Steep decline in buyer sentiment - ASB

The bank’s latest Housing Confidence Survey has been released and it reveals a sharp drop in house-buying sentiment nationwide in the three months to July.

A net 20% of survey respondents thought it is a bad time to buy, as compared to 3% in the last quarter.

Sentiment is at its lowest level since early 2012, and it is the first quarter since mid-2014 where every region has thought it was a bad time to buy.

ASB chief economist Nick Tuffley said the fall in sentiment is not surprising when expectations for higher house prices, as well as higher interest rates, have picked up over the quarter.

“People appear to be wary of higher debt servicing costs on top of already-high house prices, which has pushed down sentiment.”

Auckland respondents were the most pessimistic, with a net 32% saying now is a bad time to buy.

Tuffley said that, given affordability in Auckland is squeezed more than elsewhere, they would expect to see sentiment continue to drag relative to the rest of the country.

The Reserve Bank’s new LVR restrictions for investors, which will come into force in October, could lead to a further drop in confidence, he said.

“The requirement for investors around the country to have a 40% deposit will undoubtedly knock investors’ confidence.”

However, two factors could prevent a further decline in buying sentiment.

Tuffley said that if the new LVR restrictions do slow market activity and house price growth, potential first-home buyers might look more favourably on the housing market.

Another OCR cut this year could have a similar effect, provided mortgage rates move slightly lower, he said.

“On balance though, high house prices and a higher deposit threshold for investors are likely to weigh on sentiment this year.”

The survey may show a drop in purchasing sentiment, but a majority of respondents think house price will continue on its upward path.

Nationwide, 68% of respondents expect higher prices over the next 12 months, as compared to 59% last quarter.

A net 57% of Auckland respondents expect house prices to rise in the next year, while price growth confidence in the North Island ex-Auckland is at an all-time high of 66%.

Tuffley said house price expectations are likely being influenced by the degree of coverage house prices are getting in the New Zealand media.

“But the across-the-board lift does reflect the prices increase we’ve seen across the country recently.”

Meanwhile, for the first time in more than a year, interest rate expectations have shifted.

In a reverse from last quarter, 24% of respondents expect interest rates to rise while 17% expect them to fall.

Last quarter, 18% of respondents thought interest rates would rise while 25% thought they would fall.

Tuffley said that ASB expects the RBNZ to cut the OCR again in November, following last week’s cut.

“We could then see another turn-around in interest rate expectations in the next survey, particularly if mortgage rates move lower over the period.”