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LVR changes won’t prompt market frenzy

The Reserve Bank’s easing of the LVRs could give some upward momentum to house prices but economists are not expecting the market to take off again.

Monday, December 4th 2017, 1:34PM

by Miriam Bell

News that the LVRs are set to be relaxed as of 1 January 2018 has led to some suggestions that the move might prompt house prices to start escalating again.

Westpac economists say the Reserve Bank’s move means there is some upside risk to their recent housing forecast of a 2% fall in house prices over 2018.

But they point out that the new government is planning on rolling out a suite of policy changes to dampen house price inflation over the coming years.

“This limits the risks of a large uplift in prices over the next few years, even with the loosening of lending restrictions.

“Planned policy changes still leave us expecting a period of subdued house price inflation over the next few years.”

ASB economist Kim Mundy agrees with this assessment.

She says the initial LVR easing is likely to contribute to a stabilising in 2018 of the mild price falls seen in Auckland and Christchurch in recent times.

“We would still expect price growth in other regions to flatten off where capacity constraints are not as tight…We don’t expect the eased restrictions to spark a return to strong house price growth.”

Others believe the easing of the LVRs are not likely to have much of an impact on the market.

BNZ chief economist Tony Alexander says the Reserve Bank wouldn’t be relaxing them if it thought it would lead to a new surge in the housing market.

“We also think a fresh wave of demand hitting the market and pushing prices newly skyward is unlikely,” he says.

“The fundamentals still support prices rising – but not at an accelerating pace.

“And the bulk of the repricing of the country’s housing stock to reflect changes in long-term fundamentals has probably already happened.”

But, in Alexander’s view, the biggest reason house prices won’t surge anew is the absence now of FOMO.

When prices rise firmly people feel a visceral need to jump into the market to avoid missing out on future gains which might come – as is now happening with Bitcoins, he says.

“Since the second half of last year FOMO has plummeted with regard to Auckland and it is on the way out in the regions.

“Even if the Reserve Bank eases the LVRs further next year, the absence of FOMO means it still might not elicit a fresh investor surge – especially as banks have tightened lending criteria anyway.”

Read more:

LVR loosening not enough 

LVR easing sooner than expected 

Tags: ASB BNZ LVR RBNZ Reserve Bank Westpac

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.79 4.95 5.15 5.49
ANZ Special - 4.45 4.65 4.99
ASB Bank 5.80 4.79 4.99 5.29
ASB Bank Special - 4.49 4.59 4.89
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.59 4.65 4.99
BNZ - Std, FlyBuys 5.90 4.99 5.29 5.59
BNZ - TotalMoney 5.90 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.15 5.45 5.50 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 5.00 5.20 -
Housing NZ Corp 5.79 4.75 4.99 5.29
HSBC Premier 5.79 4.19 4.29 4.89
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
Lender Flt 1yr 2yr 3yr
ICBC 5.80 4.59 4.69 5.09
Kiwibank 5.80 4.95 5.15 5.49
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.45 4.65 4.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.94 5.30
RESIMAC Special 5.00 - 4.75 -
SBS Bank 5.89 4.99 5.19 5.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 4.59 4.69 4.99
Sovereign 5.90 4.79 4.99 5.29
Sovereign Special - 4.49 4.59 4.89
The Co-operative Bank - Owner Occ 5.75 4.49 4.69 4.99
The Co-operative Bank - Standard 5.75 4.99 5.19 5.49
TSB Bank 5.80 4.80 5.15 5.45
TSB Special - 4.55 4.69 4.79
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.99 5.19 5.44
Westpac - Offset 5.95 - - -
Westpac Special - 4.59 4.65 4.94
Median 5.82 4.79 4.99 5.29

Last updated: 8 December 2017 7:30am

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