Moving on… slowly

Thursday, 16 August 2018, 1:20 pm
Press Release: ASB Bank

Moving on… slowly
• Cautious optimism about housing market prospects keeps price expectations subdued
• Cantabrians still the only respondents who think now is a good time to buy a house
• The majority still expect higher interest rates ahead
House price expectations are proving slow to recover in the latest ASB Housing Confidence Survey. Price expectations may have rebounded back to pre-election levels, but they remain below recent highs.

A net 38% of respondents (for the three months to July 2018) expect higher house prices over the next year, compared to an average of +44% since January 2015.

ASB chief economist Nick Tuffley says that “While price expectations are continuing to firm the ASB Housing Confidence Survey clearly shows the ongoing uncertainty in the housing market is fuelling caution about market prospects.

“For example, while election-related uncertainty has subsided (when net house price expectations slipped as low as +16%), the outlook for the housing market is murky. Competing influences of strong population growth, limited supply, legislation uncertainty, and affordability constraints have subdued market activity and prices,” Tuffley says.

All broad regions registered higher price expectations in the most recent survey. However, Auckland remains the least optimistic, with a net balance of +21% (up from +19%). Canterbury expectations firmed the most, with net expectations increasing by 11% to +32%, the highest level since April 2017.

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House price expectations remain the most upbeat in other regions, with the rest of the North Island lifting to +49% and +48% registered in the rest of the South Island. These regions have consistently taken out the top two spots since late 2015.

“Interestingly, the survey responses reflect the dichotomy we are observing in the New Zealand housing market at present. Softer house price expectations, sales activity and prices in Auckland and Christchurch are contrasted with a still reasonably upbeat outlook for regional New Zealand - both in terms of price expectations and realised price gains,” Tuffley says.

Canterbury remains the only region where respondents think now’s a good time to buy a house

When it comes to house-buying sentiment, Christchurch remains the only region where the majority of respondents (a net 9%) consider it a good time to buy.

“Cantabrians are holding firm to their buying paddles, as they continue to reign as the most optimistic and in fact view it as the best time to buy since the devastating February 2011 earthquake,” Tuffley says.

In other regions pessimists outnumber optimists, with 14% of respondents nationwide saying it’s a good time to buy, while 19% of nationwide respondents say it’s a bad time.

However, it’s important to note that the recent pattern of improving sentiment was evident, with the net balance of -4.4% in this latest ASB Housing Confidence Survey.

“That’s the highest level since April 2016 and considerably less negative than it was a year ago (-13%),” Tuffley says.

Interest rate outlook - steady as she goes

The majority of respondents continue to be well entrenched in their belief about higher interest rates in the next year. Interest rate expectations barely moved in the three months to July, with net expectations lifting to +33% from +32% in the three months to April.

“Interest rate expectations were similar across regions in the latest survey, with net expectations ranging from 31% to 33%. This is the narrowest inter-regional range since April 2015,” Tuffley says.

“The Official Cash Rate (OCR) has now been on hold for just under two years and is expected to remain at 1.75% for at least another 12 months. The steady OCR has been anchoring shorter-term fixed mortgage rates, as well as the variable rates.

“We expect the OCR to move up from November 2019, but assume a gradual path of policy tightening and a historically-low OCR endpoint this cycle. This should ensure that mortgage interest rates stay reasonably low over the next few years and is likely to temper respondents’ expectations,” Tuffley says.

The full ASB Housing Confidence Survey for the three months to July 2018 will be available online at www.asb.co.nz Other recent ASB reports that also include housing commentary can be accessed via a Search page https://reports.asb.co.nz by selecting the keyword ‘Housing’.

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