Nov. 9 (Bloomberg) -- New Zealand house prices rose in October for the first time in 16 months as the economy emerges from a recession.

Prices increased 0.2 percent from a year earlier, the first annual gain since June 2008, Quotable Value New Zealand Ltd., the government valuation agency, said in an e-mailed report. Prices have risen 3.4 percent since falling to a low in April.

Record-low interest rates together with increased housing demand and immigration are helping New Zealand recover from its worst recession in three decades. The number of properties being offered for sale is less than usual for the time of year, pushing up prices in major cities.

“The continued shortage of properties, especially in the main urban areas, is leading to an imbalance in the market,” Glenda Whitehead, valuation manager at Wellington-based Quotable Value, said in the report.

Houses are selling for more than expected and this is likely to continue until supply increases or buyers find properties too expensive and get out of the market, she said.

In the nation’s 16 largest cities, prices rose 1.8 percent from a year earlier, Quotable Value said.

In Auckland, home to about a quarter of New Zealand’s 4.3 million residents, prices climbed 2.5 percent and in the capital city Wellington they increased 1.6 percent.

Reserve Bank Governor Alan Bollard last month kept the benchmark interest rate at a record-low 2.5 percent and said he doesn’t plan to raise borrowing costs until the second half of 2010. Also buoying housing demand, net immigration rose to a five-year high.

House prices slumped last year amid a credit crisis and plunging consumer confidence. Prices in April were 9.2 percent lower than a year earlier. Confidence recovered to a four-year high in the third quarter, according to a report from Westpac Banking Corp. published on Sept. 24.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

Last Updated: November 8, 2009 06:00 EST