Market could be near a tipping point

ASB says in its latest Housing Confidence Survey, a directionless housing market, high debt servicing costs, plentiful listings, and upfront affordability constraints mean it’s far from a straightforward decision about whether to buy.

For the first time since early 2021, more respondents expect interest rates to fall, than rise.

A net 1% of respondents expect interest rates to fall – down from 15% in January 2024.

Sentiment on the rates outlook is an important guide to future price direction and can help identify turning points, Kim Mundy, ASB senior economist says.

For example, the turn in interest rate expectations in late 2020/2021 was shortly followed by the peak in house price growth at about 30% in mid-2021. “We will be watching interest rate expectations closely in coming quarters.

A key difference this time around is that OCR cuts are still some way off on our forecast of February next year.

This is one of the reasons ASB is not surprised to see a decent number of respondents expecting house prices to remain unchanged in coming quarters.

The broader economic backdrop also matters, and Mundy expects economic growth to remain anemic and the unemployment rate to trend higher over 2024.

Neither factor is particularly supportive for housing demand.

“Nevertheless, as respondents grow more confident in their view that interest rates start falling, it’s likely to boost their enthusiasm (or ability) to transact in the market.”

Ultimately, ASB doesn’t expect to see a more pronounced lift in house prices until the RBNZ signals it will soon trim the OCR.