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ASB Bank Housing Confidence Survey

9 May 2005

ASB Bank Housing Confidence Survey

Expectation of price increase high despite prospect of rate rise

Expectations of house price increases are on the rise again despite a neutral stance on whether or not it’s a good time to buy, according to the latest ASB Bank Housing Confidence survey for the three months to April 2005.

The proportion of people who expect house price increases has risen to a net 28%, up from net 9% in January 2005. At the same time expectations of further interest rate increases rose from net 51% in the three months to January 2005, to net 62% in the latest survey.

When asked if people thought it was a good time to buy the response was almost neutral with 24% considering it was a good time to buy and 25% considering it was a bad time – resulting in a net -1%. This is down from net 5% in the previous survey who considered it a good time to buy. At that time confidence was driven by the Reserve Bank’s October 2004 announcement that it did not expect to make further increases, and the resulting mortgage rate war between lenders.

ASB Bank Chief Economist Anthony Byett believes that the confidence in house price increases is still being driven by the rebound that started in November 2004.

“Despite constant speculation and conflicting information in the media it appears people are still expecting their house value to increase in the next 12 months. When you break down the net 28% of those surveyed who believe house prices will rise you can see how sentiment continues to remain high. 44% of respondents expect higher prices, up from 32% previously, while 16% expect decreases, down from 23%.

“Lending activity has continued to be very strong – March saw the largest ever increase in housing loan outstandings to $108 billion. It is little wonder the Reserve Bank has subsequently changed its stance and taken the somewhat unusual step of reiterating its warnings around monetary policy.

“It is clear that people are aware of what is going on as expectations around further interest rate rises increased again, following the previous quarter’s fall after the Reserve Bank’s statement. It does appear though that people are happy to continue to borrow while fixed rates are still under 8%.

“In all, the housing market is active but a combination of factors, including the risk of higher interest rates, rising supply, declining immigration and a probable economic slowdown, means a slowing of the housing market cycle still remains likely. Consequently, on balance survey respondents indicated it is neither a good time nor a bad time to buy a house. A cautionary stance appears appropriate.”

South Islanders continue to be the least optimistic that it is a good time to buy, with a net - 7%. They are also the most pessimistic that house prices will increase at 13%, and a high 70% expect further interest rate increases.


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