Housing confidence crashes

The bank fretted about house price overconfidence last year, but the abrupt turning of the housing cycle has put paid to that.

The percentage of kiwis expecting house prices to keep rising over the next 12 months has slumped to 11%, a big fall from last quarter’s 49%.

The surprise if anything, says ASB, is the percentage didn’t fall further.

ASB senior economic Mike Jones says yes, it’s a big fall, but net housing confidence expectations are still positive. ASB is expecting at least another 12 months of falling house prices.

During the last decent house price shakeout in 2008, housing confidence plumbed lows of about -50%.

Amongst the regions, South Islanders, excluding Canterbury, experienced the largest loss of house price confidence, to now be the most down-beat in the country at a net 7% expecting house prices to rise.

Jones says at the more ‘glass half full” end of the spectrum, Cantabrians experienced the smallest fall of -30%. “This accords with ASB’s house price forecasts for Canterbury. “House prices in Canterbury became less stretched during the upswing and hence should experience smaller falls,” Jones says.

House prices have already fallen about 5% from their November peaks, and Jones reckons the slow leak of pressure out of the housing market has got at least another 12 months to run.

“The three big housing nasties – higher mortgage rates, tighter credit conditions, and increased supply – are now in play and look set to stick around.”

He says the silver lining in the April survey was a small bounce in buyer sentiment.

Respondents still overwhelmingly think it’s a bad time to buy a house, it’s just not as bad as it was last quarter.

Jones thinks this is the first signs of improving affordability coming through. “Sure, it’s a drop in the ocean, but between falling house prices and accelerating wage growth, affordability metrics should continue to improve this year.”

While there has also been plenty of chatter about this year’s looming mortgage refixing bulge, the results of the bank’s survey suggest most households can see it coming. A net 81% of those surveyed expect interest rates to keep rising over the next 12 months – a fresh 26-year high.

Jones says this begs the question as to whether interest rate expectations can go any higher? “After all, history shows they don’t normally stick up around these sorts of highs for very long.”

Jones doesn’t think it will be too much longer before, particularly longer-term, fixed mortgage rates start to plateau.

“Yes, the RBNZ still has plenty of work to do to slay the inflation dragon with higher interest rates, but markets have already largely anticipated this and priced it in. Assuming the RBNZ continues to deliver on these expectations, we doubt there’s much farther for long-term rates to rise.

“This doesn’t mean we’ll see any immediate relief for house prices though.”