House prices are set to lift 11% by next year and 24% by 2012, according to a report from Infometrics.
The QBE LMI New Zealand Residential Property Overview report identified that low interest rates, combined with a shortage of new housing, will drive prices up 24% over the next three years.
Infometrics also predicts the national median house price will have climbed 10.9% by next year. Median house prices have climbed to $339,000 in the June quarter of this year, from a low of $330,000 seen in March.
The report reinforces data released over recent months that have shown the residential housing market is stabilising, after the significant downturn recorded during late 2007 and 2008.
House sales volumes are up 41% over the June quarter compared to a year earlier, attributed to the strong recovery in the downward movement in mortgage rates since mid-2008, which has significantly improved affordability of property for both investors and first home buyers.
"Housing affordability has improved on a national level and the level of demand amongst buyers has increased," says QBE LMI chief executive, Ian Graham. "With improved credit conditions and record low interest rates, the motivation for first home buyers and investors to enter the housing market has never been more compelling."
Residential property is also taking a considerably shorter time to sell. Nationally, the median time on the market has dropped to 41 days in June, from its high of 58 days in July last year.
Building consent numbers have fallen to extremely low levels, just 14,000 over the year to June 2009, and activity is being constrained by the lack of available finance for developers. Graham believes this trend will continue into next year.
With demand currently sitting at about 21,000 new houses per year, a significant shortage of new housing is arising.
The Reserve Bank of New Zealand (RBNZ) has indicated it will leave the Official Cash Rate (OCR) at 2.5% until the second quarter of next year, signaling short-term mortgage rates will remain relatively low.
Over the past week fixed terms of 18 months and longer have already started to move upwards, indicating the period of lower long-term rates is well and truly over.