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.