There's been a very sharp drop in the numbers of people expecting house prices to keep rising, according to the Reserve Bank's latest quarterly survey of household expectations for June.
The survey, sourced from UMR Research’s nationwide omnibus telephone survey of 750 people aged 18 years and over, found that in the past three months the net percentage of people expecting house price gains in the next 12 months has fallen to 58.5% from 67.7% in March.
The new figure - while still showing a high percentage overall expecting rises - is in fact the lowest since September 2012. The peak was 74.3% in March last year, while the lowest point of 34.1 was in June 2011 - the first time that particular question was asked.
Crucially, the median expectation of price rises over the next 12 months has dropped very sharply in the latest quarter to 3.5% from 5% in March. This is also the lowest figure since September 2012.
The findings that expectations of price gains are moderating will likely encourage the RBNZ, which put restrictions on low deposit lending in October in part to dampen down a then galloping housing market - particularly in Auckland.
Similarly, the RBNZ is likely to be heartened by news that general inflation expectations among New Zealand business managers remain well contained.
According to the RBNZ's latest Survey of Expectations for the June quarter, also released today, those responding expect, on average, inflation to be 2.08% in a year's time. That's up slightly from the 2.03% in the last survey.
The RBNZ's survey of expectations is a nationwide quarterly survey of business managers and professionals conducted by the Nielsen Company on behalf of the RBNZ.
The two-year average expectations rose to 2.36% from 2.33%.
The respective median figures were 2% (unchanged) for one year's time and 2.35% (up from 2.3%) in two years.
The RBNZ is charged with keeping inflation in a range between 1% and 3%. More recently the central bank has started explicitly targeting a 2% level - so the latest survey findings will offer some encouragement.
Earlier this year the central bank began a cycle of interest rate rises, having already increased the Official Cash Rate twice since March.
These and a further expected hike next month are incorporated into the expectations of the business managers.
The survey found that the 90-day bank bill rate, which serves as a rough proxy for the OCR, but is generally around 25 basis points higher, is expected to be 3.5% by the end of June. This would equate to expectation of the OCR rising a further 25 basis points from its current 3% to 3.25% in June. As of today the bill rate was at 3.4% - indicating that a June OCR hike is already largely priced in.
ASB economist Christina Leung said the survey showed that businesses expect "only a modest" increase in inflation over the next couple of years.
"We expect strong construction growth will underpin a further pick-up in construction cost inflation over the next couple of years.
"While this will likely flow through to a lift in underlying inflation pressures, we expect this lift will be modest relative to the ramp-up in activity expected given the increased capacity of the NZ economy.
"Nonetheless, the expected lift in inflation pressures has prompted the RBNZ to start its tightening cycle by lifting the OCR in March and April, and we expect two further OCR increases in June and December this year. Over 2015, we expect four further OCR increases for an OCR peak of 4.5% by the end-2015."
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