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BUYERS ARE being warned to stay out of the residential real estate market in the face of rising interest rates and an anticipated slump in house prices later this year.
Financial planners are advising clients with minimal deposits to invest elsewhere as economists predict an end to the residential property boom.
A rapid deterioration in the property and market has not been forecast but Bank of New Zealand chief economist Tony Alexander said housing prices would level off then fall by a 5 per cent national average later this year.
Some regions would be affected more than others.
An imbalance between housing supply and demand, reduced migration and overvaluation of housing had signalled the price correction. He said floating interest rates could possibly peak at 8.5 per cent. For people thinking about investing in a rental property, my advice would be think twice. You're better off to wait for 18 to 24 months, Mr Alexander said.
In the past year, house prices in New Zealand have risen 20 per cent, with sales turnover at real estate agents in March the highest in five months.
But there is strong evidence that price growth is slowing, as is growth in the number of sales.
Real estate agents remain positive about this year but financial advisers are Warning people off. Auckland rental property owners are feeling the effects of. falling rents as they compete for tenants. The situation is expected to worsen, with inner-city apartment construction at an all-time high.
Robert Oddy, secretary of the Society of Independent Financial Advisers and managing director of International Financial Planning Ltd, said some owners already had the "wobbles", after taking on too much debt. "1 think a lot of people out there are unprepared for up to five years of very flat prices. Unless people have a good-sized deposit I'd be more inclined to build it up and go into the market in a couple of years."
Hamilton-based certified financial adviser Muriel Dunn said people with deposits of less than 10 per cent were better off waiting 18 to 24 months before buying. She said many homeowners had taken on too much debt, assuming low interest rates would continue.
REINZ national president Graeme Woodley said it was impossible to predict what might occur in the housing market. But he warned investors to be cautious about paying high prices for apartments, with supply peaking and competition for tenants rising.
A Bayley's residential manager, Kirsty Stevenson, said while properties continued to fetch high prices, there had been a decrease in the number of sales. The company said the market was slowing and starting to plateau. The BNZ Bank said housing boom would end soon and prices fall '"a tad". Prices were expected to fall about 5 per cent on average by the middle of next year.
WestPac Bank economists said house sales volumes and new dwelling Permits leading indicators of the state of the housing market - had been falling for seven months and three months respectively.
"Annual house price growth appears to have peaked recently," Westpac said.
Fewer people are buying their own homes than 20 years ago even though it has never been easier to raise finance, a report says.
In changes likely to have long-term effects on New Zealand housing patterns, homes have become less affordable and owners have to spend bigger proportions of their income on housing costs, the report says.
That has led to the number of people renting homes increasing dramatically since the early 1980s, and house-buyers are generally older.