The ASB Bank’s latest housing confidence survey, out today, shows confidence in the housing market outlook has fallen to a near-8-year low, with expectations for this to fall further in the next few months.
ASB chief economist Nick Tuffley said house price expectations took a substantial knock in the 3 months to April – a net 14% of respondents now expect higher house prices over the next year, well down on the previous quarter’s 54%.
As recessionary economic conditions trigger job cuts & a big hit to household income growth, the survey’s results weren’t surprising, Mr Tuffley said.
“The jump in the number of people receiving income support & mortgage holidays highlights that home ownership conditions are more challenging and that recent price momentum is likely to stall.”
Surveys on housing invariably are worded to show rising prices are good, falls are bad. Public policy, on the other hand, would make housing more available through lower prices.
Nobody wants the value of the house they bought to fall. However, New Zealand house prices – and particularly Auckland’s – soared during a period of high cross-border residential investment & high net immigration. The economic & political solution so far has been for the economy to catch up, as in the rest of the economy inflating, rather than prices falling.
Back to the survey:
Mr Tuffley said a net 19% of respondents now expect interest rates to fall.
“The fact that interest rate expectations didn’t fall further likely reflects the unprecedented situation facing the New Zealand economy & 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 & business interest rates to fall further.”
I interpolate again:
Investors need a return, which is why commercial & industrial property syndication & property fund management have become very popular. If those sectors become over-bought, investors will hunt for other opportunities, riskier options will become more prevalent and, thereby, the no-return-is-good environment will end.
Price outlook fades fast
In the ASB survey, Auckland had the smallest decline in net price expectations, from 42% to 10%.
Elsewhere in the North Island, a net 20% of respondents still expected house prices to rise over the coming year.
“If anything, we’d expected the fall in housing confidence to be larger,” Mr Tuffley said. “Our 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 global financial crisis. Yet, during that period, we saw housing confidence collapse to -50%. Either we are too pessimistic, or housing confidence has further to fall.”
Mr Tuffley said house buying sentiment continued to stutter in the 3 months to April: “A slim 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. 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.”
Interest rate expectations
Last quarter, survey respondents were split on whether interest rates would rise or fall over the next 12 months, but in the April survey a net 19% expected rates to fall – 14% expected rises, 33% expected falls. In Auckland, a net 26% expected a fall, compared to just 5% in January.
“Government bond purchases, or quantitative easing, are now the Reserve Bank’s main weapon in the fight to keep economic stimulus flowing, so it’s not that surprising that surveyed participants didn’t expect lower interest rates en masse,” Mr Tuffley said.
“There may be some scope for mortgage & business interest rates to move lower though, if the Reserve Bank quantitative easing keeps downward pressure on wholesale rates – as we expect – and credit conditions continue to gradually normalise. But the housing market is likely to feel further pressure over the remainder of 2020.”
Attribution: Bank release.