Day of reckoning to come

The Institute’s latest poll shows that the number of people expecting house prices to rise in the next six months is down to 43%.

This is the lowest level since the poll started in November last year and reflects a 13% drop in expectations over eight months.

Property Institute chief executive Ashley Church said a definite trend appears to be developing, with more people becoming less bullish about house prices.

Not only has there been a drop in the number of people expecting house price increases, but the number of people expecting a decrease in house prices is up 5% to 12%.

“This is a big jump but it is also an indicator that the vast majority still aren’t buying into the idea of a market correction”.

“Meanwhile, the number of people expecting prices to stabilise is up 4% to 40%”.

People in Auckland and Christchurch were far less optimistic about house price increases than people in other parts of the country were, with 37% in both cities expecting price rises.

In contrast, 53% of people in Wellington, 50% of people in towns and 47% of people in provincial cities still expect ongoing price increases.

This probably reflects the fact that both the Auckland and Christchurch markets have – very publicly – been experiencing much cooler markets of late, while many other markets continue to perform strongly.

Church said the poll confirms the view of the Institute that the “artificial downturn” engineered by the Reserve Bank has worked.

“There’s no question that the imposition of high LVR restrictions has affected the ability of the market to operate and has dramatically slowed the market – particularly in Auckland.

“What’s less clear is what the impact of that will be on supply given that Auckland still has a serious housing shortage and no clear solutions to reduce that deficit.

“The rationing of finance by Banks is now also further exacerbating the problem. There’s no shortage of demand – there’s just a shortage of money”.

The deterioration in house price inflation expectations is likely to continue over the next few months, but sooner or later a “day of reckoning” will have to come, he said.

“You can’t artificially constrain house prices forever when you have a shortage of homes – but clearly you can do it for a while.”

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