KEY POINTS:
Confidence in the housing market has gathered strength, with the number of people expecting house prices to rise reaching levels last seen at the height of the housing boom in 2003.
The figures, in ASB Bank's quarterly survey, will be the last thing the Reserve Bank wants to
see. Governor Alan Bollard warned last week that a hike in the official cash rate next month was likely unless he saw clear signs of moderation in housing demand.
But ASB chief economist Nick Tuffley said the survey raised the risk that the housing market would keep up its momentum, at least over the first few months of this year.
Indeed, the up-tick of price expectations was indicative of an acceleration in house price inflation.
Of the survey's 600 respondents, 54 per cent expect house prices to rise, up from 36 per cent three months ago, while only 10 per cent expect a fall (down from 16 per cent).
The net balance of 43 per cent (once the 3 per cent who don't know are discarded) is the highest since late 2003, when housing market activity was at its zenith. In Auckland it is even higher at a net 48 per cent.
"As yet the renewed confidence in the direction of the housing market hasn't translated into a greater number regarding now as a good time to buy," Tuffley said.
A net 7 per cent said it was a good time to buy, virtually unchanged from the net 6 per cent of that opinion in the October survey.
It could reflect the fact that interest rates were already high and affordability stretched, Tuffley said.
"It appears the Reserve Bank's increasingly tough stance is sinking in slightly, with fewer expecting interest rates to fall over the next year."
The survey's results were consistent with other housing data that showed the market had picked up late last year. Turnover, as reported the Real Estate Institute, was 9 per cent higher in the December quarter than in the same period in 2005.
While turnover for January has yet to be reported, ASB's own loan approval activity suggested it would be robust.
A renewed up-trend in net inward migration would give the market a boost, Tuffley said, but longer-term fundamentals implied the market would moderate after four years of strong price rises.
Affordability measures are stretched.
"Assuming a 20 per cent deposit is required, at median sale prices that deposit is now over 2.5 times the average person's disposable income nationally, and 3.5 times the same income for an Auckland house."
Debt-servicing costs, relative to incomes, have also been pushed up.
"House price growth has dwarfed household income growth and for property investors rental income growth has also been left behind," Tuffley said.
And even if Bollard does not hike the official cash rate, effective or average mortgage rates are expected to keep rising as fixed-term loans mature and roll over on to higher rates.
"Fixed mortgage rates dropped in early 2006 but rose steadily through the year and are now back at similar levels to late 2005.
"We expect that rates for all terms will remain high over the next nine months."
Tuffley said the pace of capital gains being seen at the moment was not sustainable.
