Bank move could spark fresh jump in house prices

Weekend Herald - - Viewpoints -

The news to­day that ANZ Bank is low­er­ing its one-year fixed term lend­ing rate will be greeted as good news for mort­gage hold­ers and for the prop­erty mar­ket that has been in the dol­drums for two years. Whether it is good news for first-home seek­ers rather de­pends on how good it is for prop­erty prices.

New Zealand, along with other de­vel­oped coun­tries, has seen two long booms in house prices since the turn of the cen­tury. The first ended quite gen­tly while the United States was suf­fer­ing the col­lapse of “sub prime” mort­gages that led to the global fi­nan­cial cri­sis. New Zealand did not suf­fer the fall in val­ues and fore­clo­sures seen in the US. Prices here fell only about 5 per cent be­cause heav­ily mort­gaged in­vestors could af­ford to hold onto prop­er­ties in the hope the mar­ket would re­cover.

Vol­ume dropped sharply, prices did not. And the mar­ket did re­cover not long af­ter the global cri­sis. It en­tered an even big­ger boom from

2013 as the econ­omy grew strongly on the Christchurch re­build and record im­mi­gra­tion. That boom ended in

2016 when the banks be­come con­cerned they might be­come over­ex­posed to New Zealand’s res­i­den­tial prop­erty prices, which are higher rel­a­tive to av­er­age in­comes than prob­a­bly any­where in the world. It was the chief ex­ec­u­tive of ANZ who made that con­cern pub­lic in a speech.

Now the bank is low­er­ing its key home lend­ing rate and it is likely to be matched by other banks. ANZ is billing its of­fer of fi­nance at 3.95 per cent, fixed for a year, as the low­est home-loan rate to be of­fered by a main bank in New Zealand since just af­ter World War II. It has also dropped its two-year rate. The bank notes the econ­omy re­mains strong, in­fla­tion and un­em­ploy­ment are both low and tourism is strong.

It will also have taken a cue from the Re­serve Bank Gover­nor Adrian Orr, who an­nounced on Thurs­day that it ex­pected to hold the of­fi­cial cash rate at its cur­rent level through next year. That is a re­mark­ably long pro­jec­tion con­sid­er­ing the US Fed­eral Re­serve is steadily rais­ing its base rate as its econ­omy over­heats on Don­ald Trump’s tax cuts stim­u­lus.

The high US dol­lar is low­er­ing our dol­lar’s ex­change rate, mak­ing im­ports more ex­pen­sive, no­tably petrol. That spells in­fla­tion sooner or later, which the Re­serve Bank would be obliged to counter by rais­ing its in­ter­est rate. De­spite the Gover­nor’s in­di­ca­tion this week, low in­ter­est rates might not last. ANZ’s one-year fixed rate looks fairly brave in the cir­cum­stances.

And if it causes the house mar­ket to take off again, it will cre­ate prob­lems for a Govern­ment

ANZ is billing its of­fer of fi­nance at 3.95 per cent . . . as the low­est home-loan rate to be of­fered by a main bank in New Zealand since just af­ter World War II.

com­mit­ted to im­prov­ing home af­ford­abil­ity. Only this week Hous­ing Min­is­ter Phil Twyford was jus­ti­fy­ing his re­lax­ation of re­sale re­stric­tions on Ki­wiBuild homes on the grounds that sta­ble house prices would not en­cour­age his buy­ers to trade up within three years on the cap­i­tal gains he was now per­mit­ting them to keep. Prices might not re­main sta­ble for much longer.

The ANZ’s move is fairly ag­gres­sive. Com­pet­ing banks will have to lower rates too to keep their heav­ily mort­gaged cus­tomers. This is the time of year when the res­i­den­tial prop­erty mar­ket nor­mally gets a spring in its step. By Christ­mas we may see house prices well on the rise again.

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