HousingConfidenceOct09 (1)

8/14/2019 HousingConfidenceOct09 (1)

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NZ Housing ConfidenceHeating up

Nick Tuffley ASB Chief Economist 649 374 8604 [email protected]

General Advice Warning

As this report was prepared without taking into account your objectives, financial situation or particular needs, you should not take anyaction in reliance of this report without considering your particular circumstances and, if necessary, obtaining professional advice.

ECONOMICS

13Nov.09

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.

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 ConfidenceSurvey. Notably, the survey has seen a marked shift in house price expectations. In the three months to April anet 45% of respondents expected house prices would fall over the following 12 months: in the latest survey a net40% 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 sellersmarket. 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 constrainedby a lack of available stock for sale. The imbalance is likely to gradually correct over the next year as demandmoderates through higher interest rates and renewed emigration, and as supply starts to respond.

Confidencecontinues tolift

The ASB Housing Confidence survey suggests growing interest in housing:

A net 40% of respondents expect house prices to increase in the next twelve months;

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 priceexpectations have turned up dramatically over the past 6 months.

ASB Housing Confidence Survey (Source: ACNielsen)

Net percent who believe(3 months to October 2009)

Good time tobuy a house

House priceswill increase

Interest rateswill 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%

Priceexpectationsjump

Price expectations firmed substantially over thepast 3 months. The monthly breakdown of theprevious survey had indicated a move into net

positive territory was underway from July. Overthe past quarter price expectations haveapproached the levels reached during the 2002-03and 2007 periods of extreme exuberance.Expectations are now consistent with a return todouble-digit annual price growth.

A breakdown of the net quarterly figure is:

53% expect higher prices (27% last quarter),with 13% expecting lower prices (31%);

the difference being the net 40% plottedopposite (-4% previously);

30% expect the same (37%); 3% dont know (5%).

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-96 Jan-99 Jan-02 Jan-05 Jan-08

-60%

-40%

-20%

0%

20%

40%

60%

80%

Source: ASB

Net% PRICE EXPECTATIONS

Ne t% expecting

house prices to increase


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NZ Housing Confidence

13 November 2009

Firm opinion that it isa good time to buy

Respondents still firmly believe that onbalance it is a good time to buy a house,with the net balance similar to thatrecorded during the peak of the lastboom. Confidence in housing did edgeback slightly, more so in Auckland. TheSouth Island is relatively more optimistic.

The breakdown is:

59% say it is a good time to buy (64%previously), while 11% say it is a badtime (10%);

the difference is the net 48% plottedopposite (54%);

26% say it is neither good nor bad(19%);

4% dont know (6%).

-20%

0%

20%

40%

60%

80%

Jan-96 Jan-99 Jan-02 Jan-05 Jan-08

-20%

0%

20%

40%

60%

80%

HOUSING CONFIDENCE

Source: ASB

Net%

Net % who co nsider it

is a good time to buy

But growingrecognition that

mortgage rates areon the way up

Interest rates are providing food forthought for prospective house buyers.

Survey respondents have evidentlypicked up on the inexorable upward trendin mortgage rates. The bulk ofrespondents expect interest rates to riseover the next year.

The quarterly breakdown of responses is:

45% expect higher interest rates(27% in the previous quarter), while10% expect lower interest rates (24%)

the difference is the net 35%expecting higher rates plottedopposite (3% in the previous quarter);

33% believe interest rates will staythe same (38%);

12% dont know (11%).

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-96 Jan-99 Jan-02 Jan-05 Jan-08-60%

-40%

-20%

0%

20%

40%

60%

80%Source: ASB

Net%

Ne t% expecting higher interest rat es

RATE EXPECTATIONS

Market conditions swinging back to a sellers market

Survey responsesconsistent with anupbeat market

The latest survey results are consistentwith responses normally seen during avery upbeat housing market. Optimism ishigh and a clear majority of respondentsexpect prices to rise over the next year.

In a number of respects the housing

market is looking in strong shape.However, the level of activity remainsrelatively subdued. The main issue in themarket is supply constraints.

It is certainly becoming a sellers marketat present. Houses are selling quiterapidly again, back to the low times takento sell that prevailed during the years ofthe housing boom.

MEDIAN DAYS TO SELL(seasonally adjusted)

20

25

30

35

40

45

50

55

60

J an-97 J an-00 J an-03 Jan-06 Jan-09

Source: REINZ, ASB

No .

Average 92-09

The market has moved back into the stage in which house buyers have to act fairlyquickly if they want to secure a property. Prospective buyers face competition forhouses, 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 thisyear and are now around 9% above their absolute low in January.

Buyers movingquickly

2


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NZ Housing Confidence

13 November 2009

Affordability ofhousing will alsobecome aconstraining factor

The flip side of the rebound in prices isthat affordability is becoming stretchedagain. Price increases are once moreoutstripping income growth, which, inparticular, will erode the ability ofpotential first homeowners to enter themarket. Rental yields are very poorrelative to the levels prior to the last

boom. Yet investors cannot be asconfident that forthcoming capital gainswill be sufficient to offset negativecashflow expected capital gains arenot money in the bank.

The fundamentals point to house pricesbeing on the high side and still due for aperiod of weak performance ahead.

NZ HOUSE PRICE TO

INDIVIDUAL EARNINGS

0

2

4

6

8

10

Mar-89 Mar-93 Mar-97 Mar-01 Mar-05 Mar-09

0

2

4

6

8

10Source: REINZ, SNZ, ASB

ratio ratio

(based of f individual average weekly earnings)

In summary,

Housing confidence remains at high levels, according to the ASB HousingConfidence Survey.

The noticeable change in the past two surveys has been a marked shift in houseprice expectations: 6 months ago respondents still expected prices would fall overthe next year, but now expectations of price increases are at similar levels to thoseseen during the more heated parts of the last boom.

House prices are lifting again, in part as demand has lifted but also through a lowsupply of properties coming up for sale.

This squeeze may continue into early 2010, but house prices remain expensiverelative to underlying fundamentals.

If purchasing at present leave plenty of headroom to absorb higher debt servicingcosts in the future interest rates around 6% are unusually low.

For more

ASB commentary onhousing and homeloan rates.

Commentary on the housing market and on home loan rates go to the following onlineASB reports:

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 beaccessed via a Search page (https://reports.asb.co.nz/search/keyword.html) by selectingthe 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

Economist

CBA NZ Economist

Nick Tuffley

Jane Turner

Chris Tennent-Brown

[email protected]

[email protected]

[email protected]

(649) 374 8604

(649) 374 8185

(649) 374 8819

(649) 302 0992

DISCLAIMER

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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 notwarranted to be correct. Any views or information, while given in good faith, do not necessarily reflect the views of ASB and are subject tochange without notice. Neither ASB Bank Limited nor any person involved in preparing this report accepts any liability for any loss or damagewhatsoever that may directly or indirectly result from any views, information or omission contained in this report.
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