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WELLINGTON, Jan 14 (Reuters) - New Zealand house prices rose in December and are expected to increase further this year, despite central bank lending restrictions and a likely rise in interest rates, the government property valuer said on Tuesday.
However, Quotable Value (QV) said the rate of increase this year was likely to be slower than in 2013.
QV's residential property index rose 10 percent in the year to Dec. 31, compared with a 9.2 percent annual rate in November.
The index is now 12.5 percent above the market's previous peak in late 2007.
Prices in Auckland, the country's largest city, and earthquake damaged Christchurch continued to lead the rest of the country, with lack of supply a major factor in both cities.
Auckland region prices were up 15.4 percent in the year to December, and in Christchurch they were 12.7 percent higher.
QV said limits on how much banks can lend on low deposit-high value house loans (LVR), imposed by the Reserve Bank of New Zealand (RBNZ) in October, did not appear to be slowing prices, but may have led to fewer houses being listed.
It expected Auckland prices to keep outpacing the rest of the country through 2014, as a rising population chased too few houses.
"This strong demand and low supply is likely to keep pushing values up, although the rate of increase will probably be less than the previous year," said QV research director Jonno Ingerson, adding that any price gains in the rest of the country would be more subdued.
He said likely interest rate rises flagged by the RBNZ would offer a headwind for the market.
"As rates rise later this year...this will increase the cost of servicing mortgages, which in turn will lead to people borrowing less and therefore offering less for properties," Ingerson said.
The RBNZ signalled in its December statement it expected to start raising rates from a record low 2.5 percent around the middle of the year, although most economists expect the tightening cycle to start March. (Reporting by Gyles Beckford; Editing by Richard Pullin)