Price expectations faltering

  • House price expectations fall, reversing the recent trend of increasing price expectations
  • Fewer expecting interest rate increases ahead
  • The proportion of respondents who think it’s a bad time to buy hits a five-year low

House price expectations slid lower in the latest ASB Housing Confidence Survey, with a net 26% of respondents expecting house prices to increase – which is the lowest level since January. This trend was reflected across all broad regions and reinforces ASB Economics' view that house price growth across much of New Zealand has peaked.

ASB chief economist Nick Tuffley says that "although price expectations remain off the post-General Election lows, the widespread fall in house price expectations in the latest ASB Housing Confidence Survey reflects the slowing in sales activity and house price growth that has been witnessed recently."

Tuffley believes that recent legislation changes may have weighed down respondents' house price expectations. "On the 22nd of October, the ban on foreigners buying existing (and some new) properties came into effect. It follows that respondents are possibly factoring in a reduction in demand when they think about their house price expectations," Tuffley says.

Respondents' house price expectations remain the least optimistic in Auckland (a net 15%) and Canterbury (a net 19%), reflecting a prolonged period of flat and/or falling house price growth in these two regions.

Expecting flat/lower interest rates ahead

Fewer people are expecting higher interest rates in the year ahead. Bank mortgage interest rates have fallen across most fixed terms in recent months, and questions remain around when the Reserve Bank (RBNZ) will raise the Official Cash Rate (OCR). 

"Both these developments are likely to be shaping respondents' interest rate expectations. Carded mortgage rates have fallen by up to 50bps since the end of July as a more 'dovish' RBNZ weighed on wholesale interest rates. Bank competition also appears to have increased over this timeframe." Tuffley says.

"Further, with more question marks over when the RBNZ will eventually start lifting the OCR, given the downside risks to the growth outlook, it's not surprising to see respondents expecting that interest rates are likely to stay low, or shift even lower again, over the coming 12 months."

Sentiment around whether it's a good time to buy a house hits a five-year high.

The recent trend of improving sentiment (i.e. becoming less negative) remained intact with the proportion of respondents thinking it’s a good time to buy hitting the highest level since April 2016.

"Indeed, respondents in ASB's Housing Confidence Survey came within a whisker of the majority thinking it's a good time to buy. This is significant as pessimists have outweighed optimists in this survey for over five years," Tuffley says.

The combination of slowing house price growth across much of the country (with flat/lower prices in Auckland and Canterbury), more homes to choose from and a favourable interest rate outlook are likely underpinning the increase in the number of respondents who think it's a good time to buy a house

However, Tuffley notes that "looking forward, we expect respondents' perceptions around whether it's a good time to buy will remain contained by the fact that prices remain stretched relative to fundamentals in many centres."

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'.

Media Centre Media Releases Price expectations faltering | ASB Housing Confidence Survey Nov 2018