A new report out Friday from ASB Bank found the vast majority of Kiwis think prices will keep rising over the next 12 months, despite recent moves from the Government and Reserve Bank to rein in the skyrocketing market.
"That represents a bit of a wobble from last quarter's 73 percent all-time high, but we're still talking about the third-highest reading in the 25-year history of our survey," ASB's report said.
Independent economist and housing market expert Tony Alexander told The AM Show on Friday there is still "upward pressure" on house prices.
"The reality is a lot of people have stepped back from the market, real estate agents saying they're seeing fewer people at open homes and auctions, mainly investors that have stepped back, but a few first-home buyers as well."
Investors are taking a "wait-and-see attitude" he said - firstly to see how the Government's new tax rules around new builds will work, and secondly to see what other investors do.
First-home buyers, he said, tend to take their cues from investors.
"So just at a time when space is being created for first-home buyers to show up at auctions - less competition - they're stepping back as well because they're a little bit scared of what's happening out there."
Treasury picks house price inflation to drop to 0.9 percent. Alexander says while some months will see falls, he expects prices to be up 5 percent in a year's time - still above inflation, but well down on the past year's 20 percent-plus.
The Reserve Bank, which was recently asked by Finance Minister Grant Robertson to take house prices into account when it sets monetary policy, has hinted interest rates could start to go back up next year. They were dropped to a record-low of 0.25 percent last year to stimulate the economy, which ended up performing unexpectedly well thanks to New Zealand's successful elimination of COVID-19.
Low unemployment puts upward pressure on inflation, and New Zealand's has been much lower than initially expected when COVID hit. Alexander said from next year, it's likely the official cash rate will rise 1.5 percent over the following 18 to 24 months.
While that number seems small, it amounts to a 50 percent increase in the amount of interest a person will be paying each fortnight/month on their mortgage.
"If you're borrowing at 3 percent and it ends up going up 1.5 percent over an 18-month or 24-month period, that's a pretty large increase in your debt-servicing expenditure every month."
Let's say you bought a house at the median nationwide price of $810,000 with a 20 percent deposit on a 30-year term. According to ASB's mortgage calculator, at 3 percent interest you'd be paying $2732 a month; if interest rates jumped to 4.5 percent, you'd be paying $3284 - an extra $552 a month.
But even 4.5 percent would still be low by historical standards, Alexander said, so investors won't be deterred - where else can you get the bank to lend you hundreds of thousands of dollars with a deposit only a fraction of that?
"[Housing investment is] still going to be the logical place to be. They're not going to wholesale jump out of the market."
