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NZ Housing
Confidence
Onwards and upwards
Nick Tuffley
– ASB Chief Economist – 649 374 8604 – nick.tuffley@asb.co.nz 
General Advice Warning
 As this report was prepared without taking into account your objectives, financial situation or particular needs, you should not take anyaction in reliance of this report without considering your particular circumstances and, if necessary, obtaining professional advice.
 
 
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Three months to July 2009
•
 
Confidence in the housing market continues to pick up.
 
•
 
House price expectations have moved back to neutral after foreshadowing price falls since early 2008.
 
•
 
Interest rates no longer expected to fall, following the steady lift in long-term mortgage rates.
 
Housing confidence continues a lift that started a year ago, with a clear majority of respondents seeing now as a good time to buy a house. However, the most significant shift in the survey results is a noticeable uptick in house price expectations. After over a year of expecting prices to fall in the year ahead, respondents have a more neutral outlook. In fact, a month-to-month breakdown of results shows expectations are back into net positive territory.Another change in the survey results is that on balance respondents expect interest rates to rise, no doubt reflecting the upward trend of long-term mortgage rates since early 2009.The survey results have for some time been foreshadowing improved sentiment towards the housing market, but it wasn’t until early 2009 that the market showed evidence of perking up. The latest survey reinforces that confidence is building, along with a sense that price falls are coming to an end. However, we continue to expect the next house price cycle to be very weak compared to the extraordinary boom of 2002 – 2007.Confidence continues to lift 
The ASB Housing Confidence survey suggests growing interest in housing:
•
A net 4% of respondents expect house prices to decrease in the next twelve months;
•
A net 54% of respondents believe now is a good time to buy;
•
A net 3% of respondents now expect interest rates to rise in the next twelve months.Positive sentiment towards home purchasing has steadily strengthened over the past year, andprices are now expected to be stable over the next year rather than falling further.
ASB Housing Confidence Survey
(Source: ACNielsen)Net percent who believe(3 months to July 2009) …Good time tobuy a houseHouse priceswill increaseInterest rateswill increaseAuckland*47%-5%1%Rest of North Island*56%1%7%South Island*57%-13%-4%
TOTAL NZ **54%-4%3%
Compare 3 months to Apr 2009 **46%-45%-30% 
* sample size 200, 95% margin of error ±6.9% ** sample size 600, 95% margin of error ±4.0%
 
Price expectations swinging sharply, now roughly flat 
Expectations of house prices changed sharplyover the 3 months to July. There is now a neareven split between those expecting priceincreases and those expecting declines. On amonth-to-month view the balance of priceexpectations lifted into positive territory in July, thefirst such reading for 18 months.A breakdown of the net quarterly figure is:
•
27% expect higher prices (11% last quarter),with 31% expecting lower prices (57%);
•
the difference being the net -4% plottedopposite (-45% previously);
•
37% expect the same (27%);
•
5% don’t know (5%).
 
-60%-40%-20%0%20%40%60%80%Jan-96 Jan-99 Jan-02 Jan-05 Jan-08-60%-40%-20%0%20%40%60%80%
Source: ASB 
Net%
PRICE EXPECTATIONS
Net% expectinghouse prices to increase
 
 
NZ Housing Confidence
6 August 2009 
 
Further lift in number seeing now as a good time to buy 
The net balance of respondents who seenow as a good time to buy a housecontinues to steadily increase. The levelof optimism is now similar to that seenwhen the last housing boom was justgetting started.The breakdown is:
•
64% say it is a good time to buy (59%previously), while 10% say it is a badtime (13%);
•
the difference is the net 54% plottedopposite (46%);
•
19% say it is neither good nor bad(22%);
•
6% don’t know (7%).
-20%0%20%40%60%80%Jan-96 Jan-99 Jan-02 Jan-05 Jan-08-20%0%20%40%60%80%
HOUSING CONFIDENCE
Source: ASB 
Net%Net% who consider itis a good time to buy
 
Interest rates no longer expected to fall 
Interest rate expectations have changedconsiderably, back to an even splitbetween numbers expecting lower ratesand those expecting higher rates. Sincelate March long-term fixed mortgage rateshave risen substantially, and the RBNZhas halted its OCR cuts.The quarterly breakdown of responses is:
•
27% expect higher interest rates(20%), while 24% expect lowerinterest rates (50%)
•
the difference is the net 3% expectinghigher rates plotted opposite (a net30% expected
lower 
rates in theprevious quarter);
•
38% believe interest rates will staythe same (19%);
•
11% don’t know (11%).
-60%-40%-20%0%20%40%60%80%Jan-96Jan-99Jan-02Jan-05Jan-08-60%-40%-20%0%20%40%60%80%
Source: ASB 
Net%
RATE EXPECTATIONS
Net% expecting higher interest rates
 
Market conditions returning to a more normal balance
 
Housing market conditions now back to more normal state 
The past few years have seen thehousing market swing from being anextreme sellers’ market to an extremebuyers’ market. The recent lift in themarket has seen the market move backtowards a more normal balance onseveral measures.The median of days taken to sell, onebarometer of the balance, has fallen backvery close to an average level.Outstanding listings of homes for saleshave dropped quickly back to a moreaverage level from very high levels.Some real estate agents are now findingthey have a scarcity of good listings tomarket.
DAYS TO SELL A DWELLING
(seasonally adjusted)
203040506070Jan-97Jan-99Jan-01Jan-03Jan-05Jan-07Jan-09
Source: REINZ 
Days
2 
 
NZ Housing Confidence
6 August 2009 
 
Supply of homes for sale has dropped swiftly: fewer migrant departures one influence, sales pick- up another 
One contributing factor to the reducedsupply of homes for sale is no doubt theshift in migration flows, withsubstantially fewer people leaving thecountry. The most immediate effect ofthe shift is fewer homes than otherwisewill have been put on the market forsale, with the same applying for thesupply of rental property.Sales turnover, in seasonally-adjustedterms, began lifting strongly fromFebruary, including a surge in April.Those gains have largely been heldonto in more recent months. Much ofthe lift is due to people’s preparednessor willingness to dive back into themarket.
MONTHLY DWELLING SALES
(seasonally adjusted)
350055007500950011500Jan-97Jan-00Jan-03Jan-06Jan-09
Source: REINZ, ASB 
No.Average 93-09
 
Low mortgage rates and ebbing ‘fear factor’ the likely stimulus 
Low mortgage rates have undoubtedlyhad a huge impact in driving salesturnover. Furthermore, fear and cautionhave abated since the first half ofMarch: globally investors’ risk appetiteshave been recovering.Ironically, the lift in long-term fixedmortgage rates spurred some fence-sitters into acting before interest ratesrose too much further.For about the past year the Housingsurvey has shown increasing numbersof people seeing ‘now’ as a good timeto buy. However, it wasn’t until earlierthis year that the stars began aligning inbuyers’ eyes.
567891011Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09567891011
HOME LOAN RATES
Source: ASB 
%%1-year rateVariable Rate5-year rate
 3 
Outlook: modest recovery 
 
Outlook: recovering, but don’t expect fireworks
Over the rest of 2009 we expect housing turnover to broadly hold onto gains made in thefirst half of the year and possibly grind up further. House prices themselves appear tobe bottoming out and could even lift slightly later this year. After a period of weakbuilding and a fairly swift reduction of available stock on the market, the currentmigration-led lift in population will put some pressure on the market.However, we expect the main release valve from growing population to be a recovery inconstruction activity over 2010, rather than prices. Notwithstanding the past year’s fall,house prices remain high compared to fundamental factors such as incomes (ability topay) and rents (cashflow on any investments). And, unemployment will continue to rise.
Valuable lessons from recent slowdown 
The last 2 years have been a sharpreminder of several home truths someproperty investors either overlooked orwere prepared to ignore. House pricescan fall, and cashflow – not expectedcapital gain – is what pays themortgage.There some important factors to bear inmind if investing in property. Don’t relyon capital gains and remember thatcash(flow) is king. It is also veryimportant to fully understand the risksyou are taking. And investment pioneerBenjamin Graham’s ‘margin of safety’concept is just as applicable to propertyas it is to the sharemarket.
80100120140160Mar-70 Mar-77 Mar-84 Mar-91 Mar-98 Mar-05 Mar-1280100120140160
Source: QVNZ, StatsNZ, ASB estimates 
HOUSE PRICES/NOMINAL GDP(
RATIO, DEC 1989 = 100)
index(f)
 
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