ASB survey reveals majority of Kiwis expect house prices to keep climbing

  • House price expectations are soaring as New Zealand's housing market shifts up a gear.
  • But stretched affordability is putting a dent in perceptions of whether it's a good time to buy.
  • While Kiwis reveal they do expect interest rates to fall further.

Ongoing talk on ways to cool the blistering housing market isn't resonating with Kiwis according to the latest ASB Housing Confidence Survey, with expectations for New Zealand house prices now sitting at a record high.

ASB senior economist Mike Jones says, "after a brief dip during lockdown, price expectations have spiked. In October a net 67 percent of people expected house prices to keep rising over the coming year - the highest month in the 24-year history of the survey."

"This does raise the question: are we at risk of over-confidence?

"Rightly or wrongly, these results suggest housing is increasingly being perceived as a 'one-way bet'. It's no wonder the RBNZ has heeded our call to bring LVR restrictions back in early. Their return next year, and the roll-back of some other policy supports, promise to take a little heat out of what may otherwise have been a summer scorcher," says Mr Jones.

For the three months to October, net 45 percent of respondents say they expect house prices to continue rising - a marked increase from the net nine percent expecting a fall in the second quarter of the year.

Mr Jones says the shift is another indicator that New Zealand's COVID economic recovery is progressing better than initially expected.

It's a sellers' market with affordability under pressure

The market pendulum has swung again this quarter, with a net 12 percent of people seeing now as a good time to buy, down from net 21 percent last quarter.

Mr Jones says, "this fall might seem at odds with the various supports in play, including mortgage rates at record lows, the earlier removal of LVR restrictions and extension of the mortgage holiday scheme."

But he says affordability appears to be the main driver of the shift in buyer perceptions.

"We tend to observe a pretty strong inverse relationship between the level of house price inflation and perceptions of whether it's a good time to buy, and this has shown up in our survey via a steep drop in buyer sentiment. Certainly, affordability is under pressure."

"If our forecasts prove correct, the pendulum looks set to swing even more in favour of sellers over coming quarters. Mortgage rates are expected to fall further and we expect the housing boom to keep chugging through to at least mid-2021." 

"Affordability metrics are already close to record highs and look set to worsen further. It is now clearly a sellers' market," says Mr Jones."

Kiwis expect 2021 to be the year of even lower interest rates

Rate expectations held steady this quarter, with a net 29 percent of respondents expecting interest rates to continue falling, roughly in line with where expectations have been hovering since March.

For the most part, respondents have been on the money with their predictions, as retail interest rates have continued a slow decline this year, even with the RBNZ's Official Cash Rate remaining at 0.25 percent since March.

"With the OCR at its 'effective lower bound', a raft of other measures have been used to lower interest rates. The latest of these, the RBNZ's so-called Funding for Lending Programme comes in next month and promises to keep the downtrend in mortgage and term deposit rates intact. 

"For example, we think one- and two-year mortgage rates will ultimately move closer to 2 percent than their current roughly 2.5 percent levels. That's even without the RBNZ having to resort to negative interest rates, which we no longer see as likely.

"In other words, we see further support for house prices, and housing confidence, ahead," says Mr Jones. 

The full ASB Housing Confidence Survey for the three months to October 2020 will be available online at www.asb.co.nz. 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'.

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