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Housing Confidence To Be Tested

House price expectations have risen for the third quarter in a row but at the expense of housing affordability, according to the latest ASB Housing Confidence Survey.

Expectations are now well above “average”, with Auckland having caught up with the already lofty levels across the rest of the country. Alongside this, however, housing affordability has taken a knock, with the trend improvement in house-buying sentiment of the past few years coming to a halt in Q4.

A net 9% of respondents now say it is a good time to buy a house, down from a net 13% last quarter.

In terms of interest rate expectations, respondents had a balanced view over the three months to January with a net 0% expecting rates to rise – a significant increase from the net 31% expecting rates to fall in Q3.

“Respondents’ interest rate expectations have been wrong-footed several times over the past year thanks to volatility in the global and local economies and some mixed signals from the RBNZ,” says ASB chief economist Nick Tuffley.

Affordability back under pressure

Expectations of higher house prices over the coming year have firmed sharply, with a net 54% of respondents now expecting higher prices compared with net 27% last quarter.

This boost was largely led by Auckland with a lift from net 2% to net 42% expecting house prices to rise. All other regions also experienced an increase but on a more measured scale.

“The continued lift in house price expectations is very much consistent with our own reading of the New Zealand housing market tea leaves. And, the lift in Auckland house price expectations has been pretty spectacular in a short space of time. Housing demand is running hot on the back of the large falls in mortgage rates we’ve seen over the past year, and the cancellation of the Capital Gains Tax in April.

“At the same time, the supply of new listings to market has remained fairly anaemic. House prices are squeezing higher as a result,” says Tuffley.

In contrast, buyer sentiment fell over the three months. This was most noticeable in Auckland and the South Island outside of Canterbury, where it fell six percentage points and eight percentage points, respectively. South Islanders are the only group that believe it is an outright bad 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 buyer perceptions suffered a setback this quarter is not particularly surprising, given the galloping price expectations.

“Despite strong wage growth and record low interest rates, housing affordability is clearly under pressure again thanks to rising house prices,” says Tuffley.

Rate expectations – whipsawed again

Interest rate expectations bounced aggressively in the three months to January, following the RBNZ’s surprise “no change” decision in November.

The subsequent rebound in New Zealand economic momentum in the months following largely vindicated the RBNZ’s decision, and led most market participants to believe (until recently) the RBNZ would not have to lower interest rates again. The ASB survey seems to have effectively picked up on this vibe.

A net 0% of respondents expected interest rates to increase in Q4, a big increase from the net 31% of respondents expecting interest rates to fall in the Q3 survey.

“It’s been a fairly volatile period for the New Zealand public’s interest rate expectations over the past year.

“Expectations look set to be whip-sawed again next quarter following the outbreak of the coronavirus and increasingly synchronous response by the world’s monetary authorities. We now expect the RBNZ to lower interest rates in both the March and May meetings, and would not rule out a large 50bps cut at some stage,” says Tuffley.

The full ASB Housing Confidence Survey for the three months to January 2020 will be available online at Other recent ASB reports that also include housing commentary can be accessed via a Search page by selecting the keyword ‘Housing’.

@ASBBank @ASBMarkets

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