Price expectations spiral down

Wednesday 27 May 2020

Housing confidence has been dealt a hefty blow by the Covid-19 crisis with house price expectations plummeting to new lows.

By The Landlord

The latest ASB Housing Confidence Survey, shows that confidence has fallen to a near eight-year-low – and it’s expected it will fall further in the coming months.

Further, the survey, which covers the three months to April, has price expectations taking a tumble: 14% of respondents now expect prices to rise over the next year as compared to 54% last quarter.

ASB chief economist Nick Tuffley says with recessionary economic conditions triggering job cuts and a big hit to household income growth, the survey’s results are not surprising.

“The housing market was literally stopped in its tracks during the lockdown.  And respondents will be increasingly aware that there are tough times ahead.”

Some people will have added concerns about their job security and take a more cautious attitude towards jumping into the housing market, he says.

“The jump in the number of people receiving income support and mortgage holidays highlights that homeownership conditions are more challenging and that recent price momentum is likely to stall.”

On the price outlook front, the decline in expectations was the largest in the South Island (excluding Canterbury).

North Islanders, excluding Aucklanders, remain the least pessimistic on the house price front, with a net 20% of respondents still expecting house prices to rise over the coming year. 

But Tuffley says they had expected the fall in housing confidence to be larger and that their latest research points to a house price decline of 5-10% in the wake of the Covid-19 crisis.

“This is broadly similar in magnitude to what we saw during the GFC. Yet during that period, we saw housing confidence collapse to -50%.

“Either we are too pessimistic, or housing confidence has further to fall. Next quarter’s results will reveal all.”

The survey also shows that a small majority of respondents now believe it is a bad time to buy a house, down from a net 9% saying it was a good time to buy last quarter.

Perceptions of whether it’s a good time to buy are generally closely linked to housing affordability, Tuffley says.

“With Covid-19 disruptions prompting job cuts as well as slamming the brakes on household income growth, it’s no surprise we’re seeing house buying sentiment take another hit. Further falls appear likely.”

As with house price expectations, household interest rate expectations were “whipsawed” in the second quarter of the year.

Last quarter respondents were split on whether interest rates would rise or fall over the coming 12 months, but this quarter, the “falls” have it with a net 19% expecting interest rates to fall.

While 14% of respondents expect higher interest rates over the coming year, 33% expect interest rates to fall.

Tuffley says the fact that interest rate expectations didn’t fall further likely reflects the unprecedented situation facing the New Zealand economy and the Reserve Bank.

“The Bank’s key policy rate has been lowered as far as it can go and government bond purchases are now the Bank’s weapon of choice.

“We expect the Reserve Bank’s policy rate to remain at 0.25% for many years, but there may be some scope for mortgage and business interest rates to fall further.”

While credit conditions will continue to gradually normalise, the housing market is likely to feel further pressure over the remainder of 2020, he says.

Comments from our readers

On 27 May 2020 at 11:47 am stevef said:
What will be interesting to see is the supply and demand situation. On the one hand we have a prediction of low demand for housing, hence driving prices downward but on the other hand the supply could be argued to get even tighter than it has been seen before. Reduction of construction plus a reticence of people to sell houses till things settle down and look a bit more "business as usual". Ive always regarded the property market being a product of the market fundamental, supply and demand.
On 27 May 2020 at 11:59 pm Winka said:
"stevef,"... you have hit a nail on the head with the supply/demand ratio situation. What most people do not seem to realise is that this ratio takes many forms, not just one simple aspect. eg; Auckland house prices were driven in part by the "greater-fool"or the "herd" effect. This factor was exacerbated by another "phenomenon", where we experienced literally thousands of Chinese residential investors buying several houses but only putting the lights on in one....someone suggested that one residence was to house their offspring who were adding some NZ study to their lives? So, the mere fact of them buying numbers of houses (disregarding the fact that no-one lived in most of them) had the effect of pushing up the value of all of them! "Supply & Demand." As I stated previously, "we ain't seen nothing yet." The next few months are destined to show us the true "financial" aftermath of the pandemic (the health aspect). The money-printing has begun, and the media has attempted to show us that those huge billions of dollars are "created" by using a process of our central (Reserve) bank buying the created government bonds and then releasing those funds into our banking system. A phenomenon of all central banks in the world! However, have you noticed that the media has not gone the extra step and explained where on earth came the ability for our central (Reserve) bank to "create" those billions??? That is another "interesting" story for those who are interested? We are heading for a deflationary environment with the OCR teetering at only .25%, so best that thoughts are based on this fact. And remember....back in the 1990's when it was announced (1998) that houses and land had been removed from the CPI....otherwise the Reserve Bank Act would have been "blown out of the sky" with the crazy house and land prices that occurred. To claim that periods of house price falls are rare and short-lived may apply only to other circumstances than the one created by the current pandemic. The aftermath we are destined to experience after this pandemic is a totally different event.....one that is set to be akin to the period immediately after the 1929 "Depression". First we have a "recession" and then after a short period of 2 or more consecutive quarters of negative GDP growth, comes a "depression." They keep reporting the scare of a "recession." However, we are well into the 2nd negative quarter, so the reporting is therefore due to change?? Let time back up my opinions, and it won't need to be much time at all....."within" only a few mere months.

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