Many still expect house rises

Confidence that the housing boom has further to run is undimmed, despite the prospect of higher interest rates, ASB Bank's quarterly survey of housing confidence has found.

Of 600 people surveyed between August and October, 45 per cent expected prices to go higher while 15 per cent expected a fall. The net 30 per cent expecting higher prices is an increase from a net 20 per cent in the three months to July. The survey's margin of error is 4 per cent.

And confidence did not flag as the quarter wore on, despite the Reserve Bank raising the official cash rate and a sharp rise in interest rate expectations: in the month of October a net 31 per cent expected higher prices, in line with the average for the quarter.

ASB chief economist Anthony Byett said the rise in price expectations reflected renewed activity in the market as it shook off its seasonal winter blues. "Activity levels increased faster than usual over September and October and properties are selling faster," he said.

The number of sales reported by the Real Estate Institute in September was up 17 per cent on September last year and the national median home price of $290,000 was 16 per cent higher.

And ASB's lending figures and the anecdotal evidence both pointed to activity and upward price pressure having continued last month, Byett said.

The pick-up makes the indicators of affordability, four years into the boom, even more stretched.

"House prices are even higher now relative to income, so too are interest payments, and that's before people roll into fixed rates that are already higher and still rising," Byett said.

"In other words, the housing market and the household sector in general are more at risk to future shocks. And 2006 is shaping up for a tougher economic climate. It's clearly a time for prudence."

Household debt in September was 15 per cent higher than in September last year and the increase in the month was the fastest for two years.

That is in spite of rising interest rates and the ratio of interest costs to household incomes being already at historically high levels.

Collectively households spent about 10.5 per cent of their income servicing debt, Byett said, when the normal ratio over the past 10 years was between 8 and 9 per cent.

And those figures are diluted by the fact that only one household in three is owner-occupied with a mortgage. Reserve Bank Governor Alan Bollard said on Wednesday that about 10 per cent of households with mortgages were deeply in debt, spending more than half their after-tax incomes servicing the mortgage. They were vulnerable to rising interest rates, falling house prices or a weaker job market.

Byett said new borrowers were undeterred by the mortgage rates on offer at the moment.

Borrowers who had taken out fixed rate loans two years ago between 6 and 7 per cent were rolling into rates close to 8 per cent. But in any month only a small proportion of borrowers were in that position.