Confidence in housing market slumps outside Auckland

Photo / Chris Skelton

Confidence in the housing market has weakened in ASB's latest quarterly survey, though expectations on the outlook for prices remain high, especially in Auckland.

Fewer people see it as a good time to buy a house (a net 37 per cent compared with a net 48 per cent in the previous quarter), the survey, conducted over the three months ended January, found.

This is consistent with a sharp rise in those expecting interest rates to rise (a net 51 per cent, up from 35 per cent) and a rise in expectations that house prices will increase (a net 48 per cent, up from 40 per cent).

Price expectations in Auckland lifted fairly steadily over the three months, ASB noted, but started to fade elsewhere in January.

The net balance of respondents expecting house prices to rise is back where it was in 2003, the early stages of the last housing boom when interest rates were very low, and again in the first half of 2007 before the Reserve Bank's last flurry of rate rises ankle-tapped the market.

ASB chief economist Nick Tuffley said the housing market had warmed considerably last year as low mortgage rates and falling house prices (at least in the first half of 2009) improved affordability, while population growth was boosted by a drop in the number of people leaving permanently for Australia.

But while those factors were boosting demand, the supply side of the market was constrained by a sharp drop in construction, vendors' unwillingness to accept lower prices and fewer homes vacated by emigrants.

As competition for the limited number of properties on the market began to heat up prices bounced back with surprising vigour, Tuffley said.

But since November the market's momentum had started to slow again. Tuffley pointed in particular to the average number of days it takes to sell a property - a reliable barometer, he said, to the balance of supply and demand. After falling swiftly through 2009 it was now starting to pick up again.

He expects the net outflow of migrants to Australia to strengthen during the year, reducing demand for housing. Building consents have been picking up, from a depressed base, foreshadowing increased supply.

Meanwhile the Reserve Bank reaffirmed last month that it expects to start raising the official cash rate around the middle of the year.

Longer-term mortgage rates had already been rising for almost a year, Tuffley said, partly in anticipation of future OCR increases but also in response to a rise in banks' funding costs.

The survey's timing means there is little or no impact from the tax working group's recommendations or the Government's subsequent response.

WHAT ASB FOUND

ASB's housing confidence survey shows:
* 48 per cent of respondents think house prices will increase.
* 51 per cent expect interest rates to rise.
* 37 per cent think it is a good time to buy a house.

(Net figures)