Expectations of low interest rates are “a good indicator of future housing prices”

Houses at the Waimahia development in Weymouth in Auckland.

ASB forecasts 1 per cent growth in house prices in 2024.
Photo: RNZ / Kim Baker Wilson

There is a growing sense among households that interest rates will fall soon, but the country remains divided over whether now is the right time to buy a home.

The ASB 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 3,000 people surveyed expected interest rates to fall, compared with a net 15 percent who expected rates to rise in January.

Households were unsure whether it was the right time to buy, with 55 per cent believing it was neither a good nor bad time to buy, slightly up from 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 this was in line with its forecasts of 1 per cent house price growth in 2024.

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

“There are many conflicting factors at play in the market right now. While we are at the peak of the interest rate cycle, there is still uncertainty over when the Reserve Bank will begin reducing the Official Cash Rate (OCR), which meaning affordability constraints are likely to persist,” he said.

Mundy said household expectations of lower interest rates were premature in ASB’s view, but should not be ignored as sentiment could boost demand.

“Sentiment has tilted timidly in favor of lower interest rates and although we think this may be a little premature, it is often a good indicator of future house prices,” he said.

“We saw this in the latest change in rate expectations in late 2020 and early 2021, closely followed by the peak of house price growth of around 30 per cent in mid-2021.”