ASB Housing Confidence Survey
Statement made by Anthony Byett, Chief Economist ASB
- Less people feel now is a
good time to buy
- But price expectations are up
- Further interest rate rises anticipated
The housing market continues to surprise according to the latest ASB Housing Confidence survey for the three months to October 2005. Housing activity and expectations have picked up again in recent months, despite rising expectations of interest rate hikes and the continued rhetoric about the risks of the market.
The result of these factors makes the arithmetic more extreme than in previous quarters, with house prices and interest payments, both expressed relative to income, at very high levels. Prudence is the name of the game in an environment that is at more risk to future shocks and a tougher economic climate.
Not surprisingly people, on balance, do not consider now to be a good time to buy a home. There was a further drop to a net -5%, down from -3% in the previous quarter. However, this sentiment has existed for a couple of years and is more to do with perceptions that it has not been a “buyers market” for some time and, in that sense, little has changed.
Interestingly, when broken down by region Auckland is the only part of New Zealand where people consider it a good time to buy (net 8%). The rest of the North Island and South Island is less optimistic, considering it a bad time to buy.
Despite the warnings Dr Bollard made in September about possible interest rate hikes, and speculation in the media, on average people believe house prices will continue to increase. A net 30% of survey respondents believe house prices will rise in the next 12 months, up from a net 20% in the previous quarter. This opinion was still widely held through the month of October when a net 31% were expecting higher prices, indicating that people continue to believe in the continued strength of the housing market.
One area where respondents were very clear on expectations was the possibility of interest rate rises. While a net 51% expected rises across the quarter, when you look at October specifically the net balance was significantly higher at 72%. An obvious response given the clear message the Reserve Bank has been sending out.
The competition between banks in the fixed rate mortgage market, where the majority of mortgage business is conducted, is fierce and changes in the official cash rate aren’t necessarily reflected in all mortgage rate rises. But, many people are rolling off fixed rate periods into higher rates and these rising costs will eventually dampen housing demand. However, to date we have not seen this reflected in survey findings, nor housing activity.
In sum, the housing market today is still tight, but it is more patchy than in recent years. The overall vulnerability to a negative shock is higher. This makes it all the more important that people look at their personal situation, debt levels, and commitments and show prudence in any decision making.