House market optimism grows

Confidence in the housing market has strengthened markedly over the past three months, ASB's quarterly survey has found.

A net 4 per cent of the 600 people surveyed still expect house prices to fall, but that compares with a net 45 per cent of that opinion three months ago.

Interest rate expectations have also shifted, with a net 3 per cent now expecting them to rise where a net 30 per cent were looking for further falls three months ago.

But the bank's chief economist, Nick Tuffley, warns that while the market may be reaching a floor, prices remain high by key measures and the impending recovery is likely to be only a shadow of the 2002 to 2007 boom.

"The past few years have seen the housing market swing from an extreme sellers' market to an extreme buyers' market," he said. "The recent lift in the market has seen it move back towards a more normal balance on several measures."

Both the median number of days it takes to sell and listings of homes for sale have fallen back to a more average level.

"Over the rest of 2009 we expect housing turnover to broadly hold on to gains made in the first half of this year and possibly grind up higher. House prices themselves seem to be bottoming out and could even lift slightly late this year."

There was a chance prices might benefit in the short term from by an imbalance of supply and demand driven by a steep drop in new construction over the past 18 months on the one hand and a growing population, boosted by fewer people leaving the country, on the other. "However, we expect the main release valve from a growing population to be a recovery in construction activity over 2010 rather than prices."

House prices remained high relative to incomes and rents, he said.

Property investors needed to remember that past performance was not a reliable indictor of future performance.

"Housing had such a tremendous run over the last economic cycle that another strong price performance will be hard to achieve over the next few years - the price correction hasn't been that large."

The starting point is nowhere near where it was before the boom in terms of house prices and debt levels, Tuffley said.

And the world had changed: "It's not an environment where New Zealand can go on forever building up household debt."