Housing rallies but buyers in no hurry

In Auckland house prices are set to increase by 20 per cent. Photo / Paul Estcourt

Confidence in the housing market has picked up in ASB's latest quarterly survey, underpinned by a drop in expectations of an interest rate rise.

A net 29 per cent of respondents consider it a good time to buy a house, up from 27 per cent in the previous survey.

A net 11 per cent expect house prices to increase over the next 12 months, up from 9 per cent three months ago. In Auckland, the figure is 20 per cent. House price expect-ations have been noticeably higher in Auckland than the rest of the country for the past nine months, ASB chief economist Nick Tuffley said.

"The overhang of listings last year was never as large in Auckland as elsewhere. That's helped. And the population in Auckland tends to grow faster. So in an environment where arguably there's not enough building going on, you're more likely to hit the limits or find pockets of pressure."

While Auckland made up 37 per cent of national housing turnover last month, listed properties made up only 25 per cent of the national total.

The big shift in this survey was a drop in expectations of higher interest rates. Down from 55 per cent three months ago, the figure is 35 per cent. In the interval the Reserve Bank cut the OCR by 50 basis points to its all-time low of 2.5 per cent.

But it made clear this was a temporary measure to bolster confidence immediately after the February earthquake in Christchurch.

Tuffley interprets the drop in interest rate expectations as just reaction to the fact that the most recent thing rates have done is go down.

The market was showing tentative signs of recovery - turnover had increased 4.5 per cent in March, on a seasonally adjusted month-on-month basis, and picked up another 0.4 per cent in April.

But the average number of days it took to sell at 45 remained above the long-term average of 38 days.

"A key lesson people have learned is that house prices are not a one-way street," Tuffley said. "They can fall. People aren't panicking into buying a house for fear of never being able to get on the escalator."

The ratio of house prices to disposable income remains high by historical standards, at nearly five times income, when the long-run average is more like three times.

The legacy of the last boom is that household debt relative to incomes remains high at 150 per cent when the 20-year average is 100 per cent.

"House prices look a bit high but it comes down to how the adjustment is going to come through. I think a lot of it will be through the fundamentals, like incomes and rents, gradually catching up over time rather than prices dropping," Tuffley said.

ASB believes house prices are at the trough of the cycle and will grow modestly over the coming year.