27 Oct 2020

House prices and sharemarket nudge pessimistic investor confidence

10:30 am on 27 October 2020

Investor confidence has bounced off record lows but remains pessimistic, despite a surging sharemarket and a strong bounce back in house prices.

Houses as seen from Mount Eden summit in Auckland, New Zealand.

ASB was now expecting an annual house price rise of 12 percent in the year to June 2021. (File image). Photo: Unsplash / Nick Sarvari

The latest quarterly ASB Investor Confidence Survey shows sentiment rose 14 points to a negative 11 percent.

ASB senior economist Chris Tennent-Brown said pessimism had been the prevailing mood because of the Covid-19 lockdowns, with predictions of sharp falls in house prices, and volatile financial markets.

"Fast forward a few months and national house prices have bounced back to fresh record highs. Uncertainty is never good for confidence but as the Covid picture in New Zealand has become clearer, a rising tide of confidence has been reflected in this survey."

He said there were a number of factors affecting investor sentiment as a whole.

"There is so much uncertainty at the moment, which is causing a lot of volatility for investments like shares, KiwiSaver and managed funds."

House prices have risen by more than 7 percent on a year ago, and the sharemarket posted a run of record closes earlier this month.

ASB was now expecting an annual house price rise of 12 percent in the year to June 2021.

However, the improvement in sentiment was stronger in regions outside of Auckland, increasing from -23 percent to -7 percent, compared to Auckland, where confidence increased from -27 percent to -19 percent.

The regional differences also showed in preferred investments, with Auckland favouring rental property for the best return, while the rest of the country believed their own home was the best option.

Tennent-Brown said Auckland's favouring of property reflected higher demand and improving labour market, which would support the housing market.

"We expect to see this reflected in coming quarters in terms of investor confidence. But we don't think the gains will be focused on Auckland - prices across the country should garner support from the combination of low interest rates and the economic recovery."

KiwiSaver was seen giving the best return for a bank product at 11 percent, well ahead of bank deposits.

Investor confidence was also split across age lines, with a third of people under the age of 40 expecting their returns to grow over the next year, compared with just 11 percent of people aged 60 and over.

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