The latest ASB BANK Quarterly Survey of Housing Intentions has revealed a modest increase in housing confidence since the middle of last year.
Confidence increased slightly in the three months to January to a net 37% (made up of 49% who thought it was a good time to buy, less 12% who thought it was bad), up from net 34% in the previous quarter. This continued the consistent rise from last year’s low of 28%. Furthermore, monthly survey data showed that by January, confidence had risen to a net 42%.
This improvement in confidence during the latter part of the survey period was underpinned by falls in fixed mortgage rates, a significant turnaround in the interest rate outlook, and anecdotal evidence of a small improvement in real estate turnover.
Enquiries have clearly improved since the beginning of the year. More recently, anecdotal evidence suggests that turnover has also started to improve, although this has yet to show up in real estate statistics. The improvement has been gradual and largely a delayed seasonal effect. Nevertheless, having come off a very low base, it has been welcomed with open arms by those involved in the industry.
House price expectations also improved, up from a net 7% in the previous quarter to 17% in the current quarter. In the month of January a net 24% of respondents were expecting house prices to rise during the next 12 months. However, almost half of all respondents expected stability in house prices rather than gains, a realistic expectation”.
ASB BANK Senior Economist Rozanna Wozniak warns that people should not be expecting house prices to rise in any great hurry. “Recent signs of an improvement in confidence and activity should merely put us in a better position to carry us through the usual, slower winter period, allowing house prices to remain relatively stable.”
The fact that house prices remained stable during the second half of last year despite very weak real estate turnover was encouraging. According to Quotable Value’s latest index, house prices edged down only 0.1% in each of the September and December quarters, a better result than most people had been expecting.
However there were divergences within this national average. House prices in smaller cities generally rose slightly, but weakened slightly in the larger ones. This appears to reflect both the ongoing over-supply issues that have faced the main centres, and the fact that smaller cities are probably in a better position to benefit from the strength of the rural economy.
The trend of new homes selling better than existing homes continued, with mid to upper priced homes also selling better than lower priced ones. Investors have continued to avoid lower priced homes due to concerns over the flow-on effects of recent cuts to state sector rents.
Supply issues are expected to continue to place a solid cap on house prices. Although dwelling consents have fallen sharply, so has growth in the population during recent years.
The recent improvement in confidence should be sustained through the winter months with the help of a much improved interest rate outlook. Interest rates are expected to gradually fall, a significant turnaround compared to only a couple of months ago when the Reserve Bank was warning of further significant rises.
Lower interest rates in the coming year are expected to be concentrated in floating mortgage rates and short term fixed rates, their timing dependent largely on the Reserve Bank’s willingness to cut the Official Cash Rate. Given a slowing global economy and NZ’s reliance on exports, enough doubt surrounds our own economy’s ability to sustain its current momentum to warrant a gradual downward move in the Official Cash Rate.