More house price gains expected

Tuesday, 12 May 2015, 8:54 am
Press Release: ASB

More house price gains expected

• House price expectations remain high, with a net 56% of respondents expecting house prices will increase.
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• Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year.
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• Affordability and a lack of houses for sale is weighing on sentiment, particularly in Auckland.
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ASB’s quarterly survey of housing market sentiment found a net 56% of respondents expect house prices in New Zealand to increase over the year ahead.

Although that’s a 3% dip from the previous quarter, when 59% expected higher prices, ASB Chief Economist Nick Tuffley says the sentiment is still very high, with the second highest reading since the early 2013 peak of 63%.

“The results don’t point to house price growth intensifying over the next year, but still suggest a decent pace of growth in the near term,” Mr Tuffley says. “It remains a tight market that is really difficult for buyers.”

Fears fading for interest rate hike

Interest rate expectations have changed considerably over the last quarter with a net 11% of respondents expecting higher interest rates over the year ahead – sharply down from 34% last quarter and 70% a year ago.

The expectation echoes ASB’s move last week to forecast the Reserve Bank will cut the OCR later this year, putting a 60% probability on any cuts occurring.

Is it a bad time to buy?

With a net 8% of respondents considering now as a bad time to buy a house, sentiment has become slightly more pessimistic in the last quarter, returning towards the worst sentiment reading in several years, which was nine months ago.

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“Since then, house prices, particularly in Auckland and Christchurch, have increased dramatically, which will be dampening sentiment,” Mr Tuffley says.

“Unsurprisingly, sentiment remains poorest in Auckland and Christchurch, where the markets are tight and affordability is the most stretched.”

Not just an Auckland problem

Much of the recent ‘housing bubble’ discussion has been focused on Auckland, in part because prices in Auckland look the most stretched.

“The Auckland market makes up around 39% of national sales. Add in the Canterbury market, which is still fairly tight, and we are talking about more than half of the housing market, based on the latest turnover. Accordingly, it’s hard to dismiss the housing issues as ‘just an Auckland problem’,” Mr Tuffley says.

Outlook

In the months ahead, the combination of strong migration inflows, low interest rates and the confidence shown by respondents in this survey, is supportive of robust demand and price gains.

Low interest rates are also providing borrowers with plenty of opportunities to manage their debt-servicing costs.

Results at a glance

The ASB Housing Confidence survey shows that house price expectations remain high:

• A net 56% of respondents expect house prices to increase in the next twelve months;

• A net 11% of respondents expect interest rates to rise in the next twelve months; and

• A net 8% of respondents believe now is a bad time to buy.

ENDS

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