Interest cuts boost housing market

By BRIAN FALLOW

With turnover up and interest rates down, confidence in the housing market has improved in ASB Bank's latest survey.

A net 49 per cent of respondents thought it was a good time to buy a house, up from 37 per cent three months earlier.

Floating mortgage rates have fallen eight-tenths of a percentage point this year but the easing phase is thought to be at or near the end.

Longer-term fixed mortgage rates have already begun to edge higher in line with bond yields.

But interest rates are only one factor in housing market sentiment, says ASB economist Rozanna Wozniak, citing people's appetite to borrow at high interest rates in the mid-1990s when they expected house prices to keep rising sharply.

House price expectations have firmed in the ASB's latest survey but remain moderate. Nationwide, 22 per cent expected prices to rise, up from 17 per cent last quarter.

In Auckland the improvement was from 17 to 25 per cent.

But Ms Wozniak says that nearly half of the respondents expected prices to remain unchanged. At 22 per cent, the level of optimistic sentiment is well below the 45 per cent it hit in the mid-1990s, which might be just as well.

With low general inflation and low population growth, people should not be counting on more than a return to stability in house prices in most regions. Ms Wozniak says that even over the long term, only modest gains are likely.

House prices have been flat nationwide for nine months.

The Auckland market has remained soft. Auckland City managed a rise of 0.5 per cent, but Manukau, Waitakere, North Shore and Papakura all fell.

Anecdotally, Auckland prices are stabilising, too, says Ms Wozniak. Yet turnover has risen.

"According to our calculations, which are based on a two-monthly average in order to smooth out some of the monthly volatility, turnover is up approximately 40 per cent on the lows reached last October."

Turnover in Auckland is up about 5 per cent on a year ago.

"What we are seeing is sellers bringing down their expectations, not buyers increasing their bids."

Last year, the middle and upper end of the market tended to hold up better than the lower end.

"A lot of first-home buyers would buy on a low deposit and the last thing they would want to do is buy in a declining market. Now they hear that the market is picking up and it makes them more comfortable about coming in."

Two major changes since the housing boom of the mid-1990s are that households are carrying much more debt in relation to their income, dampening their appetite to take on more, and that net migration flows have been outward not inward.

The relatively high level of household debt is one reason the ASB does not expect a big upturn in the economy or the housing market.

But it does predict a turnaround in the net flow of migrants.

A burst of departures, particularly before changes in Australian residency rules, is expected to slow.

The ASB does not see the housing market pick-up as robust enough to handle a surge in speculative building.

Whereas in Auckland, Hamilton and Tauranga population growth outpaces the increase in dwelling consents, the reverse is true in Wellington, Christchurch and Dunedin.