Price expectations remain firm in a challenging market

Friday, 15 August 2014, 3:47 pm
Press Release: ASB Bank

Price expectations remain firm in a challenging market

• Tight supply continues to drive expectations of increasing house prices

• Expectations of interest rate rises remain high

• The challenging conditions drove sentiment about buying a house to its lowest point since 2007

Buyers becoming increasingly negative while house price expectations remain resilient
The mood of prospective homebuyers has hit its lowest point since 2007 according to the latest ASB Housing Confidence Survey.

ASB Chief Economist Nick Tuffley says a net 11% of all respondents are seeing now as a bad time to buy.

“Recent interest rate rises, the steady increase in house prices and lending restrictions have all combined to create a growing mood of pessimism amongst prospective buyers.”

Tuffley notes that sentiment has most notably declined in Auckland with a net 21% seeing now as a bad time to buy, compared to a net 10% in April’s survey.

“Auckland continues to record stronger house price gains than anywhere else in the country while a lack of housing supply is likely causing frustration for buyers in both Auckland and Canterbury.”

The view that house prices will continue rising remains prevalent nationwide with a net 49% of respondents expecting house prices to increase.

“Despite the OCR rises earlier in the year and subsequent flow on effect to mortgage rates, New Zealanders remain confident that house prices will continue to increase.”

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“Again, this is evident in Auckland and Canterbury, where demand is the hottest and where other housing pressure points such as increased migration come into play. However, outside of these two centres, house price expectations are elevated when compared to the relatively modest gain in actual prices.”

Housing supply provides challenge for buyers
Housing supply remains a factor impacting both house price expectations and housing market sentiment.

“There are a low number of houses for sale nationwide. Supply will lift gradually as construction picks up, but this process will take time. Throw into the mix the good performance of the economy, and we see no immediate driver for house prices to fall or interest rates to come down in the near future.”

“Consequently, we feel that affordability issues are likely to impact housing market sentiment for the next year or two.”

Interest rates
Expectations that interest rates will continue to rise remain high with a net 69% expecting interest rate hikes.

“We agree with the majority of respondents who expect interest rates to continue to rise, however we are expecting the RBNZ to hold off raising the OCR again until early 2015. We anticipate the RBNZ will lift the OCR to 4.5% over 2015, a further 1% above current levels, which would result in further mortgage rate increase for borrowers.”

Results at a glance

• A net 49% of respondents expect house prices to increase in the next twelve months;

• A net 69% of respondents expect interest rates to rise in the next twelve months; and

• A net 11% of respondents believe now is a bad time to buy.

ends

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