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Housing market still worries Reserve Bank

The Reserve Bank says it is still concerned about the housing market in New Zealand and it is too early to tell yet whether its lending restrictions are having any impact on the market.

Wednesday, November 13th 2013, 9:22AM 5 Comments

Reserve Bank Governor Graeme Wheeler said, when releasing the bank’s Financial Stability Report this morning, that the New Zealand’s financial system remains sound, and the biggest risk is the housing market.

“Banks are well capitalised and have strengthened their funding base, while non-performing loans continue to decline."

“The main threat to the financial system is the risk associated with imbalances in the housing market  The previously announced loan-to-value ratio (LVR) measures, starting from October 1, are intended to reduce systemic risk by slowing housing credit and house price inflation, and by reducing risk on bank balance sheets.

“The household sector has high and rising levels of debt relative to both historical and international norms. Both households and banks are highly exposed to the housing market. Further, we have a situation where house prices are rising from already-overvalued levels, particularly in Auckland and Christchurch. This is increasing the risk of a future house price correction that could result in significant financial system stress.

Wheeler said that several factors are contributing to the strength in house prices, including supply side constraints, a pick-up in net inward migration, relatively low interest rates, and relaxed credit conditions. “Dealing with the supply side issues is of primary importance. However, it is also important to avoid a prolonged build-up of excess demand while the supply issues are being addressed.”

Wheeler dismissed concerns raised from the new-build sector that the bank's policy had resulted in buyers decide not to build new houses.

He said new builds made up only two to three percent of lending volumes each month and housing start numbers were 50% higher than in housing market trough two years ago.

However, he did say the bank would "monitor the situation."

Wheeler said that the bank is closely watching the impact of the LVR policy. “The early evidence shows that banks have significantly reduced high LVR lending approvals, while increasing the cost of high LVR loans.  However, it is too early to assess the impact of the measures on house price inflation.”

Deputy Governor Grant Spencer said that other risks to financial stability were high levels of debt  in the dairy sector, and New Zealand’s high level of external indebtedness overall.

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Comments from our readers

On 13 November 2013 at 9:52 am Jeff Royle said:
Builders reporting layoffs in an industry that desperately needs lifting.
Property investors buying up to satisfy the demand of those unable to buy
Auckland property prices continuing to rise
Epic fail.
On 13 November 2013 at 9:59 am Nick Fraser said:
Oh if only the RBNZ governor actually understood the real world then instead of placing LVR restrections he would have placed restrictions on the real estate industry allowing them only 10% of listings to be by auction. That woudl have calmed the market without unfairly penalising first home buyers
On 13 November 2013 at 1:47 pm Simon Rule said:
Agree with Jeff and Nick's comments.

The issue for Auckland is that it is the recipient of the largest number of new residents each year in New Zealand and its limited supply of housing stock is already well and truly insufficient to meet the current demand from existing local purchasers.

As anybody who is currently trying to purchase a home in Auckland knows the purchasers who are in fact driving up Auckland house prices aren't young Kiwi first home buyers. It is wealthy older Kiwis + investors and property speculators who have the cash to actually secure a home at auction. These LVR restrictions by the Reserve Bank will not impact these particular purchasers in the slightest. That is the reality of the situation. These purchasers will frequently buy a property with the upfront intent of on-selling it once they have made cosmetic improvements and thus can achieve an increased capital gain which they reap themselves when they sell. Bottom line this kind of speculative activity typically sees what would usually be an entry level property quickly become well and truly out of the reach of most 1st home buyers. This to me is something that needs to be addressed urgently by our politicians.

The other big issue facing Auckland now (and other parts of New Zealand to a lesser extent) is the impact that overseas investors (non-resident purchasers) are having on the cost of housing here in NZ.

When we have such a chronic supply shortage of housing (especially in Auckland) it seems to make no sense that non-residents be allowed to effectively deny Kiwis ownership of a home in their own country. The issue of allowing non-residents to continue to purchase domestic housing in NZ seems a political “hot potato” with some people saying it is xenophobic to blame foreigners for rising house prices. Unfortunately the simply reality is that these individuals are a big cause of why house values are increasing so rapidly as many do not need to even raise a mortgage and are thus “cash” buyers. Most neighbouring Asia-Pacific countries in our region have seen the impact that unchecked non-resident investment in domestic property can have on local property values (and the supply of available housing stock) and thus have acted to address this. To date New Zealand has not done anything but we need to urgently. Aside from Japan and South Korea we are the only Asia-Pacific Country to have no restrictions whatsoever on non-resident purchasers been able to buy residential housing here.

Even Treasury is now recommending that the Government address this issue as even they can see the impact that non-resident purchasers are having on Auckland house prices. Perhaps the Government will finally wake up with an election around the corner next year?
On 13 November 2013 at 2:29 pm Mike Hardy said:
Got to say I agree with both previous comments. Have had to jump through hoops to buy our first home. Lo and behold, every other property we could no longer afford after this scheme came into effect that sold, went straight onto the rental market (investors) , why on earth is everyone being punished when the problems are concentrated in two areas?
On 20 November 2013 at 6:35 pm Grananne said:
I agree with the comments above, especially about foreign buyers. A relative has just sold their rental property and got a lot more for it than expected! Have sold in a week and were offered cash. Young couple renting it would have loved to have bought it, but couln't afford it, and are worried that they will have to move out of Auckland as they will not be able to pay the high rent when they have to move!
We were lucky when young as we could get a State Advances Loan! What happened to these for first time buyers?

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 12 June 2024 4:04pm

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