"For over a year rising house prices have buoyed investor confidence and this appears set to continue for at least the next few quarters of 2004," ASB Bank head of relationship banking and financial services James Mitchell.

Curiously ASB’s Housing Confidence Survey, which was released last month, showed that housing confidence is down.

The bank says there are likely to be a couple of reasons behind this. “Firstly, investor confidence often lags housing confidence and secondly, it appears that investors rather than new home buyers are driving the housing market at present.

"In the housing survey the general sentiment was that it is a bad time to buy a house, however the housing survey also showed most people still believe house prices will increase,” the bank says in explanation.

The price increase belief is driving investors seeking capital gains in the housing market. Therefore when asked if it will be a better or worse year for investments and what type of investment gives the best return, investors are saying it will be a good year for investments and I believe house prices will increase, therefore I choose housing as the investment of choice.

ASB believes that although recent house price increases are driving investor confidence, positive returns from shares and managed funds are also contributing to the overall rise in confidence.

"With sharemarket indices such as the MSCI and FTSE in positive cycles and posting improved returns, we are likely to see renewed interest in managed funds as people once again are attracted to equities," Mitchell says.

He says investors are remaining positive, although concerns over the ongoing strength of the New Zealand dollar and the likelihood of further interest rate rises could affect investor confidence.

"One in three people interviewed expect better returns on their investments in 2004 compared with 2003."

Almost one quarter of the sample felt rental property was still the best investment option.