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Falling Housing Confidence Out Of Step With Market

10 October 2003

Falling Housing Confidence Out Of Step With Market Activity

- Affordability Is The Key -

The Reserve Bank Governor is not alone in having some reservations about the housing market. The latest ASB BANK Housing Confidence Survey reveals that only a net 2% of New Zealanders now think this is a good time to buy a house (the lowest level ever recorded by the survey). There are still 35% who believe now is a good time to buy but the proportion considering now to be a bad time has crept up to 33%.

However, market turnover shows that people are still keen to buy houses. Bank statistics also show that people are very keen to borrow, despite the reservations expressed in the Survey. In part this reflects the fact that New Zealanders still expect house prices to increase – a net 42% gave this opinion in the September quarter Survey.

The conflict in views largely reflects the pace of house price appreciation and is an understandable attitude according to Anthony Byett Chief Economist, ASB BANK.

“People are acknowledging that house prices are now more expensive, but that alone will not stop the current housing boom.

“The New Zealand wide average house price rose by around 25% in the first two years of this cycle (June 2001 to June 2003)—but Kiwis continued to buy, and to expect even higher house prices.

“A housing downturn may be on the horizon but it is unlikely to arrive any time soon. Housing turnover in recent months has been strong for the time of year and there is little sign of any slowdown.

“The housing cycle has simply reached a riskier stage of the upturn, but population growth is still strong and housing is still more affordable now than in the mid 1990s. The average house price has increased by around 26% since late 1997 but the average household income has also gone up by over 20% over that time and, significantly, interest rates have come down by around 30%.

“Low interest rates are a key factor overriding apprehension about house prices,” says Mr Byett.

A net 5% of respondents believe interest rates will increase according to the Survey, still at the same relatively low level of expectation seen in the June quarter.

“There is still a shortage of supply of houses and keenness amongst investors to buy houses, and any response to interest rates by the Reserve Bank is likely to be slow.

“Further house price gains are likely in the next 12 months. Things may well be different by this time next year and affordability may well be a limiting factor by then.

“For now the upward momentum is intact but the risks are greater,” he says.


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