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Good vibrations

Kiwis are picking up on good vibrations in the housing market, with housing confidence continuing to improve according to the latest ASB Housing Confidence Survey.

House price expectations rose for the second quarter in a row with confidence back to average levels, although regional differences remain. However, ASB chief economist Nick Tuffley warned there was still a way to go before the market could be thought of as “hot”.

“The continued lift in house price expectations is consistent with our own reading of the NZ housing market tea leaves. Housing turnover is finally showing some signs of life after a long period of stagnation.

“However, the survey result is bang on the long-run average, highlighting a point we’ve been making in our housing commentaries. While housing indicators have rebounded strongly over the past three months, this should only really be characterised as a return to normality. We’re still a long way from “boom” territory,” says Tuffley.
On a positive note, buyer sentiment hit a seven-year high this quarter, with net 13% saying it was a good time to buy a house.

“House prices have already lifted almost 4% from the April lows, and near-term indicators point to further gains ahead. We remain comfortable with our forecast for nation-wide house price inflation to rise to 5-6% by mid-2020,” said Tuffley.

The buyers have it

Buyer sentiment hit a seven-year high in the three months to October with net 13% saying it was a good time to buy a house, up from net 9% last quarter.
House buyers in Canterbury were the most optimistic across the country, with net 27% saying it was a good time to buy, compared with 20% last quarter. Auckland came in second with 17% thinking it was a good time to buy, continuing the turnaround trend from net 0% at the start of the year.
At the other end of the spectrum, South Islanders outside of Canterbury remain fairly flat with just 6% thinking it was a good time to buy.
“Perceptions of whether it’s a good time to buy are generally inversely related to rates of house price inflation. The fact that we’re seeing the two rise in tandem at present suggests there are other factors out there boosting housing affordability. We suspect accelerating wage growth and steep falls in mortgage rates are playing a big role in this regard.

“Buyers do appear to be walking the talk. Over the past three months, auction clearance rates have lifted, housing activity has picked up and houses are starting to sell faster. Nationwide median of days to sell a house has come down from 41 in June to 37, which is around the long-run average,” said Tuffley.

Rate expectations – we’re all in agreement

Interest rate expectations fell precipitously in the three months to October with most of the fall occurring in August. This was in line with the net 31% of respondents who had expected interest rates to decrease in Q3, a low point which was only topped during the 2008 Global Financial Crisis era.

The proportion of those surveyed who responded ‘don’t know’ to whether interest rates would rise or fall was at the lowest equal level since 2013, suggesting the RBNZ’s ‘lower for longer’ message was now well entrenched in the nation’s psyche, according to Tuffley.

“It will be interesting to see next quarter’s results. The RBNZ has retained an easing bias but has not acted on it since the big cut in August. And while mortgage and term deposit rates have continued to fall, a decent lift in wholesale interest rates recently means further falls in retail rates from here might be a stretch. So those expectations of even lower interest rates may be dashed,” said Tuffley.

“Historically, NZ house prices cycles have been relatively sensitive to interest rates, and we expect recent sharp falls in mortgage rates to deliver a mini up-cycle in prices over the next year or so. Still-strong population and labour income growth will add support.

“Still, even though mortgage rates are clearly the lowest they’ve ever been, there are some good reasons not to expect a return of the prices surges we used to see whenever mortgage rates dropped,” said Tuffley.

“First, housing policies targeting investor demand are acting as handbrakes on those parts of the market that previously featured a large investor component, like Auckland and Queenstown. We expect these regions to underperform the national average.

“Second, broader economic activity and population growth have slowed a little, and population growth is expected to slow further in coming years. Finally, there are signs housing supply is ramping up in some areas. From late 2020, we expect the housing upswing to top out as this additional supply gradually reduces the national housing shortage,” said Tuffley.

The full ASB Housing Confidence Survey for the three months to October 2019 will be available online at www.asb.co.nz Other recent ASB reports that also include housing commentary can be accessed via a Search page https://reports.asb.co.nz by selecting the keyword ‘Housing’.

@ASBBank @ASBMarkets www.asb.co.nz

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