House prices seen rising for first time in 18 months in ASB survey

Confidence about the house price outlook has improved substantially in the ASB's quarterly survey of housing confidence. Results for July showed more people expected prices to rise than to fall, the first net positive result in the survey for 18 months, ASB said. "Housing confidence continues a lift that started a year ago, with a clear majority of respondents seeing now as a good time to buy a house. However, the most significant shift in the survey results is a noticeable uptick in house price expectations," ASB said. "After over a year of expecting prices to fall in the year ahead, respondents have a more neutral outlook. In fact, a month-to-month breakdown of results shows expectations are back into net positive territory," it said. "Another change in the survey results is that on balance respondents expect interest rates to rise, no doubt reflecting the upward trend of long-term mortgage rates since early 2009," it said. "The latest survey reinforces that confidence is building, along with a sense that price falls are coming to an end. However, we continue to expect the next house price cycle to be very weak compared to the extraordinary boom of 2002 "“ 2007." Over the full 3 months to July a net minus 4% saw house prices rising, although that number was positive for the results in the month of July, the first monthly positive figure in 18 months. The previous quarter showed a net minus 45% saw prices rising.

The net balance of respondents who said it was a good time to buy increased again. "The level of optimism is now similar to that seen when the last housing boom was just getting started," ASB said. 64% of respondents said now was a good time to buy, up from 59% in the previous survey. "Interest rate expectations have changed considerably, back to an even split between numbers expecting lower rates and those expecting higher rates. Since late March long-term fixed mortgage rates have risen substantially, and the RBNZ has halted its OCR cuts." A net 3% expected higher interest rates, compared with a net 30% expecting lower rates in the previous quarter. "One contributing factor to the reduced supply of homes for sale is no doubt the shift in migration flows, with substantially fewer people leaving the country. The most immediate effect of the shift is fewer homes than otherwise will have been put on the market for sale, with the same applying for the supply of rental property," ASB said. "Low mortgage rates have undoubtedly had a huge impact in driving sales turnover. Furthermore, fear and caution have abated since the first half of March: globally investors' risk appetites have been recovering." "Ironically, the lift in long-term fixed mortgage rates spurred some fence-sitters into acting before interest rates rose too much further." ASB said it expected housing turnover to broadly hold onto gains made in the first half of the year through the rest of 2009 and "possibly grind up further." "House prices themselves appear to be bottoming out and could even lift slightly later this year. After a period of weak building and a fairly swift reduction of available stock on the market, the current migration-led lift in population will put some pressure on the market," ASB said. "However, we expect the main release valve from growing population to be a recovery in construction activity over 2010, rather than prices. Notwithstanding the past year's fall, house prices remain high compared to fundamental factors such as incomes (ability to pay) and rents (cashflow on any investments). And, unemployment will continue to rise," ASB said. "The last 2 years have been a sharp reminder of several home truths some property investors either overlooked or were prepared to ignore. House prices can fall, and cashflow "“ not expected capital gain "“ is what pays the mortgage." ASBHousingConfidenceJul09