06 July 2009

New Zealand economy boosted by immigration, low house prices

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New Zealand house prices rose for the first time in six quarters, a sign the economy may be starting to recover from the recession, a report by the New Zealand government valuation agency said.

New Zealand economy

The New Zealand economy has been boosted by immigration and low house prices, a new report indicates.

New Zealand property and real estate prices began falling last year amid the global financial crisis and the onset of a domestic recession.

House sales dropped to a record low in January and prices in March were 9.3 percent less than a year earlier.  Annual New Zealand immigration growth was at its highest in more than two years in May and house sales rose 44 percent, a result some experts say of increased optimisim in New Zealand and the New Zealand economy.  

Average prices gained 0.4 percent in the three months ended June 30, Quotable Value New Zealand Ltd, the government valuation agency, said in an emailed report.

“Decreases in property values in the past 18 months, combined with historically low mortgage rates, have led to improved optimism,” Glenda Whitehead, valuation manager at Wellington-based Quotable Value, said in the report.

The New Zealand Reserve Bank said there is scope for home-loan interest rates to fall further.

Reserve Bank Governor Alan Bollard has cut the official cash rate 5.75 percentage points since July to a record-low 2.5 percent to help kick-start demand. House prices may keep rising as lower borrowing costs stoke consumer confidence and encourage more people into the property market.

“Houses prices are pretty much at the bottom,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland. “There is a lot more buying demand starting to pop up, and interest rates have a lot to do with it.”

The average variable home-loan interest rate was a 41-year low of 6.4 percent in May, according to central bank figures. One-year loans are available from the nation’s largest banks at fixed rates as low as 5.5 percent.

“Interest rates are on the very stimulatory side,” said Tuffley. “The prospect of further cuts in rates probably looks fairly slim even if the Reserve Bank cuts the cash rate further. The Reserve Bank is no longer in the driver’s seat.”

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