House price expectations continue to soar

Tuesday, 17 February 2015, 10:00 am
Press Release: ASB Bank

Media release
ASB Housing Confidence Survey

EMBARGOED until 0500 Tuesday, February 17, 2015

House price expectations continue to soar

• House price expectations have lifted further, with a net 59% of respondents expecting house prices to increase over the year ahead.

• Expectations for low interest rates a key driver of sentiment.

• LVR restrictions increasingly likely to remain, with the possibility of further prudential tools.

Expectations for house price increases are continuing to lift higher according to the latest ASB Housing Confidence Survey.

A net 59% of respondents expect higher prices over the year ahead - the strongest sentiment since early 2013, says ASB Chief Economist Nick Tuffley.

“Combining this with the slight drop in the number of respondents who see now as a bad time to buy a house, it’s clear that Kiwis are remaining optimistic about further house price rises,” Mr Tuffley says.

Low interest rates remain a key driver of housing market sentiment.

“Despite the RBNZ’s OCR hikes last year, fixed-term mortgage rates have been held down and at times even dipped, as global interest rates decline,” Mr Tuffley says.

“Bank competition has added further fuel to the expectation of a lowering of interest rates. And with the RBNZ now signalling that the OCR could remain on hold for an extended period of time, interest rates remain a key factor in influencing sentiment about the housing market.”

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Auckland affordability looks the most stretched

House price affordability remains an issue in Auckland with a near perfect storm of high demand and low listings combining to drive a re-acceleration in price.

“When it comes to price, Auckland is standing out from the pack and a reacceleration is increasingly evident,” Mr Tuffley says.

“Looking at the ratio of regional house prices relative to incomes, or mortgage repayments for first-home buyers, Auckland is standing out as looking quite stretched compared with elsewhere across the country.”

How can the RBNZ solve a problem like housing?

With broader inflation pressures very low, it is unlikely the RBNZ will lift interest rates in the foreseeable future.

“With the OCR on hold, the only option the RBNZ may have to address the housing market is the use of further prudential tools,” Mr Tuffley says. “At this stage, it’s increasingly likely that the current loan-to-value ratio restrictions will remain in place for longer than we originally anticipated. Consequently, we think late 2015 will be the earliest the RBNZ could remove the restrictions.

“Buyers should also be prepared for further measures - whether directly targeted at property investors, such as increasing the capital banks have to hold against large-scale investors, or more general, such as debt servicing limits.”

Interest Rates

A year ago, 70% of survey respondents were expecting higher interest rates over the year ahead.

By July, the RBNZ had lifted the OCR four times, to 3.5%, and signalled it would pause to assess the impact of the tightening delivered. Since then, respondents’ expectations for higher interest rates have steadily declined.

“At this stage, very few people expect interest rates to decrease over the year ahead, even though mortgage rates have been declining. A year ago, 2% of respondents expected rates to decrease over the upcoming 12 months, and now 6% have that expectation,” Mr Tuffley says.

“But each month we have observed a fall in the number of people expecting rate increases. In this quarter, a net 34% of respondents expect higher interest rates over the year ahead, down from 55% last quarter.”

Results at a glance

• A net 59% of respondents expect house prices to increase in the next twelve months;

• A net 34% of respondents expect interest rates to rise in the next twelve months; and

• A net 6% of respondents believe now is a bad time to buy a house.

Note: The ASB Housing Confidence Survey is constructed from data received from 2788 individual respondents. The full housing confidence report for the three months to January 2015 is attached and will be available online at www.asb.co.nz tomorrow.

ENDS

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