Record high house price expectations

Property

ASB Housing Confidence Survey finds record numbers of people expect house prices to rise; More see now as a bad time to buy

8th May 13, 5:14am by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Expectations that house prices will rise have now soared to levels not seen even during the height of the last housing boom in the early 2000s.

The ASB Housing Confidence Survey for the three months to April shows that a net 63% of those responding to the survey expect house prices to rise over the next year.

That is up from 59% in January and is the highest figure for those expecting price rises in the 17-year history of the survey, surpassing the previous high of a net 61% in January 2003.

The survey results follow on from the last available Real Estate Institute, which showed a strong surge in prices during March.

The strength of the recent housing market, particularly in Auckland, has prompted a series of warnings about potential inflationary impacts. Recently RBNZ deputy governor Grant Spencer warned that the RBNZ might have to act if the rising house prices led to increased borrowing and spending followed by increased inflation.

The monthly survey of available house listings by realestate.co.nz showed that in April vendors' pricing expectations were rising and hitting record levels, undoubtedly fuelled by a worsening squeeze on available properties for sale.

However, last week's figures for April from Auckland's biggest real estate firm Barfoot & Thompson suggested that the Auckland market was having a bit of a pause during that month. Further data on April's real estate market will be coming out on Thursday from QV, while the REINZ monthly figures will be due some time after that.

Commenting on the latest ASB survey, the bank's chief economist Nick Tuffley said the strongest lift in house price expectations came from the South Island excluding Christchurch, reflecting a broadening in housing market activity over the past six months.

Outside of Christchurch the numbers of people expecting prices rises shot up from a net 56% in January to 71%.

However, the price rise expectations within Christchurch itself - in the midst of the earthquake rebuilding boom - remain the highest in the country, with a net 79% (up from 76%) expecting price rises.

In Auckland the figure remained steady at a still-high 66%. Elsewhere in the North Island the figure rose to 56% from 52%.

"House price expectations in Auckland and Christchurch remained elevated. Supply constraints in both cities have resulted in double digit-growth in house prices," Tuffley said.

The flip side to the expectation of ever-rising prices is that the mood is changing quickly on whether now is a good time to buy a house.

“Low levels of new listings and strong buyer competition are affecting housing confidence, with an increase in the number of respondents seeing now as a bad time to buy in Auckland or Christchurch," Tuffley said.

"Outside of these areas, housing confidence remains positive but is falling as demand and prices start to increase across the country."

Nationwide a net 8% of survey respondents now believe it is a good time to buy a house - down from 13% in January.

However, sentiment has become very negative in Auckland, with a net 10% (up from a net 1%) now believing it is actually a bad time to buy a house. In Christchurch a net 9% believe it is a bad time for house-buying against a net 7% in January.

"This likely reflects the lack of listings in these markets," Tuffley says.

"Double digit price growth in house prices in these regions is also likely to be pricing some prospective buyers out of the market."

Unsurprisingly, given the rising actual prices and increasing expectation of price rises, more survey respondents now expect interest rate rises in the next 12 months.

As of April a net 30% of respondents (up from a net 24%) were expecting higher interest rates.

"Increased RBNZ concern around housing market pressures and increased Canterbury reconstruction activity are likely to be behind the lift in interest rates expectations," Tuffley says.

"Interest rate expectations are strongest in the South Island, where the construction-led recovery is more apparent."

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

22 Comments

by doublegz | 8th May 13, 7:15am 1367954140

Up up and away!!! Thanks to the low interest rate and the influx of Asians, I am predicting 20 million dollar plus suburbs in Auckland by end of this year - HOORAY!!!~

by powerdownkiwi | 8th May 13, 8:19am 1367957992

yep, we'll all be rich, rich, rich. We'll all be able to buy so much more.................oh bother.

there's a reason they're only giving out 2c when you pass go nowadays.

by Christov | 8th May 13, 9:00am 1367960448

So noted doublegz, you will of course be chewing humble pie come Christmas Day, but look on the bright side the Turkey gets a day off.

I am predicting the first real symtoms of underlying Bank exposure to Mortgage lending before years end, despite whatever action the RBNZ may take to head it off.

The RBA did no take the current move lightly, there are some serious fundemental problems in the Australian economy..and that , only means bad news for us.

A noticeable shift in unemployment data will be enough to tip the first domino.

Despite property investment enjoying the low interest environment, it is the lenders who will bring about the correction ( most likely ) themselves in an effort to minimize, reduce,alter the level of exposure they presently concede they have.

The CBA CEO himself expecting losses, believes the Bank can survive the shock through adequate capitalisation. That is unlikely to be totally possible for all institutions concerned, especially here in N.Z. , as I'm not sure the continuing Bank principle applies any longer under OBR.

Have a think about this , doublegz, read through the OBR policy and ask yourself why, and why now, I mean it's going gangbusters out there isn't it...? It's not like the Banks are exposed to business investment downturn , at 68% of lending in the property market (more for some) what is it about eggs and baskets that makes them time bombs.

P.S. I'm not giving you the doom or gloom , just the facts based around fundementals that lead to sequential events well recorded historically.

You have a very nice year, and good luck to you.

by iconoclast | 8th May 13, 10:58am 1367967523

yeah I saw that comment by ANZ that their average LVR was only 68%, and thought about that, and what they didn't reveal was the debt-time-profile of their mortgage book. Averages can be misleading. They could have one mature mortgage at 30%, one at 60%, one at 90%, with an average of 60%. If you re-apply that and assume they're carring a big lump of mature mortgages dragging that average down, it stands to reason there's a big exposure up around the 90% mark.

by Stephen Hulme | 8th May 13, 11:08am 1367968136

But the quoted loan origination levels were lower than I would have thought realistic given what you say.

by iconoclast | 8th May 13, 11:32am 1367969538

The interview did say the "average" of all mortgages, but I had forgotten about the "origination" bit which muddies the water a bit .. strange way of expressing current exposure .. just a way of saying "see, everythings good"

by Stephen Hulme | 8th May 13, 11:47am 1367970474

What else could he say - he passed through UDC - so the world must look rosy.

by tagrossbilly | 8th May 13, 8:43am 1367959387

so if you think prices are going to rise then why wouldn't you think that now is a great time to buy? is it because you think that at these prices everyone is a greater fool than yourself and that there are more fools and even more foolish behaviour to come? so it's a case of "i wouldn't buy a house at these prices but i bet there are a lot of naive/ignorant/greedy suckers out there that would."

by KH | 8th May 13, 9:32am 1367962332

It's the bubble, Tagrossbilly. Or better described as the "POP" Maybe if they think house prices are going to rise, and they don't think it's a good time to buy, it's because they see the bubble. And are seeing ahead to the "POP"

by Von | 8th May 13, 10:31am 1367965891

Kimy if that is the case, and I note from this site that you seem to opine quite a lot about the property market so maybe you can give a good answer, where does that leave the majority of New Zealanders who are first home buyers who have absolutely no show of even getting a foot in on owning a house. Or maybe most New Zealanders who live in Auckland are receiving million dollar salaries.

Also from my many years on this earth our property market (and at the same time the equity market) looks suspiciously like the Emporor's New Clothes to me. Been there, done that all before.

by Von | 8th May 13, 10:57am 1367967464

$1million might be dirt cheap (not in my world!) but who can afford them besides cashed up migrants! According to the news today wages and salaries are actually going backwards or is Auckland yet again immune to the rest of New Zealand! Thats all I am saying.

by Von | 8th May 13, 11:22am 1367968978

Thanks Kimy, me personally I don't want interest rates to go down - I've money in the bank!!! Mortgage free; living in a beautiful brand new 200 sqm home in rural New Zealand - on a quarter acre section all for $400,000!

Now to find a way to shift the economy/business equally around New Zealand for us all to live in paradise! Just thinking about my grandchildren's future that's all. Any thoughts beside the weather being warmer up North.

by Happy123 | 8th May 13, 3:40pm 1367984458

That would seem to be a contradiction and it's anyones guess. Mine is that not all people think in purely monetary terms (like most people how frequent sites like this). Many people may be saying yes, house prices are going to keep going up because of the supply shortage, population increase, etc. Those same people however may also say it's a bad time to buy because they don't like the way the city is developing or set to develop. Or they're saying it's a bad time to buy compared with 2009, 2010 before the market took off.

Just guessing though.

by jh | 8th May 13, 9:15am 1367961314

Tony Alexander's view on house prices

In BNZ Chief Economist Tony Alexander's weekly overview, Auckland house prices are set to move upwards nicely. Here are his 19 reasons why:

1. Auckland did not enter the 2008 recession then late-2008 into 2009 global financial crisis with an over-supply of property. Shortages of personnel constrained house construction from 2004 through 2008. 2. The shortage has become worse in the past four years and last year annual consent numbers were at a four decade low. 3. The government is explicitly aiming to grow Auckland’s population as a means of achieving “agglomeration” benefits for economic growth which accrue from high interaction amongst economic players. 4. Despite the biggest global financial crisis since the 1930s NZ house prices only fell 11% at their worst and now sit on average above 2007 levels. 5. Removing the ability to use LAQCs to offset housing investment losses against other income has produced no flood of properties onto the market. 6. Removing the ability for property investors to deduct depreciation expense has not produced any flood of property onto the market. 7. Over the past four years young people have put off their normal household formation (leaving home, buying their own house) because of worries about mortgage availability, falling house prices, employment, and ability to raise a deposit. Now those four years worth of people are entering the market and looking to “catch-up” on their purchase. 8. Construction standards in New Zealand are always rising (watertightness, earthquake strength, energy efficiency) and this boosts construction costs. 9. A big fall in apprentice numbers in the past five years coupled with the loss of skilled people to Australia and older tradespeople leaving the sector rather than get licensed means labour-related construction costs will rise and labour will not be available to build houses even were more land available. 10. Banks are not going to step back into the property development sector left bereft of funds from the closure of finance companies. 11. Poor growth prospects in the next few years for Western economies mean their and our interest rates will remain at low levels for many years. This means low borrowing costs for home buyers. 12. Low returns on bank deposits mean older savers in particular will be seeking extra yield through investment in residential property either directly or through a yet to appear wave of property investment vehicles. (Be in no doubt. They will come.) 13. The migration cycle appears to be on the cusp of turning and if the housing market has performed so well with net outflows over 3,000 in the past year the implications of positive gains are clear. 14. The nature of net inward migration is changing toward greater numbers of people coming from Asia and with Asia’s middle class booming in size potential inflows of wealthier people are large. 15. The NZ unemployment rate of 6.8% is likely to fall quite quickly over 2013 as the construction sector booms on the back of the rebuilding of Christchurch. 16. The aging population will produce a decrease in the average house occupancy rate and therefore a need for more houses for any given population size. People will retain their old homes with many bedrooms to allow visits by grandchildren, gyms, home offices, home cinemas etc. 17. The government has announced its efforts to improve housing affordability (lower prices) and they are minor and unlikely to have a noticeable impact if any for many years. 18. Any credibility people may have assigned to those who have been predicting big price declines simply because prices have risen a long way and now fallen sharply in some other countries has gone out the window. Few people will now listen to their price decline views. 19. Members of the Opposition believe monetary fairies can make the exchange rate settle permanently lower by forcing interest rate cuts and printing money while letting inflation therefore go up. Given the non-zero possibility that such economically ignorant policies get introduced it is worth getting inflation protection by investing more in property – not less.

http://www.davidwhitburn.com/blogs/the-bnz-chief-economist-s-view-on-th…

[you get the feeling Tony isn't neutral.... note Tony was dismissive of the Savings Working Group]

......

Agglomeration

There is robust evidence to support the view that larger city/regions are more productive

than smaller ones. In addition to international evidence, several local reports have

recently identified these agglomeration benefits. In our view, the best of these reports

was written by Motu researchers. It found evidence that “localisation” increases

productivity but that “urbanisation” decreases it. Localisation refers to physical clustering

by similar firms, whereas urbanisation is defined as the co-location of diverse firms. This

is an internationally unusual result, and may suggest that greater attention to clustering is

warranted in Auckland.

Given that agglomeration economies appear to exist in Auckland, the size of the resulting

benefits is of interest. There is a wide range of size estimates internationally, with most

suggesting that doubling the size of a city will increase productivity by between 3% and

8%.

Any productivity boost would help Auckland firms compete more effectively against those

in other locations. However, considering the official projection of population growth in

Auckland (43% over the next 24 years), even elasticities at the top end of the international range would result in (agglomeration-sourced) productivity gains of only 3% in total, spread over the next two decades.

Moreover, agglomeration also brings added costs. Large cities also contain forces that

drive people away, and there is some Auckland evidence of such an effect for older

working age people in our report on the composition and scale of Auckland’s economy.

The literature identifies land constraints as a key source of forces pushing people away

from cities, and show up in land rents, the cost of commuting, and congestion. The

resulting trade-off between the costs and benefits of greater population densities is an

issue for regional government, impacting primarily on land-use and transport policy.

These are matters on which some policy coordination is clearly warranted.

In summary, based on the available evidence, it seems clear that modest agglomeration

economies will accrue gradually in Auckland, but they will not be a causative force that

will transform the regional economy. Moreover, a larger and more dense population on

which they rely also imposes costs, notably in the land markets.

Drivers of Economic Growth in Auckland

A report prepared for the Royal Commission on Auckland Governance

[note the silence on #3 from Labour, the Greens and Winston Fir$t.]

by Christov | 8th May 13, 9:15am 1367961332

I would absolutely expect no less from Tony Alexander the BNZ chief economist .

The statement is designed to quiet the naysayers, sure up confidence, and continue that which he already knows can not be sustained without a balanced economy.

You will see a lot of confidence rhetoric coming from the Banking fraternity over the next six to eight months, if there is nothing of concern they would treat it with dismissive contempt as has been the case for the past while now.

The shift in tonal aggression is worth noting.

by waymad | 8th May 13, 10:22am 1367965379

All is proceeding exactly as I predicted....

TA's 19 drivers are mostly spot-on: a couple are non-data-driven (#'s 17-19) and are simply opinion.

I can personally attest to #16: we have decided to stay in our modest cottage by the sea for the exact reasons TA has advanced.

And the antics of new-house construction is nailed by TA at #8 and 9.

The swapping cost is quite simply the killer.

agent's fees on sale of old
hoo-ha of consents, levies, contributions, time delays while capital sits accruing interest, for the New Hoose
new standards, higher costs
ridiculous Elfin Safety cost imposts on even simple tasks like another coat of exterior paint on a two-storey house (scaffolding or cherry-picker)
the need for LBP's to touch
a window (weathertightness)
a roof (scaffolding plus an LBP'ed roofie)
a weatherboard (weathertightness again)
a known materials duopoly hence super-profits but a ComCom which is sitting on its hands on this one
and on and on and on and on and on and on and on and on

So, we sit tight. And waste space and resources compared to more efficient alternatives.

But those alternatives exist only in a LabGreenish Un-costed-out Fantasy world.

So, we sit tight......

by Chairman Moa | 8th May 13, 11:17am 1367968635

As a factor in housing affordability I still don't understand why the cost of building permit in Auckland is so unnecessary high. In Brisbane, I’ve just paid for my building permit for a 65sqm extension and it was $1360 incl 3 inspections. Try that in Auckland and it would be into the 5 figures

by notaneconomist | 9th May 13, 12:43pm 1368060233

CM - I agree Council costs are much cheaper in Brisbane

I have just returned and brought back a copy of Dixon Homes - house and land packages with me and Brisbane offers value for money whereas NZ has poor value for funds employed.

by Black and White | 8th May 13, 9:13pm 1368004390

Christov

Your comments are the best I have seen on interest. co.nz and you are very much on the pulse of what is happening please keep you contribution up.

Very interesting that the banks are hitting the media very hard over the last two weeks the only people still talking it up after the wheels fell off 5 weeks ago. I would say we have some very concerned Banking executive at the moment.

This is the kind of thing Mr Tony Alexander has a interest to protect . The BNZ Chinese Banking division has gone from two staff members two years ago to 30 staff now and they are giving out 95% to 100% loans to the internationals and this division is running muck. This is where the opportunity for all you Kiwis who want to get in the markets will come over the next 12 months. As this mess unravels and the internationals run home with bankers chasing.

Good luck with getting your money back bankers

Could this be the fist NZ bank to fall again????

by iconoclast | 8th May 13, 9:34pm 1368005675

Black and White .. noted

The BNZ Chinese Banking division has gone from two staff members two years ago to 30 staff now and they are giving out 95% to 100% loans to the internationals and this division is running amok

Obviously Gareth Morgan doesn't travel in the same densified atmosphere

http://garethsworld.com/blog/economics/foreigners-auckland-house-prices/

As you and christov note .. clamour .. they're bringing out the bigs guns

Who do I believe? .. well it ain't Gareth .. oxygen starved up there

by Black and White | 9th May 13, 11:29am 1368055773

Iconoclast

Sorry won’t be wasting time looking at anything Gareth Morgan writes like the Breakers basket ball team I run a No Dickhead policy and Garth would have to be in line for Dickhead of the year. No doubt he is a good mate with Tony A and writing same kind of rubbish without any understanding of what’s going on in the Auckland Market.

Obviously no shortage of oxygen in absolutely positively Wellington with the amount of hot air and rubbish has been talk.

Give us some positive input on what is happening in wellington market rather than been envious of this great place call Auckland.

by SK | 9th May 13, 11:53am 1368057206

Auckland kicks ass.

Gareth Morgan is incredibly dull - and has a bizzare hulk hogan complex.