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Reserve Bank predicts house price fall

The Reserve Bank is expecting house prices to fall in real terms over the next few years and if the housing market doesn't cool soon, that fall could be even sharper.

Tuesday, December 13th 2005, 12:00AM

by The Landlord

The central bank's latest monetary policy statement says that house prices are currently sitting around 15% higher than it envisaged at this time list year.

"We expect momentum in the housing market to decline quite quickly, but see a risk of further rises in house prices before the market turns around," the bank says in outlining its "stronger-for-longer" scenario which assumes that house prices will be temporarily 10% higher than under its most likely scenario.

If the "stronger-for-longer" scenario pans out, "demand continues to remain strong over 2006 and most of 2007, bolstered by home owners converting increased housing wealth into consumption," the statement says.

That would mean stronger inflation pressures and further rate increases. "However, the housing market eventually undergoes a sharper correction, resulting in a sharper slowdown in domestic spending."

The bank notes that after moderating in late 2004, house price inflation has picked up since early 2005 and that the Real Estate Institute and Quotable Value figures are showing "surprising resilience."

It suggests that the persistence in house price inflation "may in part reflect the geographically broad-based nature of the current house price cycle. Strong house price increase are being recorded in provincial cities and rural areas and not just in the main cities," the bank says.

It also notes that household's debt-to-income ratio has continued to climb and has reached more than 140% of disposable income.

The Reserve Bank says that fixed-rate lending now accounts for almost 80% of all mortgage debt, up from less than 60% in 2000/01. It says that fixed-rate mortgages with less than two years to run until they have to be re-priced make up more than 65% of all outstanding mortgage debt.

About 40% of existing fixed mortgage debt will re-price from an existing average rate of just over 7.2% over the next year.

"On the basis of recent rate developments and the outlook for mortgage rates implied by our projections for short and long-term wholesale rates, these borrowers will face rates at least 60 to 70 basis points higher than they were previously paying," the central bank says.

That's a higher increase in average mortgage rates than it was projecting in its last statement back in September, the central bank says.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
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 - 7.24 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 7.84 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 - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 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 6.69 6.45 6.19
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 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
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 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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