Low interest rate expectations 'good indicator of future house prices'

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ASB forecasts a 1 percent house price growth in 2024.
Photo: RNZ / Kim Baker Wilson

There’s a growing sense of belief amongst households that interest rates will soon fall, but the country remains split on whether the time is right to buy a house.

ASB’s housing confidence survey for the three months to April showed that for the first time in three years, more New Zealanders expected interest rates to fall than rise.

A net 1 percent of the nearly 3000 people surveyed expected interest rates to fall – compared to a net 15 percent expecting rates to rise in January.

Households were unsure about whether the time was right to buy, with 55 percent believing it was neither a good nor bad time to buy, slightly higher than the previous quarter.

House price expectations also lost momentum, with a net 44 percent expecting prices to rise, down from 51 percent last quarter.

ASB said it lined up with its forecasts of 1 percent house price growth in 2024.

ASB senior economist Kim Mundy said the survey reflected a complex market.

“There are a lot of conflicting factors playing out in the market at the moment. While we are at the peak of the interest rate cycle, there is still uncertainty about when the Reserve Bank will begin lowering the Official Cash Rate (OCR) which means affordability constraints are likely to remain,” she said.

Mundy said households’ expectations of lower interest rates was premature in ASB’s view, but it should not be ignored as sentiment could drive demand.

“Sentiment has turned very tentatively in favour of lower interest rates and while we think this may be slightly premature, it is often a good indicator of future house prices,” she said.

“We saw this in the last rate expectation turn in late 2020 and early 2021, which was closely followed by the peak in house price growth at around 30 percent midway through 2021.”