House prices should firm around five per cent next year, although confidence in the residential property market generally has eased back in recent months.
In the ASB Bank's latest Quarterly Housing Report, economist Rozanna Wozniak predicts a small price rise thanks to growing confidence in a sustained economic recovery. However, that's been offset by the likelihood of further interest rate rises.
Wozniak expects a small rise in floating rates before the end of the year and further rises doing 2000 and 2001. She says that long-term fixed rates have already anticipated future rises, so that floating and short-term fixed rates are likely to bear the brunt of any further moves.
Interest rates remain the main driving force behind confidence, while election related concerns are only creating a mood of caution rather than pessimism at this stage.
The ASB report found that:
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Home buying confidence has fallen back slightly since earlier in the year. However, two thirds of those surveyed still thought it was a good time to buy and just seven per cent thought it was a bad time.
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House price expectations have improved. A net 34 per cent thought prices would rise in the next year, up from 27 per cent the previous quarter.
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Christchurch is now the most optimistic of the three main centres (overtaking Auckland), while confidence weakened in Auckland and Wellington.
The bank also tried to find out whether people had used lower interest rates as an opportunity to repay debt, but said that "overall, the results were not encouraging". It questioned respondents who had mortgages in the middle of last year (when rates were falling) and found:
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Seventy per cent left the terms of their mortgage unchanged
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Twenty nine per cent decided to change the terms of their mortgage. Of those, only 33 per cent reduced the term of their loan.
"Consumer lending data also suggests that New Zealanders' appetites for increasing debt has reduced significantly. The rate of growth in lending to households has decreased from the levels of several years ago.
"However, at 9.5 per cent during the year ended June, the rate of growth remains strong."
