House price expectations are proving slow to recover in the latest ASB Housing Confidence Survey.

While price expectations may have rebounded back to pre-election levels, they remain below recent highs.

A net 38 per cent of respondents for the three months to July 2018 say they expect higher house prices over the next year, compared to an average of +44 per cent since January 2015.

ASB chief economist Nick Tuffley says price expectations are continuing to firm, but the ASB Housing Confidence Survey is showing ongoing uncertainty in the housing market is fuelling caution about market prospects.

'For example while election-related uncertainty has subsided, when net house price expectations slipped as low as 16 per cent, the outlook for the housing market is murky. Competing influences of strong population growth, limited supply, legislation uncertainty, and affordability constraints have subdued market activity and prices,” says Nick.

All broad regions registered higher price expectations in the most recent survey. However, Auckland remains the least optimistic, with a net balance of +21 per cent, up from 19 per cent.

Canterbury expectations on the other hand firmed the most, with net expectations increasing by 11 per cent to 32 per cent, the highest level since April 2017.

House price expectations remain the most upbeat in other regions, with the rest of the North Island lifting to +49 per cent.

Similarly +48 per cent has registered in the rest of the South Island. The two regions have consistently taken out the top two spots since late 2015.

'Interestingly, the survey responses reflect the dichotomy we are observing in the New Zealand housing market at present. Softer house price expectations, sales activity and prices in Auckland and Christchurch are contrasted with a still reasonably upbeat outlook for regional New Zealand - both in terms of price expectations and realised price gains,” says Nick.

Based on the results, the region remains the only one where the majority of respondents, a net 9 per cent, consider now as being a good time to buy.

'Cantabrians are holding firm to their buying paddles, as they continue to reign as the most optimistic and in fact view it as the best time to buy since the devastating February 2011 earthquake,” says Nick

In other regions pessimists outnumber optimists, with 14 per cent of respondents nationwide saying it's a good time to buy, while 19 per cent of nationwide respondents say it's a bad time.

However, it's important to note that the recent pattern of improving sentiment was evident, with the net balance of -4.4 per cent in this latest ASB Housing Confidence Survey.

'That's the highest level since April 2016 and considerably less negative than it was a year ago, when it was -13 per cent,” says Nick.

The majority of respondents have also indicated they are expecting higher interest rates in the next year.

Interest rate expectations barely moved in the three months to July, with net expectations lifting to +33 per cent from +32 per cent in the three months to April.

'Interest rate expectations were similar across regions in the latest survey, with net expectations ranging from 31 per cent to 33 per cent. This is the narrowest inter-regional range since April 2015,” says Nick.

'The Official Cash Rate (OCR) has now been on hold for just under two years and is expected to remain at 1.75 per cent for at least another 12 months. The steady OCR has been anchoring shorter-term fixed mortgage rates, as well as the variable rates.

'We expect the OCR to move up from November 2019, but assume a gradual path of policy tightening and a historically-low OCR endpoint this cycle. This should ensure that mortgage interest rates stay reasonably low over the next few years and is likely to temper respondents' expectations,” says Nick.

The full ASB Housing Confidence Survey for the three months to July 2018 will be available online at www.asb.co.nz

Other recent ASB reports that also include housing commentary can be accessed via a Search page https://reports.asb.co.nz by selecting the keyword ‘Housing'.