But "light at the end of the tunnel" may be a train, bank warns
Confidence that now is a good time to buy a house is “out of the red” on a national basis for the three months to October, driven by a surge of optimism in Auckland, ASB’s latest housing confidence survey showed.
On a net basis, 1% of the respondents said it was a good time to buy. In the January quarter, a net 28% thought it was a bad time to buy, a record in the survey’s history.
The optimism was confined in Auckland, however; sentiment for the rest of the North Island was negative and the South Island still had a reading of negative 6%, Stuff reported.
Recent REINZ data showed the national median price fell 12.4% in November compared to the prior year, but Auckland’s was down 18.1%.
“The good/bad-time-to-buy responses are influenced to some extent by the affordability of buying a house. With house prices down considerably in some parts of the country and incomes starting to get boosted by strong wage growth, required minimum deposits are a smaller share of income,” ASB’s economists said.
“That puts housing more within reach from that perspective, particularly if that relativity gets sustained. Interestingly, first-home buyers’ share of new mortgage borrowing, at 20%, has crept up marginally over the past year. But rising interest rates are reducing purchasers’ borrowing capacity during the current tightening cycle, which respondents are also aware of.”
Nearly 70% of respondents expected mortgage rates to rise over the coming year.
ASB warned, however, that the “light at the end of the tunnel” revealed in the survey might be short-lived.
“There is the possibility that a train lurks,” it said. “The survey results were taken before the Reserve Bank recently put on an express service for the official cash rate (OCR), lifting it by 75 basis points in November and talking even tougher on inflation.”
The central bank now expects an OCR peak of 5.5% to put inflation under control.
“And November’s house sales and price data from the REINZ showed accelerated deterioration,” ASB said. “The pace of price falls has picked up after a long period of steady and gradual falls, with prices now down 14% overall. House sales have fallen markedly in recent months and, in seasonally-adjusted terms, are the lowest since 2008 (putting aside the 2020 lockdown pause). We have just revised our house price forecast to a total fall of 25%.”
That decline would make it nearly as big as that recorded between 1974-1980.
“There are scenarios under which the price fall may not be that large,” ASB said. “Immigration is potentially picking up faster than has been anticipated. And if people start to heed the Reserve Bank’s message to spend cautiously, the OCR might not need to hit 5.5% to get inflation under control sufficiently quickly. For the time being, however, the Reserve Bank looks like it is still going to have the throttle wide open on the OCR Express.”
The ASB economists said last week’s GDP update, which showed a 2% economic growth in the September quarter might be a concern for the next OCR decision, Stuff reported.
“We suspect the calculus is likely to be more 75bps vs 100bps rather than 50bps v 75bps. Q4 inflation and labour market data will be crucial,” they said.
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