House price hopes on the up, spreading from Auckland and Christchurch

Nationwide, 57% of New Zealanders believe house prices will increase, up from 45% last quarter.

"More respondents' now believe that house prices will rise across New Zealand, rather than just in Auckland and Christchurch where the housing shortage is more evident," said ASB chief economist Nick Tuffley.

"Housing market activity has steadily picked up over late 2011 and early 2012, which is boosting price expectations, and this coupled with a lower supply of housing continues to gradually push prices up."

House price rise expectations are strongest in Christchurch, where 69% believe prices will rise, followed by Auckland at 54%.

Tuffley said price expectations in Auckland are at the highest level since April 2007 - the last time housing market activity surged before OCR increases cooled the market.

"We expect house price appreciation will continue to be relatively strong in Auckland due to supply constraints," he said.

The continued lift in price expectations in Christchurch is a clear sign demand for housing is anticipated to continue to push prices up in the city, however, Tuffley said confidence in the city remains fairly soft, with the low level of undamaged housing stock and widespread damage making the buying process challenging.

Tuffley also said the nationwide increase in price expectation may herald a wider recovery.

"The surge in house price expectations nationwide may be a sign that the housing market recovery will become more broad-based in the low interest rate environment," he said.

"If so, that potentially puts the Reserve Bank in a bind. At the recent April OCR review, the Reserve Bank said that ‘should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings.'

"But given signs households are once again starting to view housing as an appreciating asset, there is the risk that an OCR cut in response to continued New Zealand dollar strength could put more heat into the housing market."

However, Tuffley said he believes the Reserve Bank will leave rates on hold before commencing a series of increases from March 2013.

"Low interest rates will continue to underpin recovery in the housing market over the coming year, but there will come a time when interest rates return to more normal levels."