ASB Survey: Interest Rates Expected to Fall as NZ Housing Market Faces Stalemate

Date Published: 20 June 2024

Key Facts

• ASB’s latest Housing Confidence Survey indicates a directionless housing market with high debt servicing costs and upfront affordability constraints.
• For the first time since early 2021, more respondents expect interest rates to fall rather than rise, with a net 1% expecting a fall.
• ASB senior economist Kim Mundy highlights that interest rate expectations are a key indicator for future price direction.
• Expectations point toward the Official Cash Rate (OCR) cuts in early 2025, influencing housing market sentiment.
• Overall economic growth is expected to remain weak, with higher unemployment rates, which could affect housing demand.
• ASB does not anticipate a significant rise in house prices until the RBNZ signals a reduction in the OCR.

Article Summary

ASB’s latest Housing Confidence Survey reveals a complex landscape for prospective homebuyers and property investors in New Zealand. The survey underscores a market characterized by high debt servicing costs, ample listings, and upfront affordability constraints, making the decision to purchase property anything but straightforward. Notably, for the first time since early 2021, a marginally higher proportion of respondents predict a decline in interest rates rather than an increase.

This shift in sentiment regarding interest rates, with a net 1% expecting a fall, contrasts sharply with the 15% from January 2024. ASB senior economist Kim Mundy notes that changes in interest rate expectations have historically signaled key turning points in house price trends. For instance, the rise in expectations for falling interest rates in late 2020 was shortly followed by a peak in house price growth by mid-2021. However, this time around, OCR cuts are not expected until early next year, which aligns with the current sentiment that house prices will remain stable in the coming quarters.

Additionally, the broader economic context is less encouraging, with an anemic growth forecast and a rising unemployment rate over 2024 expected to dampen housing demand. Despite these challenges, increased confidence among respondents about falling interest rates might gradually encourage market activity. Nonetheless, a more significant uplift in house prices is not anticipated until the Reserve Bank of New Zealand (RBNZ) signals impending OCR reductions.

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