Home Comforts

• Housing confidence is tentatively turning higher. All three of our key confidence measures we monitor show respondents are feeling more positive about housing relative to the situation three months ago.
• This sentiment broadly matches the nascent signs of a turning we've seen in other housing data.
• House price expectations crept higher, interest rate expectations fell sharply, and more people believe now is a good time to buy a house.

House price expectations are slowly turning, with all regions experiencing an increase in price optimism, although Auckland’s enthusiasm remains damp with net 3% expecting prices to fall. Overall a net 9% thought it was a good time to buy a house – the highest level since January 2013.

"Mild improvements in affordability have no doubt been a driver. Wage growth has picked up alongside flat/falling house prices in Auckland and Canterbury, and it appears the general public got the hint on interest rates,” says ASB chief economist Nick Tuffley.

The RBNZ cut the Official Cash Rate (OCR) 25bps in May and 50bps in August, to 1.00%, with Tuffley predicting further cuts may be on the cards. In terms of price expectations, a net 20% of respondents now expect higher prices over the next year, significantly up on April’s 11%, although households remain cautious.

"Despite the July bounce, price expectations are still below the post-2000 average of net 28% and well back from the 50-60% boom years of 2013-2016.

"The mild lift in house price expectations is consistent with some of the other housing indicators we monitor that are suggesting the housing market may be slowly turning a corner," says Tuffley.

With the twin tailwinds of the government backing down on the Capital Gains Tax and interest rates at record lows, however, Tuffley says he expected confidence to be a little higher.

"This likely reflects caution about the state of the economic cycle and business confidence, as well as the hand braking effects of recent housing policies like the foreign buyer restrictions, changes around ring-fencing of tax losses, and the extension of the bright line test,” says Tuffley.

Buyers cautiously optimistic

Buying sentiment continued its trend improvement of the past few years, with a net 9% of respondents now saying it is a good time to buy a house, up from a net 4% last quarter. This is the most positive reading since January 2013. 

House buyers in Canterbury remain the most optimistic across New Zealand, with a net 18% believing now is a good time to buy, a big lift from the previous quarter’s 8%. Auckland respondents were the next most positive with net 13% saying it was a good time to buy.

"These results are not all that surprising given the strong link we observe between rates of house price inflation and perceptions of whether it’s a good time to buy," says Tuffley.

"According to the latest REINZ data, national house prices have basically flat-lined since the start of the year, and the Auckland and Canterbury housing markets have been underperforming the national average. Flat or falling house prices alongside solid income growth has seen affordability improve a little," says Tuffley.

"We'll be watching with interest to see if buyers act on their intentions. The index is hardly at a level indicative of bargain-hunters descending on the market en masse. But the improvement in sentiment is another straw in the wind suggesting the recent standoff between sellers and buyers may be drawing to a close," says Tuffley.

Rate expectations – nailed it

Interest rate expectations fell sharply in the three months to July. A net 10% of respondents expected interest rates to decrease, a sharp fall from the net 10% expecting an increase last quarter.

"The results show that the RBNZ’s 'lower for longer' messaging clearly got through to the general public. This will be a relief to the Bank after its slightly confusing communication efforts earlier in the year appeared to wrong foot respondents in the prior quarter," says Tuffley.

Mortgage and term deposit rate cuts have followed the RBNZ's OCR cut to varying degrees, with Tuffley saying he expected another 25bps cut from the RBNZ in November - an outcome priced by financial markets with about an 80% probability.

"Attention is already turning to what other measures the RBNZ could use to lower market interest rates and stimulate the economy, given the OCR is starting to approach its limits," says Tuffley.

"Just which of these measures (e.g. quantitative easing, currency intervention, RBNZ term lending) is best placed to help out, if any, remains a hot topic. One thing is for sure though, retail interest rates will remain under downward pressure for some time," says Tuffley.

Looking at a broader picture, Tuffley says the market has been inconsistent.

"The performance of the New Zealand housing market this year has been about as patchy as an Auckland summer. The Auckland market has been at the decidedly cool end of the spectrum as a raft of government and RBNZ policy measures have seen investors and offshore buyers abruptly pull back from the market. Turnover has been glacial and prices are around 5% below their early 2018 peaks," says Tuffley.

Canterbury has fared a little better according to the ASB Housing Confidence Survey, and Wellington and regional markets such as Southland, Manawatu, Gisborne, and Hawke's Bay had also performed well with housing supply failing to keep pace with demand, and incomes remaining strong.

Looking ahead, Tuffley says he expects nation-wide house price inflation to pick up from the current 1% year-on-year pace to around 6% by June next year.

"There are plenty of cross-currents at play in NZ’s housing market. But in our view the cancellation of the CGT and recent sharp falls in mortgage interest rates will combine to jump-start the Auckland housing market and add a little more heat to simmering regional markets," says Tuffley.

The full ASB Housing Confidence Survey for the three months to July 2019 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'.