Strong housing and share market provides boost but investor confidence remains negative

The rise in house prices has helped boost investor confidence. Photo / Michael Craig

A strong housing market and stability in the share market has helped investor confidence bounce off an all-time low but it remains in negative territory

Net investor confidence rose 14 points in the three months to September from a record low of -25 per cent in the June quarter, according to research by ASB.

But it is still below zero at a net -11 per cent meaning more people think the return on their investments will get worse than better in the coming year.

Chris Tennent-Brown, ASB senior economist, said there were a number of factors affecting investor sentiment as a whole.

"There is so much uncertainty at the moment, which is causing a lot of volatility for investments like shares, KiwiSaver and managed funds."

He said confidence had recovered significantly in the past quarter thanks to a stabilising sharemarket and the better than expected housing market.

The NZX 50 benchmark index hit a fresh high on October 14 and bounced back strongly from the big drop it saw in March as the world headed into the global pandemic.

While predictions of a plummet in house prices have not materialised.

Chris Tennent-Brown ASB Senior economist. Photo / File

Tennent-Brown said going into the March lockdown many economists and government agencies forecast a material housing market correction to accompany New Zealand's deepest economic recession in decades.

"We were less pessimistic with our prediction of a 6 per cent fall in prices, but some were suggesting house price declines well into double-digits."

ASB economists are now predicting an annual house price rise of 12 per cent in the year to June 2021.

"Fast forward a few months and national house prices have bounced back to fresh record highs," Tennent-Brown said.

The resurgence in confidence was mainly driven by those outside of Auckland, where confidence increased from -23 per cent to -7 per cent, compared with Auckland where the increase was a more muted -19 per cent, up from -27 per cent in the June quarter.

Aucklanders are back to believing rental property will give them the best bang for their buck with it rising from around 15 per cent to 24 per cent in the September quarter to overtake their own home.

Outside of Auckland people still believed their own home would give them the best return on their investment while confidence in rental property investment dropped slightly but remained high and shares rose slightly.

"In the regions we have seen a slight dip in expectations for housing – both rental and own home – whereas in Auckland we have seen expectations lift, resulting in a net unchanged result across the country."

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Tennent-Brown said the factors influencing Auckland's housing market, which include increasing demand and a more positive than expected outlook for the labour market, mean house prices are likely to continue climbing in Auckland.

"We expect to see this reflected in coming quarters in terms of investor confidence. But we don't think the gains will be focused on Auckland – prices across the country should garner support from the combination of low interest rates and the economic recovery."

KiwiSaver was seen as giving the best return for a bank product although it has fallen back a way from the March quarter when it hit a high.

Tennent-Brown attributed the mood shift to the swings in members' balances over the year, with record high KiwiSaver returns in 2019 boosting confidence in the first quarter of the year, and Covid uncertainty and falling fund balances contributing to the decline in the second two quarters.

"It's been a volatile year for sharemarkets, and that's flowed through to investments like KiwiSaver. But hopefully people have stuck with their long-term strategies and seen a decent recovery in KiwiSaver balances over the past six months," he said.