Home buyers remain “doubtful” despite predictions of rapid price drop

Major bank's economists expect house price growth to drop to only 2%

Home buyers remain “doubtful” despite predictions of rapid price drop

Kiwis remain pessimistic regarding housing prices despite many economists and experts expecting a rapid slowdown or price drop soon – and ASB economists say they cannot blame them for thinking that way.

ASB’s latest Housing Confidence Survey found that 58% of Kiwis still expect house prices to increase in the coming 12 months. In addition, perceptions of whether it is a good time to buy a home remain negative, with 20% of the respondents saying it was a bad time to buy, down only slightly from last quarter’s 21%.

ASB economists predict annual house price growth to drop to 2% next year, flat-lining compared with the double-digit growth seen over the past year. However, they cannot blame Kiwis for being doubtful of a slowdown as housing demand still outstrips supply.

“Given the recent government changes and new regulations have so far only slightly impacted the market, it’s understandable that Kiwis are sceptical about a slowdown, particularly as annual house price growth has most recently hit 30%. For many watching the runaway housing market, it may be hard to imagine ever seeing a decline,” said ASB chief economist Nick Tuffley.

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Despite only a slight impact from the government’s recent changes and new regulations on the housing market, Tuffley said there are still a few factors that are increasingly likely to put the brakes on the market.

“This year, the RBNZ has reintroduced its loan-to-value ratio (LVR) restrictions, the government hit property investors with a tax hammer, and there has been some upward creep in mortgage rates,” Tuffley said.

“Behind the scenes, inbound migration has ground to a halt, and home completions have lifted, which should ease demand slightly, although we now have construction delays due to supply bottlenecks to contend with.”

However, ASB’s survey found that more Kiwis view interest rate rises as inevitable, with a net 54% of those surveyed expecting higher rates in the coming year – a significant turnaround from the net 13% that expected a drop in the first quarter survey.

Tuffley explained that the latest lockdown gave the official cash rate (OCR) a “temporary stay of execution.” However, inflation pressures are likely to remain just as chronic, despite the disruption.

“It was very clear the RBNZ intended to lift the OCR on August 18, but only held off because of the just-announced COVID community outbreak. At this point, the RBNZ still looks likely to move very shortly, and we are predicting an October OCR increase,” he added.

“The longer the lockdown in Auckland lasts, however, the more likely it will continue to pause to assess how the longer-term picture has been changed (or not).”