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NZ Housing Confidence

Heating up

Three months to October 2009


• Housing confidence remained upbeat over the three months to October.
• Price expectations have turned very positive in a short space of time.
ECONOMICS

• Housing market constrained by decline in available listings, but demand/supply balance will adjust.

Housing confidence remained strong in the three months to October, according to the ASB Housing Confidence
Survey. Notably, the survey has seen a marked shift in house price expectations. In the three months to April a
net 45% of respondents expected house prices would fall over the following 12 months: in the latest survey a net
40% expect house prices to rise. The turnaround is the largest recorded in the survey to date.
In keeping with the bullish sentiment towards housing, the market itself has swung firmly back to being a sellers’
market. Time taken to sell is falling and prices are increasing as buyers compete to snaffle up houses. However,
the level of turnover has stalled at below-average levels. The market is showing strong signs of being constrained
by a lack of available stock for sale. The imbalance is likely to gradually correct over the next year as demand
moderates through higher interest rates and renewed emigration, and as supply starts to respond.

Confidence The ASB Housing Confidence survey suggests growing interest in housing:
13 Nov. 09

continues to • A net 40% of respondents expect house prices to increase in the next twelve months;
lift
• A net 48% of respondents believe now is a good time to buy;
• A net 35% of respondents expect interest rates to rise in the next twelve months.
Sentiment towards home purchasing has been very buoyant over the past year, and price
expectations have turned up dramatically over the past 6 months.

ASB Housing Confidence Survey (Source: ACNielsen)


Net percent who believe Good time to House prices Interest rates
(3 months to October 2009) … buy a house will increase will increase
Auckland* 35% 36% 30%
Rest of North Island* 48% 38% 34%
South Island* 60% 46% 40%
TOTAL NZ ** 48% 40% 35%
Compare 3 months to July 2009 ** 54% -4% 3%
* sample size 200, 95% margin of error ±6.9% ** sample size 600, 95% margin of error ±4.0%

Price Price expectations firmed substantially over the N et% PRICE EXPECTATIONS
expectations past 3 months. The monthly breakdown of the 80% 80%
jump N e t % e xpe c t ing
previous survey had indicated a move into net
ho us e pric e s t o inc re a s e
positive territory was underway from July. Over 60% 60%
the past quarter price expectations have
40% 40%
approached the levels reached during the 2002-03
and 2007 periods of extreme exuberance.
20% 20%
Expectations are now consistent with a return to
double-digit annual price growth. 0% 0%
A breakdown of the net quarterly figure is:
• 53% expect higher prices (27% last quarter),
-20% -20%

with 13% expecting lower prices (31%); -40% -40%


• the difference being the net 40% plotted Source: ASB
opposite (-4% previously); -60% -60%
Jan-96 Jan-99 Jan-02 Jan-05 Jan-08
• 30% expect the same (37%);
• 3% don’t know (5%).

Nick Tuffley – ASB Chief Economist – 649 374 8604 – nick.tuffley@asb.co.nz


General Advice Warning
As this report was prepared without taking into account your objectives, financial situation or particular needs, you should not take any
action in reliance of this report without considering your particular circumstances and, if necessary, obtaining professional advice.
NZ Housing Confidence
13 November 2009

Firm opinion that it is Respondents still firmly believe that on


a good time to buy balance it is a good time to buy a house, N et% HOUSING CONFIDENCE
with the net balance similar to that 80% 80%
recorded during the peak of the last N e t % who c o ns ide r it
boom. Confidence in housing did edge is a go o d t im e t o buy
60% 60%
back slightly, more so in Auckland. The
South Island is relatively more optimistic.
The breakdown is: 40% 40%

• 59% say it is a good time to buy (64%


previously), while 11% say it is a bad 20% 20%
time (10%);
• the difference is the net 48% plotted 0% 0%
opposite (54%);
• 26% say it is neither good nor bad Source: ASB
-20% -20%
(19%);
Jan-96 Jan-99 Jan-02 Jan-05 Jan-08
• 4% don’t know (6%).
But growing Interest rates are providing food for
recognition that thought for prospective house buyers. Net% RATE EXPECTATIONS
mortgage rates are Survey respondents have evidently 80% 80%
on the way up picked up on the inexorable upward trend Source: ASB

in mortgage rates. The bulk of 60% 60%


respondents expect interest rates to rise
40% 40%
over the next year.
The quarterly breakdown of responses is: 20% 20%
• 45% expect higher interest rates
(27% in the previous quarter), while 0% 0%

10% expect lower interest rates (24%)


-20% -20%
• the difference is the net 35%
expecting higher rates plotted -40% -40%
opposite (3% in the previous quarter);
N e t % e xpe c t ing highe r int e re s t ra t e s
• 33% believe interest rates will stay -60% -60%
Jan-96 Jan-99 Jan-02 Jan-05 Jan-08
the same (38%);
• 12% don’t know (11%).

Market conditions swinging back to a sellers’ market


Survey responses The latest survey results are consistent No .
MEDIAN DAYS TO SELL
consistent with an with responses normally seen during a (seasonally adjusted)
upbeat market very upbeat housing market. Optimism is 60

high and a clear majority of respondents 55


expect prices to rise over the next year.
50
In a number of respects the housing
market is looking in strong shape. 45
However, the level of activity remains A verage 92-09
40
relatively subdued. The main issue in the
market is supply constraints. 35

It is certainly becoming a sellers’ market 30


at present. Houses are selling quite 25
rapidly again, back to the low times taken Source: REINZ, ASB

to sell that prevailed during the years of 20


Jan-97 Jan-00 Jan-03 Jan-06 Jan-09
the housing boom.
Buyers moving The market has moved back into the stage in which house buyers have to act fairly
quickly quickly if they want to secure a property. Prospective buyers face competition for
houses, a contrast with a year ago. Consequently, prospective buyers are bidding up
house prices to secure properties. Prices have risen in 8 out of 10 months to date this
year and are now around 9% above their absolute low in January.

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NZ Housing Confidence
13 November 2009

But sales turnover is Yet despite the evident competition, No .


MONTHLY DWELLING SALES
constrained… sales turnover has stalled at a below- (seasonally adjusted)
average level. In seasonally-adjusted 11500
terms turnover lifted very swiftly over
the 3 month period February through
April. However, turnover has gone 9500
sideways ever since, and the level itself
remains below the average of the past
decade and a half. 7500

Prices are up, buyers are making their A verage 93-09

decisions swiftly, yet sales turnover


5500
remains modest.
The reason lies in the marked drop Source: REINZ, ASB
since the start of the year in listings of 3500
properties for sale. Jan-97 Jan-00 Jan-03 Jan-06 Jan-09

…by a relatively low A glut of listings built up as the housing mo nths. mo nths
MONTHS OF INVENTORY
level of property market slowed over 2007 and 2008.
listings But the rebound in sales earlier this 20 20
year quickly whittled down the NZ: invento ry at current sales rate 18
overhang. But, once inventory levels
A uckland : invento ry at current sales rate 16
reduced substantially, sales also 15
levelled off. 14

12
The market not quite as tight as it was
during the peak of the boom. But there 10 10

is enough of a shortage of properties 8


meeting the criteria of buyers to both 6
cap turnover and send overall prices 5
4
higher. Source: Barf oot & Thompson, REINZ, 2
Tension in the market will remain until 0
realestat e.co.nz, ASB
0
demand abates or the supply of listings Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
can increase to better meet buyer
demand.
Outlook: squeeze in the short term, but not sustainable
House prices are likely to continue rebounding into early 2010. But changes on both the
demand and the supply side will sap the momentum of prices.
Demand will be Demand has been given a firm lift this year by very low mortgage rates. However,
reined in over time mortgage rates will rise steadily over the next couple of years. Long-term rates have
already risen substantially, but once the RBNZ starts lifting the OCR there will be no
place to shelter from higher rates. The uptick in population growth via net migration is
also likely to abate. The relatively low outflow of New Zealanders emigrating is likely to
pick up next year as the Australian economy’s prospects entice people to fly west once
more.
Supply will rise in Supply, on the other hand, is likely to rise over time. Though prospective sellers are
response to higher sitting on their hands at present, higher prices will eventually attract greater numbers of
prices listings onto the market. Furthermore, construction will start to pick up from very weak
levels, bringing fresh supply on tap. Dwelling consent issuance has started to gradually
rise, signalling the start of the construction upturn is close to hand.
Legislative action One left-field factor property investors should keep front of mind is a strong desire within
also a possibility Government and the RBNZ to tilt the playing field to discourage residential property
investment. Officials are concerned about households putting all their investment eggs
in one basket, the resultant channelling of resources away from the productive sector
and added dependence on foreign borrowing, and the lack of tax paid by property
investors. Various changes have been mooted by either government officials or
commentators, including: capital gains tax; land tax; interest rate deductions for
residential property investment; levying tax on a risk-free rate of return.

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NZ Housing Confidence
13 November 2009

Affordability of The flip side of the rebound in prices is


NZ HOUSE PRICE TO
housing will also that affordability is becoming stretched ratio
ratio INDIVIDUAL EARNINGS
become a again. Price increases are once more
10 10
constraining factor outstripping income growth, which, in Source: REINZ, SNZ, ASB
particular, will erode the ability of
8 8
potential first homeowners to enter the
market. Rental yields are very poor
relative to the levels prior to the last 6 6
boom. Yet investors cannot be as
confident that forthcoming capital gains 4 4
will be sufficient to offset negative
cashflow – expected capital gains are 2 2
not money in the bank. (based o ff individual average weekly earnings)
The fundamentals point to house prices 0 0
being on the high side and still due for a M ar-89 M ar-93 M ar-97 M ar-01 M ar-05 M ar-09
period of weak performance ahead.
In summary,
• Housing confidence remains at high levels, according to the ASB Housing
Confidence Survey.
• The noticeable change in the past two surveys has been a marked shift in house
price expectations: 6 months ago respondents still expected prices would fall over
the next year, but now expectations of price increases are at similar levels to those
seen during the more heated parts of the last boom.
• House prices are lifting again, in part as demand has lifted but also through a low
supply of properties coming up for sale.
• This squeeze may continue into early 2010, but house prices remain expensive
relative to underlying fundamentals.
• If purchasing at present leave plenty of headroom to absorb higher debt servicing
costs in the future – interest rates around 6% are unusually low.

For more …
ASB commentary on Commentary on the housing market and on home loan rates go to the following online
housing and home ASB reports:
loan rates. • Housing Confidence (this report)
• Home Loan Rates
• Weekly Economic Reports.
For general reference, the reports are included within the online Information Centre
(https://reports.asb.co.nz/index.html).
For specific reference to housing, reports that include housing commentary can be
accessed via a Search page (https://reports.asb.co.nz/search/keyword.html) by selecting
the keyword “Housing”.

https://reports.asb.co.nz/index.html http://www.research.comsec.com.au

ASB ECONOMICS
Level 9, 135 Albert Street, Auckland

ASB ECONOMICS PHONE FAX

Economics
Chief Economist Nick Tuffley nick.tuffley@asb.co.nz (649) 374 8604 (649) 302 0992
Economist Jane Turner jane.turner@asb.co.nz (649) 374 8185
CBA NZ Economist Chris Tennent-Brown chris.tennent-brown@asb.co.nz (649) 374 8819

DISCLAIMER

Views expressed in this report are those of the authors as at the date of this report and are based on information and sources believed but not
warranted to be correct. Any views or information, while given in good faith, do not necessarily reflect the views of ASB and are subject to
change without notice. Neither ASB Bank Limited nor any person involved in preparing this report accepts any liability for any loss or damage
whatsoever that may directly or indirectly result from any views, information or omission contained in this report.
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