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House market to remain weak - ASB

Tuesday 22nd February 2011

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The housing market is set to remain subdued for the next couple of years and further declines in house prices are expected in early 2011, according to the latest ASB Housing Confidence Survey.

The survey has found that despite a continued decline in interest rate expectations, a degree of caution remains about the state of the housing market, with recent data pointing to continued weakness.

"Weak housing demand has flowed through to a modest decline in house prices, with the REINZ seasonally-adjusted median price index now 5.7% below the peak in 2007," ASB said.

"This is in line with our expectations of soft prices over 2011. We expect the housing market will remain soft over the next couple of years, both in terms of the pace of sales turnover and house price growth."

When it comes to expectations of rising house prices, 32% expect higher prices (35% last quarter), while 23% expect to see prices fall further (25% last quarter).

Confidence on whether now was a good time to buy has remained steady over the quarter, with 39% believing now is a good time to buy against 40% last quarter, while 12% believe now is a bad time to buy against 13% last quarter.

There was a broad-based, nationwide fall in the number of respondents expecting interest rates to rise over the year, with 59% expecting higher rates against 65% in the previous quarter, while 4% believe rates will fall against 5% last quarter.

Auckland was highlighted as one region where the housing market had been particularly resilient, with the survey showing a continued increase in house price expectations.

The bank cited factors such as Auckland’s lower housing inventory and population growth, noting the higher demand had also resulted in stronger rental inflation over recent months.

While the bank was positive on the outlook for Auckland, its view on the housing market as a whole was less optimistic.

"We expect housing market activity to remain subdued over the coming months, and some further declines in house prices over early 2011. The fundamentals for the housing market remain unsupportive, with net migration at low levels and housing affordability still stretched despite some correction in recent months. In addition, while interest rates are currently low, they are significantly higher than in early 2009 and are expected to rise over the coming years."



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