House sales fell close to 20-year lows last month, as uncertainty about property tax changes and ongoing fragility in the economic recovery continued to weigh on the market, according to Real Estate Institute of New Zealand (REINZ) figures.
Just 3,666 houses sold nationwide for the month of January, only the second month in 20 years that total units sold have fallen below 4,000, January last year being the other occasion.
However, "house prices seem to be holding nicely at the moment", said REINZ president Peter McDonald, with the national median price for the month of $350,000 up 7.7% on the same month last year, albeit down 10% on sales in December.
Looming change to the way investment properties are taxed was a key factor, ASB economist Jane Turner said.
While both a land tax and a comprehensive capital gains tax had been ruled out by the government this week, other options including disallowing depreciation deductions and ring-fencing of investment property losses were still likely.
"The lack of complete clarity over what the government will do means the market will continue to be weighed down by uncertainty until the end of May", when the Budget will reveal fuller details, said Turner.
This "could reduce house sales and price pressures over the next few months.
"As observed throughout the recession, nominal house prices tend to be fairly ‘sticky'," said Turner.
"Many home owners are often unwilling to sell at lower prices and might still prefer to hold onto a property if possible. This dynamic could reduce the downward adjustment, with house prices more likely to remain at current levels for an extended period."
After improving to 33 days in December, the average length of time to sell a house lengthened to 43 days in January, although this suggested market weakness was not as great as some recent commentators feared, said ASB.
The national median price for an unbuilt section was 11.4% below January 2009 levels, REINZ found.
All regions experienced some increase in median prices, bar Central Otago/Lakes, where a 10.4% drop to $410,000 was recorded.
More houses sold in Auckland last month than in January last year (1,240 vs 1,149), although that figure was well down on the 1646 dwellings sold in December.
The median Auckland price rose to $450,500, up 6.5% on a year earlier.
The biggest national gains were in Otago, up 17.85% to a median January price of $247,500, followed by Taranaki up 12.5% to $300,000, and Canterbury/Westland up 12.1% to $319,500.
Gore and the King Country were the cheapest places to buy houses, with median sale prices in January of $132,000 in Gore, down from $141,000 a year earlier, while 12 King Country houses sold in January with a median sale price of $163,000 ($182,500 in January 2009).
"The housing market is starting to slow and becoming more balanced," said Turner, giving the Reserve Bank additional breathing room before lifting interest rates.
"The pick-up in house prices of the second half of last year was surprisingly strong and did present a risk of reigniting unsustainable credit growth and consumer spending, at a time when a focus on increasing savings was needed," she said.
"Fortunately ... the government looks likely to step in and help even the playing field. Changes to the tax policy around housing will reduce the amount of work monetary policy needs to do to bring inflation pressures back under control."