reserve Bank said in its Monetary Policy Statement, adding it saw new house building continuing to fall until mid 2009 before posting a modest recovery. "This modest recovery is predicated on our view that there is not currently an oversupply of houses in New Zealand." "As for house prices, further downward adjustment from currrent overvalued prices is expected over the coming year or so with next to no recovery of substance over the remainder of the projection (until March 2011)," the bank said as it cut the OCR by 150 basis points to 5%. The Reserve Bank said it saw nominal house prices falling 16% from their 2007 peak by the end of 2010 or 24 percent in real terms. This forecast of real price deflation was unchanged from the September forecast because of a lower inflation forecast. "Such moderation would bring house prices to a level more in line with fundamentals," the Reserve Bank said. "There is a risk of house prices falling more than this," it added.