Is the NZ housing market faltering?

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By Leith van Onselen

UBS has today released a short note arguing that the recent slowdown in growth of New Zealand housing finance commitments is unlikely to stem growth in house prices or prevent the Reserve Bank of New Zealand’s (RBNZ) from implementing loan-to-value ratio (LVR) speed limits on new lending:

As we wait for the anticipated announcement from the RBNZ that loan to value ratio lending (LVR) restrictions are to come into force, the lobbying continues. In recent weeks, the NZ Bankers Association was reported as making the claim that a move on LVR’s was not necessary as ‘bank lending volumes have been plummeting for the last two months’.

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However, our analysis shows that while it is true that the ‘growth rate’ of loan approvals has slowed sharply (largely the result of a base effect last year), there is little to suggest that the ‘level’ of approvals has done anything worse than flatten our over recent months.

As yet, there is no evidence to suggest that a levelling off in the value of loan approvals (flow) has led to any slowing in the growth rate of household claims (stock). There has been a widening gap between the value of loan approvals and house sales over the last year but this could have more to do with a lack of listings, and bad weather recently. Meanwhile, even a flat value of loan approvals remains consistent with further trend growth in dwelling consents.

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Of the housing metrics, house sales is the only one to show obvious softness of late, and this could yet prove to be weather related. Thus, with ongoing rapid house price inflation in Auckland (+19.8%) and Christchurch (+10.6%), the RBNZ is likely to proceed with LVR ‘speed limits’…

Let’s hope so. LVR speed limits are an important addition to the RBNZ tool kit, allowing the RBNZ to maintain lower interest rates for longer (placing downward pressure on the NZD and protecting the tradables sector) without risking rapid further increases in mortgage credit growth and house prices. They should also buy the Government time to implement important (longer-term) reforms to the supply-side of the housing market.

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Leith van Onselen

Comments

  1. LVR caps help bankers, not borrowers. We have LVR limits (albeit small ones) at the moment which didn’t prevent an unprecedented boom in mortgage lending. So regardless of where the ratio is set, valuations are open to manipulation by bankers’ flow of credit. Nothing good will come of LVR caps.

    What we need is loan to income caps so bankers can’t steal an increasing share of the customer’s wallet. If anyone really wanted to improve lending standard, mortgage outgoings should be restricted to maximum of say 35% of the customer’s income. This would prevent the unproductive credit growth and limit it to the natural growth in wages.

    Better still, why do we need regulations at all. The best form of regulation is capitalism. If you let these bankers/the reserve bank and borrowers fail without bailing them out, lending standards will become alot tighter overnight. Our biggeset problem is the systemic corruption of government and regulators who are paid off to uphold a failed banking system which extracts wealth from the public without law and order (or only those to protect bankers’ position).

    • Yes to all those Mirage.

      Even better would be to ban lending from OS. Make it so that NZ young can only borrow the money saved by NZ boomers. Interest rates would likely be much higher which would be great for prudent savers.

  2. Watch what happens to the New Zealand markets, all of them, for one reason only – as a practical example of how to stalk up an economy. The tragedy is that Australia is following us down the same paths, 18 months to the rear. If there might be one salvation for you, it will be that when New Zealand implodes, you may have the sense to change tack, realizing what a horrible fate could also await you if you don’t. (NB: Lower interest rates and a stimulated property market is what we’ve tried – it doesn’t work. Ask any one of the increasing number of our unemployed if you doubt me!)

  3. Janet,

    Lower rates and a stimulated property market work just fine for those with their snouts in the trough. As for NZ, whether we follow them is up for debate, and its also up for debate whether NZ property is heading up for a prolonged period of time. Aus didnt follow NZ down 5-15% after the GFC – in fact Aus went UP 20-30%. Any Aus revival is coming off a much higher base.

    • Lower interest rate are supposed to work to stimulate an economy in several ways – lower production costs and a lower dollar to spur export competitiveness being but two. But that assumes there is an economy there to stimulate in the first place! New Zealand and Australia have hollowed out their economies. Lower interest rates are unlikely to spur anything except debt accumulation (and we can see where that’s supposed to go!). A lower dollar that reduced interest rates is suppose to encourage can’t stimulate ‘no economy’ – a hollowed out one, before a significant passage of time has elapsed to re-build the productive economy, first. We’ve both left it too late. Only a re-set of our societies priorities will bring the return of full, rounded economies. That, in my view, will come after a signification period of enforced economic hardship, because no one wants to voluntarily be the bunny to take the pain. Do we get it out of the way or drag it out appear to be the only options that I see. H&H advocates the latter; I the former.

  4. Bryan Kavanagh

    NZ has set the pace for Oz in a number of respects, IMO. Universal suffrage, land value taxation (LVT). Unlike us, was prepared to stand on her hind legs with the ‘no nuclear ships’ policy.

    We even fell into the aristocrats’s war (WWI)together.

    I’d love NZ as a small nation with a history of leadership with independent ideas to be the world’s crucible for re-discovering the virtues of LVT for revenues at times like these.