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Housing Confidence Remains Strong

Monday 8 April 2002

Housing Confidence Remains Strong Despite Rising Interest Rate Expectations

Housing market activity remains strong despite recent hikes to home loan interest rates and generally rising house prices. The latest ASB BANK Quarterly Housing Confidence survey points to these trends continuing.

The quarterly survey revealed a net 49% of respondents thought it was a good time to buy a home, down slightly from late 2001 but still at high levels, (made up of 54% who thought it was a good time to buy and just 5% who thought it was a bad time to buy).

Interest rate rises this year will not come as a surprise to most people. According to the results of the ASB BANK Quarterly Housing Confidence survey, a net 42% of respondents expected higher rates and that was before the Reserve Bank of New Zealand’s cash rate hike on March 20th.

The ASB BANK survey also reveals an expectation of higher house prices. A net 41% of respondents believed house prices would increase with this expectation greatest in Wellington (net 58%). ASB BANK Chief Economist Anthony Byett believes that this price expectation is a key factor behind the strong confidence levels.

“Last year, people thought it was a good time to buy a house because prices were reasonable and interest rates were low. This year, the high confidence is due to more people expecting house prices to rise and a rekindled focus on housing as a good investment.”

“This high confidence is translating into high activity with housing turnover already reported to be high during February*. ASB Bank can confirm that this higher level of activity has been maintained over March.”

“The expectation of rising house prices is generally realistic. There will undoubtedly be areas where price rises will not occur but the big picture is one of rising demand and limited supply. This is showing as lower listings amongst real estate agents and will persist until higher interest rates quell the demand pressure and new homes are eventually built. In the meantime, prices in general are likely to rise, a trend that is also occurring in a number of countries at present.”

“After five years of a modest average house price gain across the country, the average house price is likely to rise over the next year or two.”

“The interest rate rises which are expected by respondents this year will eventually impact on housing activity. However the rate rises likely should only take variable interest rates back to medium term averages. The new levels may take some heat out of the market in the second half of the year but are unlikely to cause a downturn,” he says.


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