Sentiment about house-buying takes a hit

Tuesday, 16 August 2016, 4:09 pm
Press Release: ASB Bank

· Sharp drop in sentiment around whether it’s a good time to buy a house

· More people expect house prices to rise over the next year

· People believe interest rates have bottomed-out

Now’s not the time to be buying a house, according to the latest ASB Housing Confidence Survey.

The quarterly report indicates sentiment about house-buying has dropped sharply across the country over the three months to July, with a net 20% thinking it is a bad time to buy. This compares to the net 3% last quarter who thought it was a bad time to buy, and is the weakest sentiment since early 2012.

And for the first time in more than a year, more people expect interest rates to rise, rather than fall.

ASB chief economist Nick Tuffley says the sharp fall in sentiment is not surprising when expectations for higher house prices, as well as higher interest rates, picked up over the quarter.

“People appear to be wary of higher debt servicing costs on top of already-high house prices, which has pushed down sentiment,” Mr Tuffley says.

Further investor loan-to-value restrictions, kicking-in from October, could see sentiment drop further this year.

“The requirement for investors around the country to have a 40% deposit will undoubtedly knock investors’ confidence,” Mr Tuffley says.

But two things could temper that fall: If the new LVR restrictions do slow market activity and house price growth, potential first-home buyers might look more favourably on the housing market. And a further OCR cut this year could have a similar effect, provided mortgage rates move slightly lower.

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“On balance though, high house prices and a higher deposit threshold for investors are likely to weigh on sentiment this year,” Mr Tuffley says.

Not just Aucklanders who are cautious
Nationally, sentiment is at its lowest level since early 2012, and it’s the first quarter since mid-2014 where every region has thought it was a bad time to buy.

Nationally, 13% of respondents say it is a good time to buy a house, while 33% say it is a bad time (this compares to 17% and 20% last quarter). The difference is the net 20% who think now is a bad time to buy, down from 3% last quarter.

Sentiment is particularly low in Auckland, with a net 32% thinking now is a bad time to buy.

“As affordability in Auckland is squeezed more so than elsewhere, we expect to see sentiment continue to drag relative to the rest of the country,” Mr Tuffley says.

Still expecting higher house prices
Despite the drop in purchasing sentiment, it appears New Zealanders still believe house prices are only heading in one direction: up.

Nationally, 68% of respondents expect higher prices over the next 12 months (compared to 59% last quarter), while only 7% (8%) expect prices to fall.

In Auckland, a net 57% of respondents expect house prices to rise in the next year. Confidence in the North Island, outside Auckland, is at an all-time high of 66%.

“House price expectations are likely being influenced by the degree of coverage house prices are getting in the New Zealand media, yet the across-the-board lift does reflect the prices increase we’ve seen across the country recently,” Mr Tuffley says.

People believe interest rates have reached their lows
The notion that all good things must come to an end seems to have prevailed this quarter, as for the first time in more than a year, more people (24%) expect interest rates to rise rather than fall (17%). This compares to 18% and 25% last quarter.

ASB expects the RBNZ to cut the OCR further in November, following last week’s cut.

“We could then see another turn-around in interest rate expectations in the next survey, particularly if mortgage rates move lower over the period,” Mr Tuffley says.

ends

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