ASB Housing Confidence survey respondents less bullish on expectations house prices will continue to climb over the next year

New Zealand’s house price hype is calming, according to ASB’s Housing Confidence report for the October quarter.

The portion of survey respondents expecting house price gains over the next year has fallen off its record high experienced in the three months to July, but remains up there.

A larger portion of respondents believe interest rates will fall over the year, while a smaller portion believe now’s a bad time to buy, compared to the previous quarter.

Heat comes off Auckland housing market

In the three months to October, a net 52% of respondents believed house prices would increase in the next year – down from 65% in the previous quarter.

In other words, 59% expected higher prices and 7% expected lower prices, while 18% expected prices to stay the same and 16% didn’t know.

The fall in house price expectations in the last quarter are most pronounced in Auckland (down to 50% from 71%) and Christchurch (down to 40% from 58%).

ASB Chief Economist Nick Tuffley says weaker expectations in Auckland are likely to reflect the new investor restrictions being introduced by the Government and Reserve Bank (RBNZ).

The Government’s tax measures came into effect on October 1, and the RBNZ's new high loan-to-value ratio restrictions on November 1.

Tuffley says the ongoing moderation in Canterbury is also consistent with the market moving back into a more balanced position.

“The decline in price expectations in the rest of New Zealand, however, is more surprising,” he says.

“Recent trends have indicated that, if anything, the new housing measures have been associated with an acceleration in house price growth outside of Auckland. We will be keeping a close eye on this trend to see how it develops over the next few surveys.”

Punters confident interest rates will fall

As for interest rates, the largest portion of respondents believed these would decrease over the next 12 months, since the Global Financial Crisis.

A net 15% of people maintained they’d fall – up from 3% expecting drops the previous quarter.

Around 35% expected lower rates and 20% expected higher rates, while 21% maintained they’d stay the same and 25% didn’t know.

ASB notes this is a marked change from the net 70% expecting interest rate increases just over a year ago when the RBNZ was lifting the Official Cash Rate (OCR).

Tuffley says, “We expect the RBNZ to cut the OCR by an additional 25bp before too much longer. As a result, we may see even more people expecting lower interest rates in the near future.”

Bad time to buy in Auckland, neutral in other parts of country

Cutting to chase, ASB survey respondents said it’s a bad time to buy in Auckland and Christchurch, but were fairly neutral about purchasing houses in other parts of the country.

A net 8% believed now’s a bad time to buy – down from 11% in the July quarter.

ASB said 24% maintained it was a bad time, 16% a good time, 44% neither good nor bad, and 15% didn’t know.

Sentiment once again differed across the country, with a net 25% of Aucklanders and 7% of Cantabrians regarding now as a bad time to buy.

ASB says extremely high house prices, and the new tax and lending rules may be dampening sentiment in Auckland.

As for Canterbury, the sentiment was the most optimistic it had been in over two years.

ASB maintains that as the housing market continues to rebalance and low interest rates make borrowing relatively cheap, the mood may keep improving.

Sentiment remained neutral in the North Island outside of Auckland, with a net 1% seeing now as a good time to buy.

In the South Island outside Canterbury sentiment improved slightly, with a net 4% viewing now as a good time to buy.