House price expectations have slipped again in the three months to January, although the dip was less dramatic than in the previous quarter, according to the latest ASB Housing Confidence Survey. With a net 23% of respondents anticipating price increases, expectations are still higher than at this time last year, when the figure hit 16%, but lower than the long-term average of 28%. Expectations are lowest in Auckland, where just a net 8% expect house prices to rise – the joint-lowest figure seen in the region in nine and a half years.
“House price growth expectations shifted unevenly during the quarter, falling significantly in Auckland and dipping slightly in the rest of the North Island, but ticking up by a whisker in the South Island," says ASB chief economist Nick Tuffley.
"As in the previous quarter, price growth expectations are softest in Auckland and Christchurch, reflecting falling and flat price growth in the two centres, respectively. Expectations in the City of Sails are especially low."
Tuffley says the Overseas Investment Amendment Bill, which came into effect on October 22, may have dampened demand in the housing market, adding that respondents were likely factoring this into their house price expectations. The legislation placed new restrictions on property purchases by foreigners.
Of those surveyed, 40% expect higher prices in the coming year, while 17% expect prices to fall, compared with 42% and 16% respectively last quarter. A further 28% expect no change in prices, while 15% don’t know.
Interest rate expectations continue to decline across the country
Interest rate expectations have fallen in every region for the second quarter in a row – a trend that started in August when fixed-term mortgage rates began to fall. The net balance of respondents anticipating higher interest rates decreased significantly, from 26% in the October quarter to 14% this quarter, despite a plurality continuing to expect rates to rise.
All four regions – Auckland, the rest of the North Island, Canterbury and the rest of the South Island - experienced a decrease of similar magnitude, though the fall was most pronounced in Canterbury.
"With core inflation seemingly on the low side, we expect the Reserve Bank of New Zealand (RBNZ) will hold off on any Official Cash Rate (OCR) hikes for a considerable period. Given these factors, it is unsurprising that fewer Kiwis are anticipating higher mortgage rates," Tuffley says.
Nationwide, 26% expect higher interest rates over the coming year, while 12% expect lower interest rates, compared with 33% and 7% respectively last quarter.
"The past two quarters of lower interest rate expectations reflect the dip in fixed mortgage rates we saw towards the end of last year and a growing perception that higher interest rates are increasingly distant. The Reserve Bank’s recent 'dovishness' is a key influence here," Tuffley says.
"We do note that proposed new bank capital requirements may trigger some upward movement in mortgage rates over the longer term, even in the absence of any OCR increase."
Sentiment around whether it’s a good time to buy a house hits a five and a half-year high
For the first time in five and a half years, more respondents believe it is a good time to buy a house than a bad time.
Of those surveyed, 17% thought it was a good time to buy, while 16% thought it was a bad time – a recent low. A further 51% say it was neither good nor bad, and 15% didn’t know.
Canterbury maintained its dominance as the most optimistic part of the country, tipping the nationwide balance from red to black. By a net 12%, Cantabrians said that now was a good rather than a bad time to buy, similar to last month’s high of 13%.
"Whilst sentiment in the other parts of the country was more restrained, there was a clear trend towards greater buyer optimism,” Tuffley says. "In Auckland, there were an equal number of pessimists and optimists – a six-year high in sentiment. Auckland is one area of the country where inventory has been growing recently, which may be cheering buyers."
Looking ahead, Tuffley says interest rates are expected to remain reasonably low by historical standards, supporting the housing market and bolstering continued optimism amongst prospective buyers.
"The OCR is likely to remain on hold until 2021. Nevertheless, we expect mortgage rates will still gradually tick upward given proposed increases in bank capital requirements have the potential to increase the cost of funds," Tuffley says.