KEY POINTS:
Confidence in the housing market has cooled as higher mortgage interest rates bite.
ASB Bank's quarterly survey found 36 per cent of respondents expect house prices to rise over the next year, down from 47 per cent three months earlier, while 24 per cent expect them to fall, up from 15 per cent last time.
The result is a net 12 per cent optimistic on the price outlook, compared with a net 32 per cent in the previous survey.
But a net 18 per cent people regard it as a bad time to buy, compared with a net 14 per cent in the previous survey. And a net 47 per cent expect interest rates to rise.
The Reserve Bank has signalled - conditionally - that this year's four rises in the official cash rate ought to be enough, and money market pricing endorses that view.
But with the great majority of home loans now on fixed rates, many borrowers still face increases in their mortgage payments as they come up for an interest rate reset.
Fixed-term rates are already about 1 percentage point higher than they were at the start of the year, ASB chief economist Nick Tuffley said. "The bite of higher interest rates has become very evident in recent months."
Sales turnover in the housing market had dropped markedly, falling in seasonally adjusted terms in five of the past six months. Sales last month were down 32 per cent on September 2006.
House prices had also started levelling off, Tuffley said, and past relationships suggested the cooling in price expectations pointed to further slowing ahead in the rate at which house prices rise. Another sign of a cooling market is that the average number of days its takes to sell a property has been creeping up, though it is still relatively brisk compared with the late 1990s and early years of this decade.
Housing affordability was already stretched, Tuffley said, with prices high relative to incomes and rents, and debt servicing costs up markedly.
Those pressures would continue with interest rates set to remain high well into next year.
But there were reasons to believe the trough after the boom - the strongest for at least four decades - would be shallow. "There are still would-be first home buyers who are keen to buy but are priced out of the market for now. Job security remains good for most people with the unemployment rate below 4 per cent.
"And lurking in the distance are supportive factors such as strong earnings in the dairy industry and the likelihood of greater fiscal stimulus after next year's election."
