By Tracy Withers June 15 (Bloomberg) -- New Zealand house prices fell in May for a second straight month as sales slumped, adding to signs that interest-rate increases may be gradual this year. Prices dropped 1.4 percent from April when they declined 0.4 percent, according to an index published by the Real Estate Institute of New Zealand Inc. House sales retreated 17.2 percent from a year earlier and the median time to sell a home rose to 43 days from 40 in April, the Auckland-based group said today in an e-mailed statement. Reserve Bank of New Zealand Governor Alan Bollard on June 10 raised the official cash rate by a quarter point to 2.75 percent, the first increase in three years, and said further moves will be gradual. Consumers are cautious and housing demand is likely to be subdued, he said. “The housing market is important in determining how aggressive the Reserve Bank is in normalizing policy,” said Philip Borkin, an economist at Goldman Sachs JBWere Ltd. in Auckland. “Given the current sluggishness, we continue to believe that process will be relatively gradual.” New Zealand’s dollar bought 69.63 U.S. cents at 10:40 a.m. in Wellington from 69.49 cents immediately before the report. There is a 52 percent chance of a quarter-point increase at the next review on July 29, from 76 percent yesterday, according to a Credit Suisse index based on swaps trading. Bollard will likely raise borrowing costs at the next three reviews, according to all 12 economists surveyed by Bloomberg News on June 10. Sales Slow New Zealand house sales slowed in the lead up the May 20 budget amid expectations Finance Minister Bill English would move to stop investors using losses on property to reduce taxable income. While English announced changes to depreciation rules, he didn’t alter the ability to use losses. The number of properties sold in May was little changed at 5,206 from 5,207 in April, the institute said. “Sales remain at very weak levels,” said Jane Turner, an economist at ASB Bank Ltd. in Auckland. “The fundamentals for the housing market remain fairly weak.” Home loan approvals declined 26 percent in the three months to June 4 from a year earlier, according to central bank figures. Curbing demand, the average two-year home loan interest rate was 7.8 percent in April from 7.34 percent in January, the central bank said. New Zealand’s annual immigration growth slowed for a third straight month in April, the government said on May 21. To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

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