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Mortgage rates drive improvement in confidence

7 February 2005

ASB Bank Housing Confidence Survey
Interest and mortgage rates drive improvement in confidence

For the first time since the middle of 2003 more people think it is a good time buy a house than not, according to the latest ASB Bank Housing Confidence survey for the three months to January 2005.

The proportion of people who consider it is a good time to buy a house rose to a net 5%, up from net -7% in October 2004. 26% of those surveyed believed it was a good time to buy compared with 21% who thought it was not.

Confidence is also evident in increased expectations of higher house prices. A net 9% of those surveyed now believe house prices will rise in the next 12 months. This compares with net -2% in October.

At the same time a net 51% believe that interest rates will rise in the next 12 months, down from a net 75% in October.

ASB Bank Chief Economist Anthony Byett notes that this was more than just a change in sentiment, “Just when it appeared that the housing cycle might have reached a peak, the market kicked away again in November and December.”

“In late October the Reserve Bank announced that interest rates may have been raised enough to curb inflation. This was quickly followed by a mortgage rate war between major banks through the last two months of the year, which provided buyers with motivation to purchase. Housing sales increased sharply and growth, in dollar terms, for the months of November and December was the largest ever on record for the registered banks.”

“The findings of the latest survey show that people’s perceptions about interest rates altered during this period - a change likely to have been instrumental in the lift in activity and housing confidence.”

Anthony Byett further notes, though, that other fundamental factors are unchanged, “New Zealander’s have high debt levels and an increasing proportion of income is used servicing the interest on this debt, house prices are already high and rental yields modest, and there are large numbers of new dwellings coming on stream at a time of lower net migration inflow.”

“The market generally is still on the tight side. Supply is often quoted as a constraint. Loan approvals are still very high today, but a repeat in 2005 of the price surges of recent years is unlikely. More balance will emerge in the housing market and price appreciation will likely be moderate. A slower stage of the housing cycle is still imminent but the events of recent months give further cause to believe that any slowdown will be of a moderate nature.”

While South Islanders continue to be the least optimistic that it is a good time to buy there was a significant change in confidence in the region with a net 2% considering it a good time to buy, up from a net -21% in October.


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