ASB sees tighter housing market

Fewer people expect house prices to rise and more expect higher interest rates, but ASB Bank says its latest quarterly survey of housing confidence still points to a tight market.

ASB chief economist Anthony Byett said 35 per cent of respondents expected prices to rise in the next 12 months, down from 45 per cent in the previous quarter, and 17 per cent expected them to fall (up from 15 per cent).

But while the net 18 per cent expecting further rises was down from 30 per cent three months ago, it was still a "respectable proportion", above mid-2004 levels and consistent with the kind of increases reported by Quotable Value and the Real Estate Institute.

Official figures for December were not in yet, he said, but on the preliminary figures the December quarter looked to be another solid one, making an increase of 14 per cent for the year.

Such a gain would bring the average house price increase since mid-2001 to 83 per cent.

"It would also mean that except for the demand spurt around Christmas 2004, the average house price is still increasing at a rate similar to most of 2004 and 2005."

So even though house prices, household debt and interest payments were all at record levels relative to incomes, the price statistics offered little evidence of any slowdown in the housing cycle, Byett said.

What is softer is the number of sales, down 17.6 per cent in December compared with December 2004 and down 2.3 per cent for the whole year compared with 2004.

Even so, the median interval between listing and sale remains a brisk 27 days, down from its peak but well below the 40 to 60 days experienced during periods of falling prices.

Not surprisingly for a survey taken over three months when the Reserve Bank raised the official cash rate twice, a net 67 per cent of respondents expected interest rates to rise, up from 51 per cent in the previous quarter.

Responses were spread over the three months ended January and Byett said the heightened expectation of higher rates had dissipated in January. That suggested attitudes had adjusted quickly to news of a weaker economy and to the recent decline in fixed mortgage rates on offer.

Continuing the pattern of the past two years, respondents see a sellers' market. A net 13 per cent regard it as a bad time to buy, compared with a net 5 per cent in the last quarter.

On all three questions in the survey - whether it is a good time to buy a house, whether prices will rise and whether interest rates will rise - responses from Auckland were 1 percentage point more negative than the national figures.

Byett said that although fundamental measures like the household debt to income ratio, house prices to income, and the debt servicing burden were all higher than they had ever been, it had not stopped the market yet.

"But the Reserve Bank will be relentless at least in the sense of holding rates where they are, probably all year."

The economy was slowing but household incomes would continue to rise, albeit modestly, and the rise in unemployment, from its present very low level, was likely to be small.

"These are not the conditions that cause a big fall in house prices," Byett said. "I think it will fizzle out. Gradually the interest rate impost will hit people's pockets. Gradually the new houses and apartments still being built will affect the supply/demand balance."

If prices fell it was most likely to be in winter, but the winter of 2007 was more likely to be tough.

THOSE BELIEVING...

It's a bad time to buy a house - 13 per cent net (5 per cent in October).

House prices will rise over next 12 months - 18 per cent net (30 per cent in October).

Interest rates will rise - 67 per cent net (51 per cent in October).