KEY POINTS:
Confidence in the housing market has picked up, despite expectations of higher interest rates, ASB Bank's quarterly survey has found.
A net 20 per cent of respondents expect house prices to rise - the difference between 36 per cent expecting higher prices and 16 per cent expecting lower ones. That is a jump from a net 7 per cent three months ago, which in turn was an improvement on the April survey.
A net 6 per cent regard it as a good time to buy, up from a net 5 per cent in the previous survey.
This contrasts with the average result for this question since mid-2003, which has been a net 5 per cent saying it was a bad time to buy.
"We have observed a gradual change in sentiment over the past six months, and it is consistent with buyers having more time in general to select houses and less upward price pressure," the ASB report's author, economist Chris Tennent-Brown said.
He finds it reassuring that the improvement in buyer sentiment does not reflect a belief that interest rates are set to fall.
A net 41 per cent expect higher rates over the next 12 months, a result unchanged from the previous survey.
"It would be scary if people were banking on interest rates falling to make it easier. The risks are to the upside on rates."
The Reserve Bank cited the continuing resilience of the housing market, which is closely correlated with consumer spending, when it put the possibility of another interest rate hike back on the table in September.
And as fixed-rate mortgages mature, they are rolling over on to higher interest rates.
"Overall, the market is slowly looking more balanced than in the heady period from 2003 to 2005," Tennent-Brown said.
The number of dwellings changing hands is well below the 2003 peak but still above the long-run average, even after adjusting for population growth. And turnover has increased since the first couple of months of 2006.
The time it takes to sell a house has shortened, to a median of 33 days, from 36 days in the previous quarter.
"Sale prices continue to press higher, but they are showing signs of peaking," he said.
In the last quarter prices were off their peaks in some regions including Auckland, Otago and the southern lakes, though they hit record highs in other regions.
"The housing market might be slower, but it is not slow and it is no longer decelerating, at least in the last three months."
Tennent-Brown said people's perceptions of the market tended to reflect their recent experience rather than the fundamental indicators of affordability.
"The expectation that prices can continue to go up really does defy gravity."
One indicator is the multiple of the average after-tax income needed for a 20 per cent deposit on an average house. It has climbed over the past four years and is now nearly three times nationally and 3.5 times in Auckland.
"These ratios have stabilised this year ... but remain stretched, particularly when other cost-of-living increases are taken into account."
The higher interest rates available now will limit the amount first-home buyers can afford to borrow, Tennent-Brown said, which limited how much further house prices could rise relative to incomes.
ASB continued to expect a slowdown and a flattening of average prices, and some price falls, over the year ahead.
