NZ house prices set new record as LVR caps bite

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By Leith van Onselen

The Real Estate Institute of New Zealand (REINZ) has released its November house price results, which registered an increase in median values nationally, with price increases also recorded across the major markets.

In the month of November, the national stratified median price rose by 1.2% to just over $437,000. Prices rose by 2.9% in Auckland over the month, whereas prices in Christchurch and Wellington increased by 3.4% and 4.4% respectively (see next chart).

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The price changes are shown more clearly in the below chart, which shows the values in index form since 2005:

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On an annual basis, house prices rose by 9.6% nationally in the year to November 2013 to be 14.9% above their November 2007 peak. Prices in New Zealand’s largest city, Auckland, rose by 14.9% in the year to November 2013 to be 30.2% above their July 2007 peak. This was followed by New Zealand’s second biggest city, Christchurch, where prices rose by 12.2% over the year to be 17.9% above their 2007 peak. Finally, prices in the capital, Wellington, rose by only 6.2% in the year to November, but were only 5.3% above the September 2007 peak.

While it may not seem apparent by the above house price results, new speed limits on high loan-to-value ratio (LVR) mortgage lending, implemented by the Reserve Bank of New Zealand (RBNZ) on 1 October 2013, appear to be biting, which should act to curb house price growth into 2014.

According to Interest.co.nz, sales fell by 6.6% compared with November 2012, suggesting that RBNZ’s new lending limits are having an impact.

Any slowdown in the housing market arising from the RBNZ high LVR lending speed limits could be expected to hit sales volumes first before prices.

In a similar vein, the latest home loan approvals data from the RBNZ, released yesterday, revealed an ongoing weakening of mortgage demand, with year-on-year growth in the number of approvals falling by 9.4%: the lowest rate of growth since February 2011 (see next chart). This also suggests that price growth should slow considerably in the months ahead.

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Leith van Onselen

Comments

  1. I hope that their prices do fall soon. Otherwise, it could be that cashed up investors, or banks with first access to printed money are capable of keeping prices up.

    It would be good if prices were part of inflation calculations. But any revisions are always designed to understate inflation, and never make it more practical.

    That’s quite a strong collapse in sales. How long can this madness go on?

    • Yes this risk that LVR limits are ineffective because of the dynamic created by cashed up investors in a bubble really needs to be explored. Particularly if we are considering it here in Oz.

      UE, you say:
      “According to Interest.co.nz, sales fell by 6.6% compared with November 2012, suggesting that RBNZ’s new lending limits are having an impact.” Maybe just an impact on market liquidity as opposed to price?

      “Any slowdown in the housing market arising from the RBNZ high LVR lending speed limits could be expected to hit sales volumes first before prices.” Not unless less sales just means investors holding on and riding the BOOM for longer?

      “In a similar vein, the latest home loan approvals data from the RBNZ, released yesterday, revealed an ongoing weakening of mortgage demand…This also suggests that price growth should slow considerably in the months ahead.” But what if the demand being sucked out is just FHB not participating? That is, if prices are influenced by capacity-to-pay and with FHB capacity-to-pay hammered by LVR limits, they are no longer at the margin setting the price. Investors are at the margin, their capacity-to-pay is largely unchanged, therefore price unaffected.

      We all agree that property bubble is not rational but irrational exuberance. Why are we considering trying out a tool which in theory sounds great on a market that is isn’t efficient/free of distortions, not acknowledging or critically assessing the risks?

      I’d love to see someone sit down and use an evidence-based approach (not just hypothesise) to project the likely effect of LVR limits on the Oz market given all the relevant characteristics of the market and market dynamics.

      The alternative is a ‘trial-and-error’ approach. I don’t think we can afford that.

      • “But what if the demand being sucked out is just FHB not participating? That is, if prices are influenced by capacity-to-pay and with FHB capacity-to-pay hammered by LVR limits, they are no longer at the margin setting the price. Investors are at the margin, their capacity-to-pay is largely unchanged, therefore price unaffected.”

        Very good points.. this is why I’m skeptical of macro prudential policy. We need higher interest rates to discourage speculation in other markets. We also need higher interest rates to improve returns for those on fixed incomes and savers.

        I think the whole idea comes from this desire to address exuberance without a crash. Engineering a soft-landing if you will. This doesn’t make sense. The moment house prices begin to fall MP policy would be reversed. We’d see 0 rates, bailouts, money printing and stimulus. If not, it would lead to the inevitable economic crash that is long overdue.

  2. Does NZ collect data on the immigration status of purchasers of existing dwellings?
    or whether the purchases are for cash or subject to a mortgage?

  3. from the article :
    “The restrictions on high LVR lending may well be a driver of the softer sales figures, with sales below $400,000 falling almost 20% compared with November last year.”

    As prices are rising, more house are passing the 400k threshold but it also mean that Genius MB is working fine by getting rid of FTB.Merry Christmas to FTB from the RBNZ.

  4. I wonder if almost everywhere in the world the house prices are up and going rocket, could we expect them to fall only in our country, just because our growth will be compromised by mining cliff? What is the influence of other crazy housing markets on our own?