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ASB Housing Confidence Survey – three months to April 2014

Media Release
ASB Housing Confidence Survey – three months to April 2014
EMBARGOED UNTIL 5am Tuesday May 13 2014

Price gains still expected in tight market

House price expectations remained high over the three months to April
Less pessimism about whether it’s a good time to buy a house
Expectation for interest rate hikes leaps to 70%

House price expectations remain elevated
House price expectations remain elevated in the latest ASB Housing Confidence Survey, with a net 48% of respondents expecting house prices will keep rising higher in the year ahead.

Although that is slightly below where expectations were sitting at the same time last year, it is still a high reading by historical standards for the survey, which dates back to 1996.

ASB Chief Economist Nick Tuffley says the New Zealand housing market remains tight, with the level of house listings remaining at extremely low levels by historical standards.

“But the slight easing in price expectations is occurring at a time where we are also observing a slightly lower level of sales. Some respondents are likely expecting some moderation after the price rises recorded over the last year or so, but very few expect prices to fall,” Mr Tuffley says.

Expectations of house price gains are still the strongest in Canterbury, although not as bullish as a year earlier.

Greater expectation for interest rate hikes
Expectation is also growing for interest rates to keep rising over the next 12 months,
with a net 70% of respondents expecting interest rate hikes, as opposed to 55% in the February survey.

“The increase in the Official Cash Rate at the Reserve Bank of New Zealand’s March 13 meeting was well signalled over the preceding months. However, there is nothing like an actual mortgage rate increase to convince homeowners that rates are rising,” Mr Tuffley says.

“Back in January, a net 51% expected higher interest rates over the coming year. That was quite a high number, but in the April quarter survey that number has jumped to 70%. The RBNZ continues to signal it expects to deliver further hikes over the next few years. Borrowers are getting that message loud and clear.”

Is it a good time to buy? Sentiment not quite as negative
Sentiment about buying a house has improved over the last three months, but still remains negative, with a net 4% of respondents believing now is a bad time to buy. That’s a small improvement on the net 9% recorded in the February survey.

Auckland and Christchurch remain the most pessimistic - cities where the housing market is the tightest.

“A net 4% of respondents now believe it is a bad time to buy. That’s a slight improvement on the preceding quarter, but it is still a weak result. The combination of high house prices and increasing interest rates is not great for house affordability – the mix continues to weigh on confidence,” Mr Tuffley says.

The divergent sentiment around the country reflects the different dynamics at play in each region. While the high LVR restrictions and mortgage rate increases are common to all markets, factors such as house prices and affordability, the rate of house price appreciation and the supply/demand balance all vary from region to region.

The RBNZ’s tightening cycle will push up mortgage rates, which in turn will help keep demand for housing in check. However, the supply side of the housing market equation is equally important. More dwellings need to be built to house New Zealand’s growing population and help restore balance to the market. The strong pick-up in building consents over the past year suggests this process is getting underway, but it needs to continue, Mr Tuffley says.

Results at a glance

• A net 48% of respondents expect house prices to increase in the next 12 months
• A net 4% of respondents believe now is a bad time to buy a house
• A net 70% of respondents expect interest rates to rise in the next 12 months

Note: The ASB Housing Confidence Survey is constructed from data received from 2394 individual respondents.

The full report is available online at tomorrow.


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