Expectations of a rising house market have eased back from very high levels, according to results from the Reserve Bank's latest quarterly household expectations survey out today.
A net 67.9% of respondents to the latest survey expected higher house prices in a year. This compares with 74.3% in the last survey when expectations hit a record high.
The survey is sourced from UMR Research’s nationwide omnibus telephone survey of 750 people aged 18 years and over.
Similarly the median expectation for house price inflation in a year's time has dropped from the previous survey's record level of 5% to 4%..
These figures will likely come as good news for the Reserve Bank. It has been watching developments in the housing market closely. Last month Deputy Governor Grant Spencer warned that avoiding a housing boom was critical and hinted that the RBNZ may raise interest rates more quickly if prices continued to rise.
Latest Real Estate Institute figures for April show that price eased slightly during that month, but the national median is 7% higher than a year ago and sales activity remains strong.
The Government's attempting to tackle a perceived 30,000 shortage of houses in the Auckland area with an accord agreed with the Auckland Council aimed at 39,000 new houses in the next three years. However, the council has expressed doubts over whether it will sign the accord having looked at the details of the legislation the Government is looking to push through to support it.
The householders responding to the latest RBNZ survey are also taking a more benign view of expected general inflation.
The median expected inflation rate in 12 months time is 2.5%, a fairly sharp drop the 3% in the last survey. Expectations of inflation five years out have continued to rise, however, with the median expectation now at 4%, up from 3.4% in the last survey and just 3% in the survey before that.
Actual inflation as measured by the Consumers Price Index in the year to March was 0.9%
The RBNZ's survey of business expectations, also out today, also showed inflation expectations from business leaders are dropping. This too will be good news for the RBNZ. Both one and two-year-ahead expectations of CPI inflation have decreased slightly this quarter. The one-year series median fell from 1.7% to 1.5%. The two-year series fell 0.11 percentage points, from 2.17% to 2.06%, which is the lowest figure since 1999.
Monetary conditions were perceived by businesses to be "easy" and expected to remain relatively easy.
Expectations of economic growth are continuing to strengthen. Respondents’ one-year-ahead expectations of real annual growth in Gross Domestic Product (GDP) rose from 2.3% last quarter to 2.5% in the current survey. At the two-year horizon annual growth expectations increased from 2.6% to 2.8%.
The latest Statistics New Zealand data indicates real production-based GDP increased 2.9% between December 2011 and December 2012.
Positive quarterly growth of 0.5% is expected for both the March and June 2013 quarters.
One and two-year year expectations of the unemployment rate have fallen by about 0.3 percentage points since the last survey. The one-year expectation has dropped to 6.4%, the two-year to 6%. This places the one-year prediction at a higher rate than the latest official Statistics New Zealand figure of 6.2%.
Expectations for interest rates are continuing to edge up. The 90-day bank bill rate is expected to be 2.7% at the end of June 2013, which is slightly higher than the rate prevailing at the time the survey was taken. By March 2014 it is thought 90-day rates will have increased to 2.9%.
10-year government security yields are expected to be around 3.7% at the end of March 2014, implying a positive yield gap of 0.8% with the expected 90-day rate.
The RBNZ's Official Cash Rate stands at 2.5%, with an expectation that its first upward move will be in the first half of next year.
A US dollar exchange rate of 0.84 is expected for the NZ dollar at the end of September 2013, and to be just one cent lower by March 2014. An Australian dollar exchange rate of 0.83 is predicted for the NZ Dollar at the end of March 2014, a little higher than where the rate was at the time the survey was completed.
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