OCR increases having an impact

In the bank’s latest Housing Confidence survey there has been a big increase in the expectation that interest rates will keep rising over the next 12 months.

A net 70% of respondents expecting interest rate hikes, as opposed to 55% in the February survey.

Tuffley says the two OCR increases that have taken place already were well signalled over the preceding months.

“However, there is nothing like an actual mortgage rate increase to convince homeowners that rates are rising.”

“Back in January, a net 51% expected higher interest rates over the coming year. That was quite a high number, but in the April quarter survey that number has jumped to 70%.  The RBNZ continues to signal it expects to deliver further hikes over the next few years.  Borrowers are getting that message loud and clear.”

Sentiment about buying a house has improved over the last three months, but still remains negative, with a net 4% of respondents believing now is a bad time to buy. That’s a small improvement on the net 9% recorded in the February survey.

It was mainly driven by Auckland and Christchurch, which remain the most pessimistic - cities where the housing market is the tightest.

But the net percentage of Aucklanders who think now is a bad time to buy has moved from -21% to a less negative -10% this quarter.

Canterbury respondents were also less negative, moving from -21% to -14%.

ASB said the change coincided with a slight easing in the tightness of the two markets.

A net 1% thought it was a good time to buy in the rest of the North Island and a net 2% thought it was a good time to buy in the rest of the Souith Island.

The divergent sentiment around the country reflects the different dynamics at play in each region.  While the high LVR restrictions and mortgage rate increases are common to all markets, factors such as house prices and affordability, the rate of house price appreciation and the supply/demand balance all vary from region to region.

The RBNZ’s tightening cycle will push up mortgage rates, which in turn will help keep demand for housing in check.