Renewed Confidence In Housing From Reserve Bank Rate Cuts
Renewed vigour in the Housing market follows a big turnaround in New Zealander’s interest rate expectations reveals the
ASB BANK Quarterly Housing Confidence Survey released today.
Over the quarter a net* 5% of Kiwis surveyed throughout the country believe interest rates will increase. This result is
down sharply (25%) from the first quarter of 2003. For the month of June a net 9% believed interest rates would
decrease.
A net* 14% of those surveyed throughout the country believe it’s a good time to buy a house.
The majority of New Zealanders (63% of respondents and 54% on a net basis) believe that house prices will continue to
increase over the coming twelve months.
“It’s no coincidence that the record turnover in housing in recent months has occurred at the time of falling interest
rates,” says Anthony Byett, Chief Economist ASB BANK.
“The New Zealand housing market is still very active, prices are still rising and it appears that the up-phase in the
housing cycle is far from over yet. Given, there has been a slight decrease in those who believe now is a good time to
buy a house, this is offset by the change in heart over interest rates.
“Strong migration, rising incomes and low returns from other investments are other key factors behind the strong housing
market in New Zealand, however lower interest rates are now the major impetus.
“Housing is as affordable now as in the previous four years, and more affordable than in the mid 90s. The annual
interest payable on a 100% debt financed house bought today would be 9% less than a similar transaction a year ago. Add
higher incomes now and the picture becomes even clearer,” says Mr Byett.
The ASB BANK survey reveals starkly contrasting views to predictions about the global housing market by The Economist
Magazine which just predicted nominal house price falls of 20-30% in countries such as Australia, the UK and the
Netherlands.
The same does not apply to New Zealand believes Mr Byett.
“Should the Economist have included New Zealand in its study, our house price to income ratio would have risen around 9%
in recent years, as opposed to 20% and greater in other countries.
“There are always risks: new housing will eventually catch up with demand over the long term, investment returns could
reduce on the basis of rent-to-price ratios, and global house prices could decline sharply. However, each of these
scenarios would likely encourage the Reserve Bank to cut the cash rate even further than what is now forecasted.
Furthermore, population growth will continue strongly despite the recent changes to migration policy.
“The future is always uncertain. But for now the housing market is busy, demand doesn’t look like it’ll decline and
supply of houses is still tight. The best bargains may have passed but it remains a very positive environment for the
housing market,” says Mr Byett.
The Results *
The net result is the difference between those who believe rates/prices will increase or it’s a good time to buy and
those who do not believe rates/prices will decrease or it’s a bad time to buy.