Fewer people are expecting house price increases

A net negative 3% now think it's a bad time to buy a house, up from a net minus 13% three months ago.

While sentiment has improved the outlook for price appreciation hasn’t. Expectations that house prices will keep increasing have eased markedly from 18% to 1%.Buying sentiment is most negative in the South Island and most positive in Auckland, the survey found.

In Auckland, a net 3% of people think now is a good time to buy a house, although a net zero are expecting further price increases, while a net 10% in the South Island think now is a bad time to buy a house and a net 2% are expecting house prices to decline.

Another significant finding in the survey is that fewer people are expecting higher interest rates with a net 36% expecting higher rates compared to a net 67% three months ago.

Home loan rates have been falling all year. For instance ASB's two-year fixed rate has declined from 8.30% to 7.70% - however, as detailed by www.goodreturns.co.nz, ASB along with other banks have increased rates today by around 20 basis points.

The decline in the number of people expecting higher interest rates isn't surprising either - both in early March and late April, the Reserve Bank has said it doesn't expect to raise rates again in the current cycle.

Nevertheless, the majority of mortgage holders are on fixed rate loans and many will be rolling off existing fixed rates and facing significantly higher rates to re-fix through 2006.

ASB says the general economic slowdown currently underway both reduces household income growth and the capacity of people to take on increased debt and therefore reduces people's willingness to spend.

"It is clear we have entered a period when house price gains are less likely, certainly not at the levels seen in recent years, and it could be several years before average prices gain a strong upward momentum again," ASB chief economist Anthony Byett says.