Confidence in rising house prices dwindling

After hitting a record high in the previous quarter, house price expectations slowed in the three months to October, but remain at high levels.

ASB’s quarterly survey of housing market sentiment showed a net 52% of respondents now expect houses prices to increase over the next year, down from the net 65% who expected price gains in the three months to July - the highest reading since the survey began in 1996.

Across the regions, confidence in rising prices fell across the board, but remain at high levels. The most pronounced falls were in Auckland (down to 50% from 71%) and Canterbury (down to 40% from 58%).

ASB chief eEconomist Nick Tuffley said weaker expectations in Auckland were likely to reflect the new investor restrictions being introduced by the Government and RBNZ. The ongoing moderation in Canterbury is consistent with the market moving back into a more balanced position.

“The decline in price expectations in the rest of New Zealand, however, is more surprising,” Mr Tuffley said.

“Recent trends have indicated that, if anything, the new housing measures have been associated with an acceleration in house price growth outside of Auckland.  We will be keeping a close eye on this trend to see how it develops over the next few surveys.”

Is it a good time or bad time to buy a house?
Sentiment remains low, with a net 8% of respondents seeing now as a bad time to buy a house.  Auckland (at 25%) and Canterbury (7%) continue to be the two most pessimistic regions.

“Sentiment has become a little less pessimistic in the latest survey,” Mr Tuffley said.
“Poorest in Auckland and Christchurch, where the markets have tightened and affordability has become more stretched in recent years.”

Interest rate outlook
A growing proportion of people (15%) expect interest rates to fall over the year ahead.
That’s up from a net 3% expecting lower rates last quarter, and a marked change from the net 70% expecting interest rate increases just over a year ago (when the RBNZ was lifting the OCR).

“We expect the RBNZ to cut the OCR by an additional 25bp before too much longer. As a result, we may see even more people expecting lower interest rates in the near future,” Mr Tuffley said.

“In fact, the only time interest rate expectations have been lower than they are today was during the Global Financial Crisis.”