ASB sees 3% rise in house prices

Property

Housing sector confidence remains low nation-wide with the exception of Christchurch, where rebuild prospects are feeding hope of a price pick-up

24th Nov 11, 8:40am by Amanda Morrall

Confidence among home buyers drifted lower in an ASB survey for the three months to October, but ASB's economists still expect house prices to firm 3% nationally in the year ahead as housing supplies remained contrained in Auckland and Christchurch in particular.

The ASB Housing Confidence Index (chart below) recorded a one point drop over the last quarter. A net 24 percent of respondents said they felt now is a good time to buy a house, compared to 25 percent in the previous quarter. The historical average is a net 22 percent.

ASB chief economist Nick Tuffley said the outlook was slightly more optimistic for earthquake embattled Canterbury given reconstruction efforts ahead.

A net 43 percent of those surveyed in Christchurch expect house prices will rise, compared to just over a net third of respondents in Auckland and net 22 percent across New Zealand, the survey reports.

"This suggests underlying housing demand in the Canterbury region is recovering from impacts of the earthquakes. We expect Government and insurance payouts will support a continued recovery in house sales in the region as households relocate over the coming year,” said Tuffley.

Despite expectations of a price pick-up, perceptions of the current market in Christchurch are gloomy, noted Tuffley.

“A negative six percent of respondents in Christchurch thought now was a good time to buy a house – compared to a positive net 24 percent across New Zealand as a whole, reflecting the issues still faced by the region.''

The view captured on interest rates in the confidence survey travelled up and down over the period.

While a net 57 percent of respondents now expect interest rates to rise, up from a net 46 percent in the July quarter, Tuffley said a month by month break down showed a steady decline in interest rate expectations over the quarter, "reflecting the deterioration in global market conditions over this period."

Overall, the housing market still looks to be constrained by supply with new house listings continuing to decline. This is especially the case in Auckland where scarcity is underpinning house price growth most prominently.

Housing confidence

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Source: ASB

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51 Comments

by The best statu… | 24th Nov 11, 8:47am 1322077638

I will be happy with 0% increase.

Since I have spare cash and no mortgage I might buy a rental. The time is right to invest in residential real estate. Olly gave me some great advise in a private chat awhile ago.

by scarfie | 24th Nov 11, 9:08am 1322078915

With the economic woes building to a crescendo around the world, going forward I see an increasing disconnect between price and value.

by ITYS | 24th Nov 11, 12:39pm 1322091549

It didn't happen in 2008 so what makes you convinced that this little South Pacific Nation will have a different outcome? Unless you have to sell, you don't. Those that were caught short equity lending have been flushed out and their 'losses' accounted for under Banks' provisions and the resultant properties have been onsold via mortgagee proceedings in a steady drip like factor.

The only thing we will see is listings slump and the odd out-rigger sale that will be discarded under any comparable sales analysis done by a valuer.

by scarfie | 24th Nov 11, 1:23pm 1322094228

Think about my comment a little more deeply.

But I don't need to go around in circles spouting localised examples or distorted reports from those with a vested interest.

The reasons for a bust probably outweight those for continued gains by 3:1.

It has been shown by others that a 6% drop in house prices would be enough to send the banks broke. Of course it doesn't happen until they write it down on the books. What about M3 vs E3 vs E3:residential housing debt. Go ahead an keep buying if you think those figures are healthy.

by ITYS | 24th Nov 11, 8:39pm 1322120360

There was nothing deep about your original comments at all. Just the usual bearish statement about how everything is going to lose value when the world heads to the doldrums.

A 6% drop in house prices wouldn't send the banks broke - in my previous role, we saw farm prices drop 30% and our rural division still turned an annual profit (albeit meagre and piss poor return on capital). Capital remained untouched. Hardly going broke is it.

And for the record I have no vested interest. I am a professional in the agricultural sector who spent too long working at a bank.

As for your M3 vs E3 vs E3, I have no idea what E3 is - I'm assuming M3 is the money supply metric?

by iconoclast | 24th Nov 11, 9:05pm 1322121928

The following comment, from respected finance columnist Robert Gottleibsen, a frequent Chatham House confrere, is the type of reporting that leads to the type of comment you are responding to: he says:

The fact that the big German and French banks are hiding massive losses on their sovereign debt gambles, and have lost much more than their capital, (meaning they are broke?) is having strange repercussions in the Australian interest rate market.

http://www.businessspectator.com.au/bs.nsf/Article/eurozone-debt-crisis-banks-Australian-bonds-yields-pd20111124-NVR8U?OpenDocument&src=sph&src=rot

His articles then go on to discuss the AU banks (and therefore NZ banks) dependence on EU banks for too much of their funding.

by scarfie | 24th Nov 11, 9:08pm 1322122128

Thank you for that. I still have a few missing links in the big picture, but I think I have got the bulk of it. You know if it was me and someone told me to look at E3 and I didn't know, I would go and find you before opening my big mouth.

by iconoclast | 24th Nov 11, 9:25pm 1322123134

Conventional wisdom (or teaching) has it: the multiplier effect on the money supply is usually 7:1 the converse of which if one dollar is withdrawn from circulation the reverse-multiplier effect should apply and GDP should have contracted as borrowers capitulated and liquidated debt. And yet since the GFC, western economies UK, EU, US, AU and NZ have continued to report increases in GDP. One of these theories is terribly wrong. Either the multiplier theory is hopelessy wrong or the calculation of GDP is hopelessly fraudulent, or a final possibility is the de-leveraging, un-winding, and capitulation has yet to begin.

by scarfie | 24th Nov 11, 9:37pm 1322123856

I had an interesting conversation with a top end real estate photographer earlier in the year (it was still summer). He is the sort of guy that is at the top of his game and demand for him sees him doing most of the top end homes in the Auckland region. Because of the circles he moves in he gets to hear some of the good stuff:)

His comment was that all the smart money was either out of real estate, or in the process of getting out and into cash or PM's. He had done likewise as the strenght of the advice to him was overwhelming.

I think the de-leveraging has begun, but just hasn't made it to the balance sheets yet. But I suspect that in combination with fraudulent GDP.

by steven | 24th Nov 11, 9:59pm 1322125144

Ive heard this similar story before....the "wise" money has exited everything except US treasuries, where they have run to....the return is so low that after inflation you lose money.....no one sane does that unless they think no where else is remotely safe.....look at NZ Govn bonds also dropping....it all adds up to another recession and probably a depression with deflation really soon, so much so Ive been saying cash is king for months....

Deleveraging I think is well on.....whats been masking it is a) the banks gambling, throwing money at anything with a pulse because its borrowed so cheaply.....and b) the greedy and stupid out there "making money" because they dont appreciate risk....Bernankie made them do it.....he's been very effective in keeping the share market primed....

Its amazing just how fast it now seems to be happening.............

regards

by Nic the NZer | 25th Nov 11, 12:39am 1322134755

De-leveraging is being masked by the Australian governments stimulus, both the good stuff, and the can-kicking of their housing bubble problem down the road. The Australian housing bubble has recently been showing signs it is starting to deleverage. This will of course exacerbate the collapse of the NZ housing market, because nearly all our banks are Australian owned and will reduce lending when their home town bubble bursts.

Unfortunately most economic analysis in NZ is absolutely oblivious to this, which is disgusting given its the same issue which is causing the financial crisis, and in the same sector.

Its far from another recession however, its a continuation of the financial crisis, and due to the fact that nothing has been done to address the crisis in the first place. Despite 4 years of seeing this problem first hand no government has even begun to address the fact that economic growth can only happen with increasing debt levels due to our global financial system.

by Nic the NZer | 25th Nov 11, 12:54am 1322135650

The money multiplier theory is wrong. There is pleanty of evidence showing this. 98% of money in NZ originated as bank credit, 2% as legal tender. This is the statistic which tells you where money is made, because the central bank provides reserves basically as necessary to fill in for credit already extended by private banks.

Of course a lot of that credit was created and spent into the housing bubble. This is no way to sustain an economy, though I don't see it as speculation from the buyers point of view. This is because the amount paid on a mortgage is simply massive compared to the value of the loan these days. The mortgage lender is the primary beneficiary of this of course, the borrower just ends up 'repaying' much of their income for 10 years+.

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

by ITYS | 24th Nov 11, 9:56pm 1322125014

Wow, scarfie, I hang my head in shame at not knowing off the top of my head a big bad economic acronym. You are awesome in the traditional sense of the word.

Again, you underwhelm with your inability to structure a debate. You make outlandish statements like ' a drop of house value of 6% and all the Banks go bust' and expect people to take it at face value.

You may wish to look up the word 'credibility'

PS: http://en.wikipedia.org/wiki/E3

by scarfie | 24th Nov 11, 10:00pm 1322125259

And you miss the point by a country mile. I was not criticising you for your absence of knowledge, but your unwillingness to further it before belching forth a reply.

Quite discourteous really.

by ITYS | 24th Nov 11, 10:05pm 1322125528

You talk cryptically. Almost like Yoda but nowhere near as cool.

by steven | 24th Nov 11, 10:12pm 1322125977

Sorry, we'll try to talk like a 5 year old for you.....

So, the bag of sweets is actually just one and its a big fat brown thing that smells bad.....

regards

by steven | 24th Nov 11, 10:07pm 1322125646

Its the leverage....the assets are a banks mortgage portfolio....if they take a hit on that and it seems its as little as 6%, technically they are insolvent. They have to go out and raise cash to make up the shortfall.....if they cant.....well they close their doors, a lehman moment on a grand scale.

Hence why in the US no one has looked at the banks toxic mortage portfolios too closely and allowed very flexible accounting rules....as they could be worth as little as 5% of their face value....let alone 94%....

regards

by ITYS | 24th Nov 11, 10:17pm 1322126223

Not quite as simple as that but you are correct about leverage - hence the drive to correct Tier 1 capital ratios around the world and the subsequent clever accounting to get institutions through the EU stress tests.

What you miss from your assumtions are the provisions (capital) that have to be made differ for a loan that is in default compatred to one that is not - regardless of valuation.

Bare in mind that I refer to the NZ simple, non investment bank, vanilla etc. You may well be right for the murky world of CDO's and the like.

by ngakonui gold | 24th Nov 11, 9:21am 1322079683

Take away the working for families tax credits and rent subsidies and house prices will fall.They are being held up by Govt hand outs.

by hamrod | 24th Nov 11, 9:21am 1322079694

More laughable predictions from a bank with a vested interest in price appreciation. For a more realistic idea just look at the number of ongoing mortgagee sales.

by SK | 24th Nov 11, 10:21am 1322083276

For a more realistic idea - go along to a barfoots auction on a wednesday.

by LOL | 24th Nov 11, 10:27am 1322083646

We can watch SK and all the other real estate agents and property spruikers desperately trying to pretend that their beloved property bubble is still a reality.

LOL

by Houses Overpriced | 24th Nov 11, 10:39am 1322084377

I have been, and its not good for most auctions.. if the property is really good, then there is fair bidding...

by Black Celebration | 24th Nov 11, 11:26am 1322087160

I think auctions held by real estate agents are not indicative. The room is full of people that cannot afford the property and are convinced to attend by the agent on the off-chance that they *might* be able to snaffle a bargain ("you never know!"). The lack of bidding then helps the agent condition the vendor to drop the asking price - after all, this is what "the market is telling us".

But it isn't "'the market". The room has been filled with people that want to buy the property at a very low price. That's why so many of them don't get sold at auctions.

by President of P… | 24th Nov 11, 10:32am 1322083974

Prices will rise on average, just selectively up in certain places though. Liike who in their right mind would buy and old brick and tile in ChCh - nobody so i'd say it's quite stuffed - sorry Canterbury....

therefore go somewhere else - not windy wellington, not with slash of public sector coming (regardless of election)

could have been tauranga but that's all jittery after Rena

So it must be auckland...

auckland will sky rocket above the rest, the others might just turn out to be fizzers, the auckland rice rise will be more like a designer firework - with explosive action in some places but absolutely none in others, rather than a general flash of cash across the board

Good luck

President of Property

PS: I will buy at least one property over summer - and it will bring up the average price...

by SK | 24th Nov 11, 10:46am 1322084773

Tauranga and Hamilton would also seem to be fair bets.

The only other growing centres outside Auckland arent they.

God only knows why anyone would want to live in Hamilton though - and Tauranga is rather bland I find. Each to their own of course!

by Casual Observer | 24th Nov 11, 5:10pm 1322107808

Tauranga has become 'God's Waiting Room' for NZ

by kpnuts | 24th Nov 11, 12:17pm 1322090261

It may only be anecdotal but i travel widely throughout West Auckland and have seen more SOLD signs in the last three weeks than at any time over the last three years - also a number of new properties going on and then off the market quickly.

It may be that sellers are meeting market - a knock on from the slight freeeze for Rugby world cup - the realisation that Interest rates wil be lower for much longer - people just cant hold on any longer waiting for prices to rise again - or any number of other reasons but demand seems higher - will be interestedto see the November figures - expect a 20% increase in number of sales - not sure about prices though

by ITYS | 24th Nov 11, 12:34pm 1322091257

Is there anyway of holding these soothsayers accountable to their predictions?

Every month there will be one of the big 4's economists saying this that and the other. The only economist I have ever seen held to account was Tony Alexander and his infamous $2.80/kgms call on the dairy industry about 10 years ago.

by Matt in Auck | 24th Nov 11, 1:04pm 1322093088

The idea of documenting and reviewing the predictions has been raised quite often here, but doesn't seem to have been acknowledged by Bernard et al. I'm not sure why. Maybe its because banks sponsor this website

There's a wesbite in the UK - house price crash or something? - that neatly tabulates economist predictions, then shows the actual results relative to the predictions.

We need to hold these guys accountable, because people no doubt make big financial decisions based on their projections which are usually very wrong

by anonentity | 24th Nov 11, 1:06pm 1322093200

Christchurch is getting paid out, I think they are buying up this way.I've noticed more sold signs lately.Houses that have been on the market for a couple of years seem to sporting sold signs, I'm north of the brenderwyns.

by SK | 24th Nov 11, 1:20pm 1322094031

The reality is that the bank predictions particularly Tony A have been proven quite correct - and it is your glass half empty leader Hickey who has been proven completely incorrect.

However lately even Mr Hickey has a certain tone of resignation about his articles.

Even after his scramble to revise his lapidary predictions.

by Matt in Auck | 24th Nov 11, 2:07pm 1322096845

in all fairness its the economists predictions around GDP, unemployment etc that have been poor, more so than house prices

mind you, infometrics prediction of a 20% increase in house prices in the 3 years to mid 2012 looks like it will be a bit of a shocker

by SK | 24th Nov 11, 2:26pm 1322097983

Depends if you are looking at Herne Bay or Hokitika.

by Matt in Auck | 24th Nov 11, 2:43pm 1322099030

The prediction was nz-wide.

by SimonP | 24th Nov 11, 1:46pm 1322095570

Past performance in market prediction is a poor predictor of future performance. The opposite is often true, because of the confirmation bias the protagonist is often unaware that a large structural change has occurred.

by SK | 24th Nov 11, 1:52pm 1322095939

And that has zero to do with the price of Cod.

by Chairman Moa | 24th Nov 11, 3:02pm 1322100146

The best methodology to predict RE market at the moment is the "mini mi nimo catch a frog on your toes" method.

I met CBA bank manager last week shushing out a mortgage, he advised not to fix due to imminent drop in interest rate and slow housing sales - even told me to hold off buying a house (WTF from a bank manager).

Housing market in Brisbane is a bit like its new airport runway

by Matt in Auck | 24th Nov 11, 3:51pm 1322103065

Moa, are your renting at the mo? How do Brisbane rents compare to AKld?

I reckon Adelaide rents are about 20% cheaper on average

Also, I'm looking into doing some postgraduate research, a 2 year masters by research at the Uni of SA is free for Aussies and NZ citizens - amazing!

by Chairman Moa | 24th Nov 11, 4:12pm 1322104370

Matt, I am renting, 2.5km north of Brisbane CBD - 20 mins walk or 45min in the heat! Paying $350/week for a 2br town house with aircond, garage and small back yard. I know similar property and proximity in Auckland I will have to pay at least $500. So it is cheaper and the public transport is amazing, every 5-10 min even at 11PM. Thinking of buying a house as soon as we clear our property in Auckland.

Good luck with your study.. I am working for Uni and lots of kiwi post grad students here. You should try to get a reserach job at one of those reserach uni - get to do your research done while getting a full time pay.

by Amanda Morrall | 24th Nov 11, 4:33pm 1322105637

Sure rub it in why don't you...I remember the days of reasonable rent in Canada but I try very hard to block it out and get to the beach as much as possible. I'm going to put my fingers in my ears now and hum loudly.

by Chairman Moa | 24th Nov 11, 4:42pm 1322106120

oh no sorry! I would go back to Auckland in a heart beat if i can line up a decent job. I really miss Kohi beach.. here we got a brown muddy river and lot of Aussies in thong, black singlet..and large tatoos on the neck seems to be the standard issue!

by Matt in Auck | 24th Nov 11, 6:28pm 1322112491

sounds similar to Adelaide. We are in a 3 bed townhouse (duplex), $445 pw, similar distance to CBD as your place (maybe slightly closer). Would be probably $600 pw in equivalent location in Auckland. A nice benefit is we split the water costs 50/50 with the neighbour, one bloke living by himself. So water costs apparently will be about $75 per quarter for us (we were paying about $400 per quarter in NZ)

by Matt in Auck | 24th Nov 11, 6:44pm 1322113495

Moa - how do you find other costs? I find supermarket costs are about 10-15% cheaper, especially if one buys plenty of Coles / Woolworths brand products (many are quite good) and specials. Petrol is about 30% cheaper. Phone plans etc way cheaper. Cheaper furniture / household goods etc care of IKEA. Car - I don't need to worry about as I have company car, but generally the costs seem similar. Masters research - free versus maybe $10,000 plus in NZ. About the only cost I find is as high as NZ is eating out.

Some say the cost of living in Aus is no cheaper than NZ - based on my experience in Adelaide (and apparently yours in Brisbane) that is not true. Of course Sydney / Melbourne costs are a different story. But if we are comparing like with like we should be comparing Auckland with Brisbane / Adelaide / Perth (in terms of city size)

by Gibber | 24th Nov 11, 7:45pm 1322117139

If Aldi turns up in Adelaide you might find things even better price wise

http://www.news.com.au/retail-giant-aldi-skips-coming-here/story-e6frea…

by Chairman Moa | 24th Nov 11, 9:04pm 1322121863

Oh gosh yes. It's much cheaper. Our electricity bill for the last quarter is $165 + gas is $90. My electricity bill in Auckland during the summer months was roughly 180-200/month. My landlord picked up the water bill which is a bonus.

Groceries - yes it's about 20-25% cheaper for me. I always have 5 specific items as a guide; butter, rice, home brand milk, tim tam and bread. Coles next door selling butter 500g at $2.99, Rice $1.45/Kg, milk $2/2L, Tim tam $1.39 and bread $2.45.

Interestingly the last price comaprision they priced both and then convert AUD price into NZD. Of course that'd be more expensive. The theory is you earn NZD and buy groceries in AUS. It's true in some ways but not quite apple to apple. the only gripe I have is the 2nd hand car prices - what a rip off ...

by Casual Observer | 24th Nov 11, 5:05pm 1322107553

I am involved with selling a house as part of an estate on the Sunshine Coast. Beneficiaries have been told it may be a looong wait before they see any funds.

by Ayris | 24th Nov 11, 7:32pm 1322116376

3 percent property capital gain return still beats the bank

.with gearing ratio of 5, (20 percent deposit) you get 15% return on your money

not great, but hey

by MCNZ | 25th Nov 11, 7:25am 1322159152

I stopped believing the economists two years ago.

The predictions are to broadstroke and generally inconsitent with the current reality.

the assumptions are formed from data that is retrospective and patchy at best.

I had over 30 properties and have sold 7 in the past 6 months, all above the registered valuations.

with the intention of selling two more which i believe will occur over the summer but i say that with caution as i know predicting property sales is at best cloudy.

i'm done listening to the crystal ball brigade, you can make your own assumptions from the data today that is easily located on websites like this one.

i'm stunned sometimes at how wrong they can be, but even a stopped clock is right twice a day.

by muzza | 25th Nov 11, 8:25am 1322162748

Just read the voting intention figures on this site, makes one realise how unrepresentative thinking of the respondents here is, obviously way under-representative of major parties and over-representative of minors, especially of the Greens. If you want to get a fix on thinking of average Kiwi then don't refer to this site.

by Bernard Hickey | 25th Nov 11, 8:39am 1322163584

Muzza

You're right our audience is a subset of the general population, but it's a pretty good one.

We know from a Roy Morgan survey of our readers that their average household income is NZ$105,610, more than 70% have degree with the other 30% having tertiary education.

The survey shows 38% of our readers are from Auckland, 25% from other North Island areas (excl Wellington) and 17% Wellington. The rest are from the South Island and we have a neglible overseas audience.

About 70% of our readers are men and the rest are women. No other species.

Interesting though that the poll now shows National leading over Greens.

What this says is that rich, educated and informed ;) voters are either going National or Green...

cheers

Bernard