Brian Fallow

The Economics Editor of the NZ Herald

Home buyers pick price rise

Prospective owners see cost of homes unaffected by Reserve Bank lending restrictions

There does seem to have been a noticeable shift in people's perception of whether it is a good time to buy, but very little shift in house price expectations' - ASB chief economist Nick Tuffley.
There does seem to have been a noticeable shift in people's perception of whether it is a good time to buy, but very little shift in house price expectations' - ASB chief economist Nick Tuffley.

The Reserve Bank's restrictions on low-deposit mortgage lending have yet to dent expectations that house prices will rise.

ASB's latest quarterly survey of housing market sentiment in the three months ended October covered the period when the Reserve Bank announced in August its limit on mortgages with a loan-to-value ratio (LVR) of more than 80 per cent and the start of the regime on October 1.

"There does seem to have been a noticeable reaction in people's perception of whether it is a good time to buy, but very little shift in house price expectations," ASB chief economist Nick Tuffley said.

"People, at least for now, are taking the view that LVR restrictions will not have a material effect on prices. But it is early days ... "

The survey found a continuing deterioration in overall confidence in the housing market, with a net 5 per cent of respondents saying it is a bad time to buy, when in the previous survey those who considered it a good time to buy matched those who considered it a bad time.

In Auckland a net 20 per cent of respondents rate it a bad time to buy, compared with a net 15 per cent of that view three months ago. As Auckland house prices are considerably higher than in the rest of the country, even after adjusting for income, it is a more challenging market for a first-home buyer to raise a 20 per cent deposit, Tuffley said.

In the rest of the North Island a net 5 per cent consider it a good time to buy, but that is down from a net 13 per cent in the previous survey.

"The market is still quite tight ... but generally it is still pretty challenging to find a home, interest rates are creeping up and the Reserve Bank has made it a lot tougher for some people as well."

A net 56 per cent of respondents expect house prices to increase, unchanged from the previous survey. In Auckland it is a net 60 per cent.

Tuffley expects growth in house prices will peak around the end of this year, but prices will still be going up and he is only forecasting a fairly gradual slowdown in the pace.

"The Auckland market in particular remains very tight with the pace of house price growth accelerating over the past few quarters."

Meanwhile the increased net inflow of migrants would put added pressure on the demand side of the market.

The survey found a net 52 per cent of respondents expect interest rates to rise. Aucklanders are slightly more sanguine, with a net 49 per cent expecting rates to rise - wishful thinking, Tuffley suggests, on account of their larger mortgages.

- NZ Herald

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