In the three months to January the responses in the latest survey resumed their gloomy tone, says Kim Mundy, ASB senior economist.
Price expectations have yet to find a floor and are rapidly closing in on GFC lows. The results for the three months to January sunk to a net -43% expecting higher house prices, compared to net -30% in the three months to October. The GFC low - which was struck in the three months to July 2008 - was a net -55%.
Mundy says it’s worth noting that house prices have already fallen by more in this cycle than they did during the GFC. And with more OCR rate hikes to come, house price expectations could test GFC lows.
“Survey respondents across all regions were more pessimistic this quarter. Yet there was a notable decline in net price expectations in the South Island (ex-Canterbury),” Mundy says. Outside of Canterbury, South Islanders are now the most pessimistic on price expectations (net -47%).
He says increased pessimism in the South Island may reflect the fact house price falls in the region are starting to catch up with the bigger North Island centres of Auckland and Wellington.
“Initially, prices were resilient in the South Island. But for respondents right across the country the key question is still: how far will prices (and price expectations) fall? Upside risks to the inflation outlook following the terrible weather events suggests the risk is skewed to monetary policy staying tighter for longer.”
Buying sentiment past the worst
On a net basis, respondents once again believe it’s a bad time to buy - just. Tough talk by the RBNZ in November, and a 75bp rate hike, likely quashed last quarter’s tentative optimism.
Auckland remains the sole optimistic region, albeit less so than in the three months to October - net 2% down from a net 9%.
Elsewhere in New Zealand, respondents on balance think it’s a “bad” time to buy but are less pessimistic than they were this time last year.
It’s not just interest rates that influence respondents’ opinions on whether it’s a good time to buy, Mundy says.
Affordability is also a consideration. Affordability has improved recently because falling house prices and higher wages have made it ‘easier’ to save for a deposit. Improved affordability dynamics could explain why buyer sentiment is off recent lows, despite ongoing increases in interest rates. And with a pause in interest rate hikes on the horizon in our view, respondents’ pessimism about thinking it’s a bad time to buy may have passed its trough.
Interest rate expectations stepped up again in the three months to January. A net 78% of respondents expect mortgage rates will lift over the coming 12 months.