Housing price expectations coming crashing back to earth - ASB Housing Confidence Survey

Property / news

'The surprise, if anything, is that they [house price expectations] didn't fall further,' says ASB

3rd Jun 22, 10:32am by Greg Ninness

"Thump. That's the sound of kiwis' house price expectations crashing back down to earth."

That was the the opening comment in ASB's report on the bank's latest Housing Confidence Survey.

"We'd openly fretted about house price overconfidence last year, but the abrupt turning of the housing cycle has put paid to all that," the report said.

The latest survey, taken over the three months from February to April this year, showed a net 11% of people expect house prices to keep rising, down from a net 49% in the previous three months.

"The surprise, if anything, is that they [expectations] didn't fall further," the report said.

"House prices have already fallen around 5% from their November peaks, and we reckon the slow leak of pressure out of the housing market has got at least another 12 months to run.

"Three big housing nasties - higher mortgage interest rates, tighter credit conditions and increased supply, are now all in play and look set to stick around."

Interestingly it was survey respondents in Auckland who are most likely to think house prices will keep rising, with a net 15% in the City of Sales believing house prices will keep rising, compared to 8% in the rest of the North Island, 11% in Canterbury, and 7% in the rest of the South Island.

Aucklanders also appear to be less likely to think that interest rates will continue to increase, although an overwhelming majority think they will do so.

A net 77% of Aucklanders think interest rates will increase, compared to 83% in the rest of the North Island, 80% in Canterbury and 82% in the rest of the South Island.

Overall, a net 81% of survey respondents though interest rates will keep rising, up from 77% in the previous three months.

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50 Comments

by WestieAJ | 3rd Jun 22, 11:11am 1654211515

A net 77% of Aucklanders think interest rates will increase. So 23% of Auckland survey respondents have no idea WTF is going on in an economic context. At least in the short term. Should they have any of their other survey responses taken seriously?

by Thats All Folks | 3rd Jun 22, 12:57pm 1654217859

It's amazing how many Aucklanders are still living on the "short term blip fallacy" and expecting prices to rise / stabilise shortly.

When I ask, "What about inflation and interest rates?" their response is usually something like. "Grumble Grumble, houses always go up, derp..."

by Solid_Granite | 3rd Jun 22, 12:36pm 1654216585

It's all the online articles from so-called property experts. People read and trust them and feel like they're privy to this wise knowledge of making money. I suppose it's a form of social media misinformation.

by Thats All Folks | 3rd Jun 22, 1:02pm 1654218177

Exactly, you'd think people would actually pay a bit more attention beyond the surface level drek from propagandists.

I mean it's only the their biggest asset purchase after all, no biggie I guess...

by Upside | 3rd Jun 22, 2:40pm 1654224013

You mean to say just like all the online articles from so-called Economist experts who have not got it right for years! It's safe to say we should all take daily click bait articles and headlines with some degree of salt....No one really knows where we are headed with any accuracy! General market drivers would suggest it's deflating .....but to what extent and for how long is anyone's guess!

by Solid_Granite | 3rd Jun 22, 6:40pm 1654238445

People do fall into that trap. They're not really click bait articles, people actively search them out. They google "How can I make money with housing" then read article after article saying exactly the same thing, house prices always go up. Then they have years of evidence backing that up. Trap set.

I believe it's a poorly understood downside to the wealth of information that is the internet, if you search for something you will find it. And the general public aren't cautious enough about this. Like you said, everything should be taken with a grain of salt, but it's difficult when you're inundated with information. You need SOMETHING to go on.

by Nzdan | 4th Jun 22, 9:02am 1654290150

Put simply: Confirmation Bias.

by General Comment | 3rd Jun 22, 1:56pm 1654221416

Being pedantic, but doesn't a net 77% affirmative suggest a net 11.5% negative?

by HW2 | 4th Jun 22, 8:56am 1654289767

Good point. And you got two upticks vs 24 for the OP. When HouseMouse and others talk about financial ignorance and lack of mathematical understanding I guess those numbers say it all.

by Eschaton | 4th Jun 22, 9:18am 1654291092

Aucklanders know how much debt there is in the system. Politically they see that rates can only go up so much.

by taimaiakka0 | 3rd Jun 22, 11:21am 1654212109

Falling house price with fall in house sell is bad.

Price falling and volume falling by double the pace is worse.

Barfoot and Thompson reported the first house sales numbers for May, including a 12% fall in median prices in Auckland from their peak last year, and that its auction clearance rate had fallen to around 25%.

Can say with confidence that house price in Auckland have fallen between 10% to 15% for sure and more to come so 20% to 30% is inevitable though could be more if it gets worse like Ireland and other countries in past as we have had one of the Biggest Rapid rise.

by Nzdan | 3rd Jun 22, 12:17pm 1654215421

Ireland had a 6 to 9% fall in their first 12 months of the property crash. -> here

Barfoot's median selling price was down 9.3% from its November 2021 peak (7 months).

In before HW2 suggests I'm claiming NZ = Ireland.

by HW2 | 3rd Jun 22, 2:26pm 1654223197

So Nzdan you are not claiming that NZ = Ireland. Ok!

by Nzdan | 3rd Jun 22, 4:02pm 1654228963

Correct! NZ is not Ireland or Spain or Japan, we're duffrent.

by mfd | 3rd Jun 22, 4:35pm 1654230956

Yes, we're far less advanced and less integrated into the large Western economies. Ireland attract(ed?) the big Tech companies to head quarter there, here in NZ our tech companies have to either move abroad or sell themselves to overseas investors to build traction. Everyone is too busy buying houses to invest in and support our home-grown successes.

by HW2 | 3rd Jun 22, 9:41pm 1654249304

Are you absolutely sure about that Nzdan I dont want you changing your mind again. Lol

For one thing Nz has new home build costs increasing at 21 percent per annum. Your new homes replacement value will be increasing commensurately and underpinning its market value. How about that

by Chaosinflesh | 4th Jun 22, 9:01am 1654290105

Except that in the vast majority of cases, market value underpins replacement value, and not the other way around (we're not talking irreplaceable works of art here!).

Let's say you own a 10-year old car, and it's written off in a prang. Are they going to replace it with a brand new car? No! Your replacement value will be determined by either the market value or an agreed valuation, and not vice-versa. And that's regardless of whatever a new car costs as determined by the manufacturer.

It's the same with the house. So your house burns down. Well, you already own the land. So you can take that off your 'replacement value'. And, is your house second hand? Well, you could get a second hand relocatable house (there are thousands of them available), and it might set you back a couple of hundred thousand dollars to replace. Oh, but wait - you want a new build - well, that will be done up to either the agreed or the reasonable market value of your existing house. Regardless of how much a new build might actually cost.

There is of course, the exception of really brand new items (less than x years old), but they are a very small percentage of the total insured stock.

So, by and large, your new build cost underpins nothing, except perhaps your insurance premium!

by Nzdan | 4th Jun 22, 9:15am 1654290922

What HW is effectively saying, is you could have a flood of existing properties to the market without nearly enough buyers, but their sale price will still be underpinned by the cost of building a new house.

by Chaosinflesh | 4th Jun 22, 9:56am 1654293413

Yes, I understood. And I'm saying he's wrong.

If there's a flood of existing properties onto the market (supply >> demand), market prices will fall. The further market prices fall, the less attractive new builds become (people will choose them for vanity/utility purposes over financial reasons). The new build market will collapse, and won't recover until it meets the market - either through reduced costs or increasing incomes. But the new build market may remain expensive, as it competes for resources will the renovation market, which should see a pretty good increase as more people buy existing homes and maintain/modify them. But that just means even less people will want to join it, and, just like new cars, it's divorced from the second-hand market. This may cause 'some' sticky-ness in the second-hand market, due to slightly increased numbers of buyers -> but not really, because we've already determined that supply >> demand and market values will fall regardless.

This is, of course, assuming a rational market.

by Carlos67 | 4th Jun 22, 11:07am 1654297621

HW is correct, you will find that house prices are connected to the price of a new build. Common sense. Houses are not the same as used cars and even then watch the price of used cars when you suddenly cannot buy that model new anymore. It is always related to the replacement cost, if the price of a new house goes up 21% it underpins the floor of the market. New houses suddenly to expensive and cannot sell ? builders go bust and new house builds go off a cliff. The property market is self regulating to a large degree and we have created a monster.

by Nzdan | 4th Jun 22, 1:18pm 1654305513

So existing home owners index their sell price expectations to the price of a new build, and if they can't find buyers they just won't sell? What a conundrum if you're downsizing, divorcing, moving cities. How does that work in a mortgagee sale?

If the cost to build a new house is still increasing, and it is, then why are all the stats to date showing house price declines?

by Chaosinflesh | 4th Jun 22, 1:20pm 1654305611

To say that new build prices underpin (noun: to support from below, to provide support or substance to) market prices is not correct.

Yes, it is true that new builds 'seem' to set a floor for house prices. But that is an illusion - it is only true while second hand prices are greater than new builds, and demand outstrips supply.

It doesn't matter what your new build price is if the supply of second-hand homes is increasing. When new builds are more expensive than second hand (taking into account the convenience cost of having a house in 6 weeks vs 18 months), builders will lose work, and go bust, until the cost of a new build meets the market.

Note the direction of causality here - the price of the new build had no effect on the size of the market. It's value upon completion will be what the market determines it to be worth - not what it cost to build. Hence why builders make bank while prices are rising, and go belly-up when prices fall. If anything, the process of completing a build should cause market values to drop, as it reduces the demand/supply ratio. In this regard, it seems common sense that a new house would cost more than a second-hand house.

If then, the price of new builds reacts to market prices, it is a logical fallacy to claim those market prices are supported, or underpinned by, the cost of a new build.

In NZ, what has been supporting the housing market is the local distortions we have in play:

allowing FHB to increase their budget by up to $70k via FHB Grant (but only if they're 'poor' enough);
the Accommodation Supplement allowing landlords to charge more rent than the market can afford, allowing them to pay more for their rental properties;
WFFTC allowing most with children to likewise increase their housing budget, via either increased mortgage or rent capacity;
the tax and immigration policies that have had direct effects on supply and demand numbers;
only measuring housing costs secondarily via rent and thus neutering our ability to stabilise house prices with appropriate interest rates;
the RMA that has drastically pushed out time-frames for new build completions, increasing the attractiveness of second-hand homes;
and incentivising property "investment" via access to cheap credit not readily available to other enterprises.

All of these have way more effect on the property market than building costs. You're right, it's a monster - we've three decades of politicians at fault, and I wish we had some way to vote ALL of them out.

by HW2 | 4th Jun 22, 4:39pm 1654317569

What do you think about the economic substitution theory? Consumers substitute more expensive products with others thus counter-balancing demand.

by Nzdan | 4th Jun 22, 9:12am 1654290726

There should be a lot of fat in the land, unless the previous land owner has banked that cash.

The alternative is people just cannot borrow enough to support the 21 percent in building materials AND the cost of the land.

by Miguel | 3rd Jun 22, 1:19pm 1654219159

This is just proof that the industry propaganda is effective.

We continue to see bodies such as REINZ attempt to frame things in terms of “YoY growth slowing” rather than admit prices are currently falling very sharply.

as the high growth months from last year drop out of the YoY figures, this will be harder and harder to do. Unfortunately by the time the “average” person realises what’s going on price falls will be well embedded

by OldSkoolEconomics | 3rd Jun 22, 4:01pm 1654228896

Numbers are awesome for fiddling with values.

I was trying to explain to someone that if their house rose 50% in its value from the date they bought it to the peak and then fell 50% in value from that peak, things arent as rosy as they sound. Took ages to sink in.

(for those that dont follow - say you pay $1m, rise 50% so now worth $1.5m. Then drop 50% from $1.5m. New value $750k - lose $250k Ouch.)

by HouseMouse | 3rd Jun 22, 5:22pm 1654233734

The majority of people (and a few here) can't even understand this sort of basic math. Doesn't say much for the education and intelligence of most people, eh?

by HW2 | 3rd Jun 22, 9:39pm 1654249151

OSE You are so busy telling everyone your new found knowledge. You are a bit like Trump whenever he ends a sentence with "a lot of people dont know that". What he means is that he just learnt something new and thinks everyone else is equally unaware

Watch "The many things people don’t know, according to Trump" on YouTube

https://youtu.be/a-_RnRjCsM8

Trump probably thinks that because they speak French in Canada that in France they speak "Canadian"

by OldSkoolEconomics | 4th Jun 22, 1:43pm 1654306987

Lol. Luckily its not new found knowledge about the math. The interest/newknowledge for me is how many peoplehave a general lack of understanding of the math. Let alone the economy.

Kind of scary given how much many have borrowed

by HW2 | 4th Jun 22, 4:55pm 1654318544

"How many people have a general lack of understanding of the math"

I tend to agree with you, example, all of the news items of people not coping with their budgets, probably do not have one. I think its because soft skills over are seen as better compared to left brain analytical skills. That's good for people like you and I who are probably above average at this stuff.

PS dont ask TK how he calculates doubling of house prices

by HW2 | 3rd Jun 22, 9:54pm 1654250090

Here is a real teaser for you and monsieur mouse. 100 is 10 x 10 so therefore if a $100,000 property falls by ten percent every year, what would its value be after ten years? Would it be A 24.8 percent, B 34.9 percent C zero percent or D 10 percent

by house hunter | 3rd Jun 22, 10:11pm 1654251072

LOL

by HW2 | 4th Jun 22, 6:29am 1654280991

by HW2 | 4th Jun 22, 6:31am 1654281098

Mirror mirror on the wall who is the smartest of them all... well you are OldSkoolEc

by Smudge02 | 3rd Jun 22, 11:45am 1654213538

Reading through some articles lately there is obvious desperation and refusal to accept reality from many of those in the game.

by nz-it-worker | 3rd Jun 22, 12:16pm 1654215386

Increased supply is a housing nasty? Always interesting looking through the lens of a parasitic Australian bank.

by HouseMouse | 3rd Jun 22, 5:22pm 1654233771

yeah I chuckled when I read that too....

'WE WANT SUPPLY TO STAY LOW'!!!! (All the banks)

by kwbrn | 3rd Jun 22, 12:45pm 1654217144

I think there were a lot of people who thought ultra low interest rates were here to stay not helped by the banks and estate agents.

Hopefully I will never hear as safe as houses again and realestate is a no brainer needs to be changed to you have no brains.

by Averageman | 3rd Jun 22, 1:22pm 1654219321

Rates up, assets down. Especially those bloated by debt speculation and disconnected from income. No surprise.

Already effected US stocks and crypto because their liquidity allows them to display reality very quickly. Housing...not so much. All it will take is some long term asset holders devoid of debt to sell at the new market level and purchasing expectations will be very quickly reset. Long term asset holders will still make massive gains and be happy. Those relying on last years prices to sustain leveraged debt will be wrecked.

by gnx | 3rd Jun 22, 1:48pm 1654220880

Yesterday I saw an article on Stuff saying rents in Tauranga were going sky high...and it referenced a few properties at $2k and $1500. Intrigued I went to trade me and had a look....those were the only two houses for rent(and not actually rented that's why the are advertised).A quick scan showed hundred of houses at the $500-600 mark.Many investors are going to be topping up a bit more me thinks.

Then today I read on stuff today about the properties being hard to rent in Auckland and again peddling information about only 500 houses available...at Barfoot I guess.But again on trademe it shows 6250 for rent in Auckland.All slight of hand.

Anyway the herald has just come out and said Jarden reckon we are looking at a 18% fall.Id double that and again next year.Why would anyone buy a house now.

More people will try to sell.More people will give up and decide to rent it.You can see where this is leading.

by Chaosinflesh | 3rd Jun 22, 2:15pm 1654222506

Yeah, we're looking to move neighbourhoods (wife got job in a really inconvenient place to get to), and have been watching this particular suburb for the last 6 months.

It's been the same houses listed for rent the whole time - only a few have rented (or been removed) in that time. For those that remain, the cause could be one or more of the following:

1. Not allowing pets. The ones we know got rented allowed pets.

2. Putting a maximum number of tenants at odds with the type of property (3-4 bedroom house, max 1-2 tenants please, professional working couple pref.).

3. No kids.

4. Short term tenancy only.

5. Rents wildly at odds with the rest of the local market.

The average advertised rent in this location is slowly dropping (about 10% in the last 6 months) - but none of these people have seemed to cotton onto the fact it's their onerous conditions, not the rent, that is keeping their rent unpaid. And there's been at least 1 house added per week so far..

As for us, we currently don't need to move, but it would be nice to. Meanwhile, we laugh at all these people bleeding money for empty properties because they think there are enough DINKs to go around.

by gnx | 3rd Jun 22, 2:50pm 1654224632

Interesting insight.

I watch the investors facebook page and its fascinating the absolute disdain many landlords have for the tenants.

If a tenant complains often the advice is to kick them out and find better ones...classic.

Barfoots have come out today on stuff and suggest landlords start to offer incentives....whiteware, free weeks rent, moving costs.Slowly but surely more nails get driven into this thing.

by HouseMouse | 3rd Jun 22, 5:25pm 1654233926

Stuff are a curious mob. Promote a woke veneer, but they are no better than the Herald, really.

It's a bit like Labour vs National.

At least you know where you stand with the Herald and National, even if you don't like much of what is facing you.

Not only is the woke veneer of Stuff annoying, but the quality of much of their journalism is mediocre, at best.

by alphabeatrium | 3rd Jun 22, 2:35pm 1654223748

Kind of a hard question to answer. I think some houses are likely to keep increasing in value. I think most won't.

by ozzzy2 | 3rd Jun 22, 2:39pm 1654223954

House prices in Dunedin were 'skyrocketing' even before the Pandemic. At one point 3-4 years ago, there was but 160 houses for sale in the whole city - today 515, and prices definitely starting to fall. Christchurch still +$100k over valued, West Coast +$50k, Otago/Southland the same. Give it a few more month I say.

by Gummy Bear Hero | 3rd Jun 22, 4:02pm 1654228931

... if the house in the picture accompanying this story was in Orc Land & on 700 sq. metres , it'd been sold overnight last November for $ 2.25 million ... today ... you'd get it for a mere $ 1.85 million ... a veritable bargain ... Be quick !

by Makara | 3rd Jun 22, 5:06pm 1654232794

At what point do we acknowledge that Reserve Bank “independence” has been a complete and utter failure? Putting aside the damage wrecked on average NZers, how does inflating a housing bubble, and then popping it, result in financial stability again?

by Gummy Bear Hero | 3rd Jun 22, 8:41pm 1654245696

.. you are 100 % correct ... the incompetency of Adrian Orr & his fellow directors at the RBNZ is something completely unthinkable when you compare them to their predecessors ... the Graeme Wheelers , Don Brashs , Alan Bollards ...

.. directors who were totally independent of outside voices .. like , not being politically manipulated ...

by Makara | 4th Jun 22, 11:59am 1654300768

My comment is directed at the whole lot of them. House prices have risen astronomically since 2003, and the RBNZ has just sat around observing it. Where was the action, or did they simply not have the tools to stop mortgage lending?

by Jamin | 5th Jun 22, 2:21pm 1654395718

House prices have not been in their remit until last year.