By Bernard Hickey New Zealanders are just as confident about rising house prices as they were at the peak of the boom in 2007, the ASB Housing Confidence Survey has found. ASB economist Nick Tuffley said the strength in sentiment was likely to challenge the Reserve Bank's resolve to leave the Official Cash Rate on hold until the latter half of 2010. (Updates with interactive chart and My view) More than half of those surveyed in the three months to October expected house prices would rise, which was more than double the percentage the previous quarter. The turnaround from earlier this year was the fastest in the survey's history. Six months ago a net 45% expected prices to fall, while a net 40% surveyed in the October quarter expected prices to rise, including 53% who saw prices rising and 14% who saw prices falling. However, the survey also found a net 35% expected interest rates to rise and the percentage who said now was a good time to buy edged down slightly to 59% from 64% previously. My view It is extraordinary that confidence in the housing market is back at the levels seen at the peak in 2007. It shows that New Zealanders have given up on all other investment choices, including the stock market, managed funds and bank accounts, as either too risky or offering too little return. Home buyers still remember that house prices doubled from 2002 to 2007 and that commentators (like me) who predicted 30% price falls were proved wrong (for now). John Key's reluctance to tax the property sector and the Reserve Bank's insistence on not raising the Official Cash Rate until the latter half of 2010 is adding fuel to the fire. But the fundamentals remain just as ugly as they did in 2007. Affordability is still awful and the ratio of the median house price to median incomes is well over 7. New Zealand still has very high foreign debt and interest rates will rise. I think the inevitable has been post-poned. We'll see. Your view? I welcome your thoughts below. Here is the full news release below from ASB, a PDF of the full survey results and our interactive chart of the results.
Housing confidence remained strong in the three months to October 2009, according to the ASB Housing Confidence Survey with respondents indicating a marked shift in house price expectations. Only six months ago, the April 2009 quarter showed a net 45% of respondents expecting house prices to continue to fall but in this latest survey a net 40% now expect house prices to rise. "This turnaround in house price expectations is the largest recorded shift in the survey to date", said ASB Chief Economist Nick Tuffley. "Lower short term interest rates and evaporating fears of further market decline have no doubt contributed to the very positive outlook for house prices". A majority of respondents still continue to see now as a good time to buy a house, making for nine months of optimism towards housing. However, there was a slight dip in optimism over the quarter (down to a net 48%). Survey responses also revealed a sharp lift to a net 35% in the number of people who expect interest rates will rise over the next year. In keeping with the bullish sentiment towards housing, the market itself has swung firmly back to being a sellers' market. The median time taken to sell houses has shortened and house prices have been increasing. However, the level of turnover has stalled at below-average levels with listing volumes not yet rallying to the previous highs. "The housing market is showing strong signs of being constrained by a lack of available stock for sale. Prospective buyers are competing vigorously to quickly snaffle up the good houses that come onto the market", said Tuffley. The imbalance is likely to gradually correct over the next year as demand moderates through higher interest rates and renewed emigration, and as supply starts to increase. "Mortgage rates are likely to continue to rise over the next couple of years, dampening demand. Supply will also lift over time as higher prices entice more sellers to the market and trigger a pick-up in construction." "Meanwhile, house prices look set to keep rising into the new year, something that is likely to challenge the Reserve Bank of New Zealand's resolve to keep interest rates on hold until the second half of 2010", said Tuffley.
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