BNZ's Tony Alexander sees rates lower for longer as first home buyers enter market; real estate agents report sellers reluctant to cut prices; buyers keener to trade down

BNZ Chief Economist Tony Alexander sees interest rates remaining lower for longer as global economic turmoil leaves room for the Reserve Bank to hold interest rates well into 2012.

Releasing the BNZ/REINZ residential market survey for November, Alexander said there had been little change in the overall state of the market in the past month.

But he said agents were seeing more interest from first home buyers and that they saw prices continuing to rise, although they saw the market more in favour of buyers than sellers.

Agents also noted an increasing number of people wanting to trade down, he said.

Rental property investor interest remained subdued in the wake of tax changes last year.

Alexander said there remained the possibility the Reserve Bank could cut interest rates if the European financial crisis worsened markedly, but a cut on Thursday was unlikely.

He saw banks in New Zealnad passing on any cut in the Official Cash Rate in the form of lower floating mortgage rates, given economic growth and borrowing demand remained subdued. That outlook of lower interest rates for longer meant he preferred floating to fixing for now.

Elsewhere, he cautioned The Economists' comments about New Zealand's housing market being 25% overvalued didn't necessarily mean prices would fall 25%.

He pointed to a lack of new housing supply coming on to the market.

See more in the interview above.

Here are the key details from the BNZ/REINZ market survey:

Our latest survey of New Zealand’s 10,000-plus licensed real estate agents has shown little change in perceptions of the state of the market over the past month, but some fairly clear buyer and seller trends. Over the past month agents have reported no change in the number of people going through Open Homes, mildly improving auction clearance rates, a strong percentage of Written Sales turning Unconditional, and continuing growth in the number of potential vendors seeking appraisals.

But investors still show no change in activity whereas a continuing strong net 29% of agents report more first home buyers entering the market. This is probably the strongest feature coming through in our surveys over the past few months. A net 17% of agents say they feel sellers are more motivated than buyers – meaning they perceive that there is a buyers market. But a net 10% also report that they feel prices are rising – a result backed up by recent data from REINZ and this week’s Auckland report from Barfoot and Thompson.

We interpret this to mean that sellers may be placing pressure on agents to get their property sold, but are unwilling to cut their asking price to speed the process up. In the second section of our survey and this report dealing with reasons behind buyer and seller decisions the only strong trend to appear recently has been a rise in the number of people buying because they wish to trade down, and a rise in those selling for the same reason.

There has also been a lift in agents reporting concerns about getting finance as a reason why buyers are holding back. In the brief third section containing responses broken down at the regional level when the number of responses allows, Auckland continues to stick out as showing strong indicators while Wellington is also firm apart from sellers being reported as substantially more motivated than buyers. Investors appear to have no interest in Christchurch.