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Further house price falls possible, says Reserve Bank

Housing market activity has weakened ‘considerably’ over the past year and house prices could decline further, according to the Reserve Bank’s Financial Stability Report.

Wednesday, November 10th 2010, 12:00AM 1 Comment

by The Landlord

The report said a combination of low net migration, declining labour income, a slow recovery in house building and uncertainty about market clearing price levels have all led to muted housing activity.

"In this environment, house process could decline further," the report said.

House price adjustment has been modest, with prices falling 5% since their peak, resulting in prices remaining high relative to income.

Low rental yields from investment property also suggest overvaluation, particularly in light of recent Budget changes to the tax treatment of property investment.

The report said that against a background of rising interest rates, "a more significant adjustment is possible over the coming years, particularly if the labour market were to weaken."

Any rate rises will make it harder for some households to reduce their debt burden. According to the 2009 Household Economic Survey, around 15% of mortgage holders are particularly vulnerable, with housing costs exceeding 40% of their gross income.

With the portion of households on variable interest rate mortgages having risen over the past few years, future rate rises will feed through to debt servicing more quickly.

For households the fall in interest rates since 2008 has provided some relief, allowing some borrowers to reduce debt by using interest savings to pay off principal, however mortgagee sales as a portion of overall sales are higher than in recent years and the effective mortgage rate has increased recently, and is expected to rise further in the coming years.

The report cites a robust labour market recovery as important for the housing market, as household debt consolidates and interest rates return to more normal levels, and says that while the labour market has been volatile, employment seems to be growing modestly and the number of unemployed has fallen from its peak.

« Momentum building in house market, according to ANZCommercial property returns move into upswing »

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Comments from our readers

On 11 November 2010 at 1:10 pm Dave Higson said:
Hi Russell.

You may wish to pass this on to the Beaumont vendor - the first 7 paragraphs in particular reinforces my attitude on property (particularly Mt. M. apartments) market values.

I could be offering too much ???

Dave

Commenting is closed

 

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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

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