House prices still expected to rise, despite high interest rates

By NZPA

Monday 8th July 2002

New Zealand houses have become less affordable and people expect house prices to continue rising, according to two surveys released today.

The quarterly AMP Banking Home Affordability survey today attributed the sharp decline in affordability between March and June to rising home loan interest rates and sustained activity in the housing market.

Home sales activity was at six-year highs in March for the second consecutive month, with 9742 homes sold, while the median house price rose to a record high of $189,000 in April before easing slightly in May.

As a result the affordability index fell 14.9 percent during the June quarter, the second consecutive quarterly decline and the steepest drop since December 1994.

All 11 regions recorded a quarterly decline in home affordability, with Northland reporting the steepest decline (24.4 percent), then Nelson/Marlborough (21.1 percent), Taranaki (18.1 percent), Auckland (17.6 percent), and Wellington (17.4 percent).

House prices also rose in those regions.

Otago experienced the smallest quarterly decline of 0.9 percent.

Eight of the 11 regions also saw home affordability slipping for the 12 months to June. The three to improve were Canterbury/Westland (up 3.8 percent), Taranaki (up 1.8 percent) and Wellington (up 0.2 percent).

Southland remained the most affordable region -- despite the steepest annual decline of 9.3 percent -- followed by Otago, while Auckland was the least affordable region.

In the second survey out today, the ASB Bank quarterly housing confidence survey showed that people remain confident house prices will continue to rise, despite recent interest rate hikes.

That follows a surge in house prices of 10.6 percent in the last 12 months.

On average 54 percent of respondents surveyed in the June quarter expected house prices to increase, compared with only 40 percent in the March quarter.

Confidence was particularly strong among Auckland respondents, with 63 percent of those surveyed expecting house price rises to continue.

The rise in expectations was driven by three factors, which differed to the reasons for declining home affordability -- a continued increase in personal income; ongoing high net migration flows; and a continued undersupply of houses.

"As long as incomes increase, so too will house prices and rents," ASB chief economist Anthony Byett said.

Recent interest rate hikes have seen a drop in the number of people rating now as a good time to buy a house, however.

Only 35 percent of those surveyed in the June quarter thought it was a good time to buy a house, down from 49 percent in the March quarter. The South Island remained more positive at 43 percent.

Mr Byett said 71 percent of respondents expect interest rates to continue rising over the coming quarter.

The Reserve Bank last week lifted the Official Cash Rate -- the benchmark for mortgages and business lending -- by 25 basis points to 5.75 percent, its fourth rise so far this year.

WestpacTrust and the Bank of New Zealand on Friday became the first of the main banks to match the central bank's move, with WestpacTrust hiking its floating mortgage lending to 8 percent from 7.75 percent while BNZ lifted its rate to 7.99 percent. Other banks are expected to follow suit this week.

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