New Zealanders' house price expectations plummet to lows last seen during Global Financial Crisis - ASB

House price doom and gloom is showing no signs of abating with Kiwis' expectations falling to lows last seen during the Global Financial Crisis. 

According to ASB's latest housing confidence survey, 43 percent of respondents thought house prices would fall in the coming year, in comparison to the same time last year when 49 percent thought prices would increase.

At the height of the GFC in July 2008, a net 55 percent of respondents thought prices would decrease for the year ahead.

While housing expectations haven't hit that low yet, ASB senior economist Kim Mundy believes sentiment is likely to fall further. 

"The housing market has been weak of late and it doesn't look like it's going to turn around any time soon," Mundy said in a press release. 

"Housing market activity is heavily linked to the interest rate outlook so it's not surprising people's price expectations keep falling given the Reserve Bank has signalled there are more official cash rate hikes to come."

Net price expectations.
Net price expectations. Photo credit: ASB

On February 22, the Reserve Bank (RBNZ) hiked the official cash rate (OCR) by 50 basis points. It took New Zealand's baseline interest rate to 4.75 percent, with the RBNZ having now added 450 basis points since October 2021.

ASB expects the OCR to continue rising to a peak of 5.25 percent from the current 4.75 percent.

Kiwis also believe the country is in for more interest rate hikes.

The ASB survey released on Monday found 78 percent of respondents expect interest rates to keep rising over the coming 12 months. The views were relatively certain with only nine percent saying they weren't sure, compared to the usual average of 21 percent.

Aggressive rises in interest rates are a large factor for falling house prices, with Real Estate Institute of New Zealand (REINZ) data finding house prices plunged 12.2 percent in the year to December 2022.

House prices in February fell nearly nine percent on average when compared with the same month in 2022, however, in Wellington prices decreased a huge 19.7 percent. 

"House price falls have already been higher on a percentage basis than what we saw during the GFC so we might see net price expectations drop down to a GFC low, if not surpass that, in the coming quarters," Mundy said.

ASB's survey found South Islanders outside of Canterbury were the most pessimistic about price expectations, with 47 percent of respondents expecting prices to decrease in the coming year. This was followed by the upper North Island at 46 percent.

"Possibly we're seeing the regions playing catch up," Mundy said. "We saw prices drop in the main centres such as Auckland and Wellington first because affordability was most constrained.  However, we are now seeing widespread house price falls across the regions as interest rates continue to climb."

ASB's housing confidence survey.
ASB's housing confidence survey. Photo credit: ASB

Respondents also had pessimistic views on buying homes. A net two percent of respondents said it was a bad time to buy a house.

Auckland remained the sole optimistic region with net two percent thinking now is a good time to buy, however, that percentage has fallen from net nine percent.

"It's not only interest rates that influence whether it's a good time to buy or not, it's also affordability," Mundy said. 

"Given we might be nearing a pause in interest rate hikes it could suggest we're past the peak in terms of thinking it’s a bad time to buy, because the affordability argument might start to outweigh the serviceability concerns. 

"We're not at the bottom of this housing market cycle yet."