House price expectations rise: ASB survey

Rising house prices have again captured the public's attention which will likely prompt closer scrutiny in economic and political agendas in the months ahead.

Nationwide house price expectations have risen again - approaching record levels - driven by low interest rates and supply shortages in Auckland and Canterbury, according to yesterday's release of the ASB housing confidence survey.

"Expectations of further increases in house prices are becoming firmly embedded with a net 56% of respondents now expecting prices to rise over the next 12 months," ASB chief economist Nick Tuffley said.

Price expectations remained highest in Auckland and Canterbury, where supply is tightest, but housing confidence beyond the two main centres was climbing, suggesting that market buoyancy is spreading throughout the regions, he said.

Both National and Labour fear a repetition of the housing bubble which popped in 2007-08, with National promoting its state-owned asset sale as a better investment alternative, while Labour wants to introduce capital gains on investment housing.

Auckland and Christchurch, in terms of both house values and increasing house prices, lead the country, recent data from both Government rating agency Quotable Value (QV) and the Real Estate Institute of New Zealand (REINZ) shows.

QV had Auckland and Christchurch house values (not prices) gaining respectively 9.2% and 5.9%, while REINZ had its respective prices up 14% and 7% on a year ago. Auckland hit a median price of $530,000.

Mr Tuffley said the low interest rates and supply constraints would drive further nationwide price growth of about 4% next year on a nationwide basis.

"Housing demand is unlikely to drop off, with intensifying expectation that interest rates will remain at low levels according to the latest survey," he said.

More than 40% of the respondents expected interest rates to remain on hold during the next 12 months, the highest proportion since 1999.

"The broadening belief that interest rates will remain low could further fuel interest in entering the market," he said.

In contrast to the overall nationwide rise in the index, housing confidence in Auckland had been falling steadily during 2012, and was now down to just 8%, while the rest of the country had been showing increased confidence that now was a good time to buy, he said.

"Low interest rates are becoming increasingly stimulatory, and the Reserve Bank will be mindful of the risks of stoking the housing market further," Mr Tuffley said.

However, with the broader recovery still "very gradual" and the New Zealand dollar high, official cash rate increases were still some time off.

The ASB expected the official cash rate to remain on hold until September 2013, with gradual increases occurring from that time, he said.

-simon.hartley@odt.co.nz