Confidence in the housing market has been savaged by the Covid-19 outbreak, with the latest ASB Housing Confidence Survey showing a huge knock to house price expectations over the next year and overall confidence in the housing market falling to a near eight-year low.
And the ASB economists are expecting confidence to fall still further.
ASB chief economist Nick Tuffley said confidence in rising house prices had been "whipsawed" by Covid-19. Perceptions of whether it’s a good time to buy also declined. And interest rate expectations flicked back to "lower for longer".
"House price expectations took a substantial knock in the three months to April, with a net 14% of respondents now expecting higher house prices over the next year, well down on last quarter’s 54%," Tuffley said.
"The housing market was literally stopped in its tracks during the lockdown. And respondents will be increasingly aware that there are tough times ahead. Some people are likely to have added concerns about their job security and take a more cautious attitude towards jumping into the housing market. The jump in the number of people receiving income support and mortgage holidays highlights that homeownership conditions are more challenging and that recent price momentum is likely to stall," he said.
Similar to house price expectations, interest rates also took a hit in the quarter, with net 19% of respondents now expecting interest rates to fall.
In terms of house prices, the decline in expectations was by far the largest in the South Island (excluding Canterbury).
"A very high starting point of 65% was no doubt part of the story in the 45 percentage-point drop, and the loss of foreign tourist visitors and flow-on to the Central Otago lakes district may also be shaping perceptions," Tuffley said.
"Auckland experienced the smallest decline, with net price expectations slipping from 42% to 10%."
Meanwhile North Islanders, excluding Aucklanders, remain the least pessimistic on the house price front, with a net 20% of respondents still expecting house prices to rise over the coming year.
Tuffley said that, if anything, the ASB economists had actually expected the falls in house price confidence would be larger.
"Our latest research points to a house price decline of 5-10% in the wake of the COVID-19 crisis," Tuffley said.
"This is broadly similar in magnitude to what we saw during the Global Financial Crisis. Yet during that period, we saw housing confidence collapse to -50%. Either we are too pessimistic, or housing confidence has further to fall. Next quarter’s results will reveal all."
Tuffley said that in terms of house buying sentiment, this "continued to stutter" in the three months to April.
"A slim majority of respondents now believe it is a bad time to buy a house, down from a net 9% saying it was a good time to buy last quarter.
"Perceptions of whether it’s a good time to buy are generally closely linked to housing affordability. With COVID-19 disruptions prompting job cuts as well as slamming the brakes on household income growth, it’s no surprise we’re seeing house buying sentiment take another hit. Further falls appear likely."
Household interest rate expectations were also "whipsawed" in the second quarter of the year.
"Last quarter respondents were split on whether interest rates would rise or fall over the coming 12 months, however this quarter, the 'falls' have it again with a net 19% expecting interest rates to fall," Tuffley said.
In terms of the detail, 14% of respondents expect higher interest rates over the coming year, while 33% expect interest rates to fall. Aucklanders were the most negative on interest rates with a net 26% expecting a fall, compared to just 5% last quarter, he said.
"Government bond purchases, or quantitative easing, are now the [Reserve Bank's] main weapon in the fight to keep economic stimulus flowing. So it’s not that surprising that surveyed participants didn’t expect lower interest rates en masse.
"There may be some scope for mortgage and business interest rates to move lower though, if the RBNZ quantitative easing keeps downward pressure on wholesale rates – as we expect – and credit conditions continue to gradually normalise. But the housing market is likely to feel further pressure over the remainder of 2020."