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Call for LVR review as sales plunge

A dramatic decline in sales around New Zealand has prompted the Real Institute of New Zealand (REINZ) to issue a plea for LVRs to be lifted for first home buyers.

Friday, August 11th 2017, 11:50AM 1 Comment

by Miriam Bell

REINZ chief executive Bindi Norwell

The July data from REINZ shows that national sales volumes fell by almost a quarter (23.9%) year-on-year and by 3.3% on June, once seasonally adjusted.

This represents the lowest number of properties sold nationally I n a non-Christmas month (December/January) since August 2014.

At the same time, Auckland, which has long been a key driver for the national market, saw sales volumes decline by 29.9% year-on-year and by 2.2% on June, once seasonally adjusted.

REINZ chief executive Bindi Norwell said the number of sales across New Zealand has dropped significantly in comparison to the same time last year.

A key reason for this is that the two biggest hurdles to purchasing a house right now are access to finance as the banks continue to tighten their lending criteria and LVR restrictions, she said.

“This creates an intimidating barrier to entry to the real estate market, particularly for those saving for their first home.

“No matter where we are in the country, agents tell us that there are a good number of buyers out there, but that these two issues are impacting both investors and first-time buyers alike.”

Throw in an election, winter, school holidays and one of the wettest Julys on record, it’s little wonder the number of properties sold last month fell so significantly, Norwell said.

“The LVR restrictions have done their job of slowing the market, but now it seems they are acting as a handbrake which is why REINZ is calling for LVRs to be reviewed for first time buyers.”

However, REINZ’s pleas for changes to the LVRs seem likely to fall on deaf ears at the Reserve Bank.

In the press conference accompanying outgoing Reserve Bank governor Graeme Wheeler’s last OCR announcement on Thursday, Wheeler made it very clear that the Reserve Bank was pleased with the cooling effect the LVRs have had on the market.

A major reason for this is that house price growth has slowed markedly.

Wheeler said that national house price growth has now slowed to around 2.8% annually.

Within this, Auckland house price growth is falling by around 1% on an annual basis but, around the rest of the country, house price growth is running at round 9% - although it is falling.

REINZ’s July house price data presents a similar story.

Once seasonally adjusted, the national median price was up by 3.3% year-on-year to come in at $518,000, as compared to $501,000 in July 2016.

Excluding Auckland, the national median price, once seasonally adjusted, increased by 6.2% year-on-year to $415,838.

But the national median price was down – with and without Auckland included – on last month (by 2.3% and 3.3% respectively).

Auckland’s median house price was down by 0.8% year-on-year, once seasonally adjusted, to $830,000. It was down by 2.4% on June.

Alongside Auckland, three other regions saw a year-on-year decline in median house prices. They were Bay of Plenty (down 1.2% to $489,000), West Coast (down 23.5% to $195,000) and Canterbury (down 2.3% to $420,000).

Conversely, four regions saw record median prices year-on-year. They were Northland (up 23% to $455,000), Hawke’s Bay (up 25.8% to $400,000), Nelson (up 20.2% to $493,000) and Otago up (15.3% to $400,000).

Norwell said the fact that most of the country saw price rises shows that demand is still strong across significant portions of the country.

“Most notably this growth is seen in provincial towns rather than the bigger cities – much of which can still be attributed to people looking to exit the bigger cities for more affordable and relaxed lifestyles.”

She added that although Auckland’s median house price has fallen slightly, the housing shortage coupled with the increased population growth means the city is likely to be protected from significant price decreases in the short term.

ASB economist Kim Mundy said while the REINZ data shows the housing market is continuing to cool, it also suggests that a degree of demand remains present in the market.

“As a result, some of the weakness in the sales activity data may be being driven by a lack of inventory.

“But we expect to see activity and price growth remain subdued over 2017, especially in Auckland where prices are most stretched. “

For Westpac senior economist Michael Gordon, the ongoing weakening of the housing market is not just due to the impact of the LVRs.

The rise in mortgage rates since late 2016, following two years of steady declines, appears to have had a significant dampening effect on the housing market, he said.

“We expect the rise in mortgage rates to persist, as they are the product of factors that are beyond the control of domestic monetary policy.

“That points to the housing market remaining very soft over the next year or two.”

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Comments from our readers

On 12 August 2017 at 12:41 pm Maxwell K said:
REINZ has only one reason for seeking the lifting of LVRs for first home buyers and the easing of other restrictions both the Reserve Bank and commercial banks have implemented is purely to lift and or protect the income of their members.

When interest rates rise as they surely will in time, first home buyers who have purchased under the recent LVR rules will be thankful of the equity in their home due to the the deposit they had to have to get a loan.

Westpac's senior economist Michael Gordon sums it up perfectly when stating the obvious when saying" the ongoing weakening of the housing market is just not due to the impact of the LVRs.

The extremely high level of personal and household debt ie bad debt, will come back to haunt us.
Those that continue to use the equity in their homes like a ATM card will also learn a valuable life lesson about debt and money management the hard way.

My definition of bad debt is borrowing money for, hire purchase on consumer goods, car finance, borrowing for consumer goods, financing wants rather than needs, credit cards where the full payment can't be made each month plus using debt to fund things that don't produce a income or or purchase assets that don't increase in value over time.
Education, health care , housing, ongoing investing in your self are all obvious exceptions.

I intend to ignore much of what the REINZ have to say on monetary and economic matters due to the fact their main interest is to create a environment simply so their members to sell more homes.
No issues with that as long as the public don't swallow their snake oil statements and take a balanced view before indebting themselves for a very long time.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 3.19 3.19 3.49
AIA Special - 2.69 2.69 2.99
ANZ 4.44 3.15 3.25 ▼3.39
ANZ Special - ▼2.55 ▼2.69 ▼2.79
ASB Bank 4.45 3.19 3.19 3.49
ASB Bank Special - 2.69 2.69 2.99
Bluestone 4.44 4.44 4.44 4.44
BNZ - Classic - 2.65 2.69 2.99
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.25 3.29 3.59
Lender Flt 1yr 2yr 3yr
BNZ - TotalMoney 4.55 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 4.75 4.75 -
Credit Union South 5.65 4.75 4.75 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 4.35 4.45 -
HSBC Premier 4.49 2.60 2.65 2.80
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 3.99 2.58 2.68 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.40 3.54 4.00
Kiwibank - Capped - - - -
Kiwibank - Offset - - - -
Kiwibank Special 3.40 2.65 2.79 3.25
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
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Resimac 3.49 3.45 3.39 3.69
SBS Bank 4.54 3.29 3.19 3.49
SBS Bank Special - 2.79 2.69 2.99
The Co-operative Bank - Owner Occ 4.40 ▼2.69 ▼2.75 ▼2.99
The Co-operative Bank - Standard 4.40 ▼3.19 ▼3.25 ▼3.49
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TSB Special 4.54 ▼2.55 2.69 2.99
Wairarapa Building Society 4.99 3.75 3.99 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - ▼2.55 2.69 2.79
Median 4.55 3.19 3.22 3.39

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