Housing market confidence takes a tumble as interest rates, inflation rise

Housing market confidence has taken a tumble as interest rates rise, prices are expected to stay flat, and inflation heads higher.

ASB's latest housing confidence report in the three months ended April showed a net 19 percent of respondents expecting prices to rise over the next 12 months from 30 percent in the previous survey.

ASB senior economist Kim Mundy said global issues such as the Middle East conflict and its effect on fuel prices have shifted the outlook for inflation and interest rates.

"House price expectations have eased as rising fuel costs and inflation concerns flow through to higher interest rate expectations."

Mundy said the number thinking it was a good time to buy a house also eased to 20 percent from 27 percent in the January survey.

Rising rates dampen sentiment

The biggest change in mood was interest rate expectations, with 48 percent expecting rate rises compared with 5 percent thinking in January they would keep falling.

Three quarters of those surveyed also said interest rates have gone as low as they will.

Lending banks have been raising their fixed rate loans in recent months citing higher wholesale interest rates resulting from the Middle East conflict.

Mundy said sentiment was softer but not overly pessimistic, with most still expecting market stability rather than a downturn and house prices to remain flat over the coming year.

The largest fall in house price expectations was in Auckland, with the number expecting a price increase more than halving to a net 14 percent, which Mundy said suggested the area was more sensitive to higher mortgage rates or fuel costs.

As with other business indicators, Canterbury was the most upbeat region with price expectations barely changed at 30 percent expecting higher prices.

Mundy said housing supply was still a key factor for market sentiment.

"While higher interest rates and the rising cost of living pressures are expected to weigh on demand, abundant housing supply is continuing to support buyer interest, giving purchasers more choice, flexibility and time to make decisions."

Looking ahead she said expectations of higher inflation and interest rates would weigh on housing demand in the near term, particularly as cost‑of‑living pressures persisted amid forecasts inflation would head closer to 5 percent this year.

"With interest rates likely to rise from here, we expect to see households willing to lock in mortgage rates and for housing market activity to remain relatively subdued in the near term."

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