Rising house price expectations fail to boost housing optimism

Housing confidence eased slightly over the three months to the end of July, according to the latest ASB NZ Housing Confidence Survey.

The ASB Housing Confidence Index edged down two points over the quarter, with a net 25 percent of respondents saying that now is a good time to buy a house, compared to 27 percent in the previous quarter. Sentiment remains slightly above the historical average of net 22 percent.

ASB Chief Economist Nick Tuffley says house price expectations have risen across the regions, with a net 25 percent of respondents now expecting house prices to increase over the coming year. “House price expectations remain highest in Auckland, consistent with recent data showing a tighter supply of housing in this region compared to the rest of the country. Despite the boost in price expectations across New Zealand, however, housing confidence still dropped slightly, reflecting a continued caution in the market. ”

A month-to-month breakdown of the results showed a drop in housing confidence and price expectations in Christchurch over May and June. The June earthquakes are likely to have added to the downbeat mood - however there was some rebound in July, particularly for price expectations. House sale data also shows a decline in house sales in June reflecting the disruptions from the earthquakes that month, followed by a recovery in July. “These developments suggest there remains underlying demand for undamaged properties in Christchurch,” Mr Tuffley says.

There was an increase in the number of respondents who expect interest rates will increase over the next year. “Just over a net 46 percent of respondents now expect interest rates to rise, up from a net 34 percent in the April quarter. Signs the economy has been improving have no doubt contributed to household expectations that the Reserve Bank would raise the OCR earlier. However, there has been significant volatility in global markets since the survey was taken, which adds some uncertainty as to when interest rates will rise,” he says.

Recent market data have also shown a gradual pick-up in housing market activity. Mr Tuffley says the median number of days to sell a house has continued to edge lower to 41 days, although the measure remains above the long-term average of 39 days.

“We expect house prices nationwide to grow modestly at a rate of around 3 percent over the coming year. House price growth in Auckland is likely to be stronger than that, reflecting its relatively tighter market.” Mr Tuffley says.