More people think house prices will keep falling - yet a growing number also think it's a good time to buy one, according to a new housing confidence survey.
The ASB bank's Housing Confidence survey for the three months ending July showed 55 per cent of respondents expected lower house prices in the previous quarter this number was 34 per cent.
"This result is by far the most extreme reading since the inception of the ASB Housing Confidence Survey in 1996, reflecting expectations that a weaker housing market will continue for the rest of 2008," said ASB chief economist Nick Tuffley.
Such sentiment had a big effect on home sales turnover, said Tuffley, largely due to reluctance by vendors to drop prices.
Now the "balance of power" had shifted so that those who really did need to sell would have to accept the lower prices.
But in spite of these lower price expectations, a growing proportion of those surveyed were optimistic about it being a good time to buy a house.
A net 9 per cent - up 18 percentage points from the first quarter of 2008 - see now as a good time to buy a house, which is also slightly above levels seen early last year.
"This improvement in buyer sentiment coincides with a marked swing in interest rate expectations," said Tuffley. "Would-be first homeowners with relatively small deposits are particularly sensitive to interest rate changes because of their effect on how much debt they can afford to service."
Mortgage rates started to move down in early May, and again in June, the market reacting to the Reserve Bank of New Zealand's announcements regarding a likely series of drops in the Official Cash Rate. This market sentiment fed through to the survey, with only a net 7 per cent of respondents now expecting interest rates to rise, a huge swing from the net 54 per cent in Q1 2008.
Tuffley said that declining interest rates would help to "gradually bring some stability back into the housing market" but prices were likely to remain subdued in most regions for a couple of years.
"House prices remain high relative to incomes, and there appear to be few magic bullets in the wings that will change this. That aside, there is a glimmer of hope on the horizon, with some easing of pressure on household finances likely to come over the next year through lower interest rates and tax cuts."
House price stats released by Quotable Value last week showed the value of New Zealand homes had slipped backwards for the first time in more than seven years.
Values fell 2.2 per cent in the year to July, with clear signs of sellers dropping asking prices.
Quotable Value spokesman Blue Hancock said many sellers were now accepting the state of the market and lowering their expectations.
The result was more sales, although numbers were still well below long-term averages.
The average New Zealand sale price stayed steady at $393,370 in July. But growth in home values fell from 12.7 per cent a year ago into the negatives, and the Reserve Bank says it will be three years before prices recover.