Marked fall in house sales
HOUSE SALES have fallen so markedly that some are questioning when the Reserve Bank will soften the restrictions which have shut many first-home buyers out of the market.
Evidence is growing that the LVR (loan-to-value) mortgage limits – which curb the number of new mortgages with less than a 20 per cent deposit – are having a disproportionate effect on cheaper and provincial homes.
Since October last year, lending to home buyers with a deposit of less than 20 per cent has been restricted to no more than 10 per cent of total new loans. Banks responded by cutting back their riskier lending even more than the Reserve Bank expected, with highLVRs falling from 25 per cent in September to as low as 4.8 per cent in March. There has been a bounce-back since then with the latest figures showing banks wrote $358 million worth of high-LVR loans in June, climbing to an eight-month high of 8 per cent.
While house prices continue to grow, house sales in June fell 6.1 per cent and by 17 per cent in the $400,000 or under bracket.
Now the latest quarterly Real Estate Institute of New Zealand/ Fairfax Media report confirms house sales from April to June were down 14 per cent across the board, plummeting by doubledigits in some areas.
The national house price rose 10 per cent compared to a year ago, but outside Auckland and Christchurch, some regions were seeing house prices go backwards.
REINZ chief executive Helen O’Sullivan said it was clear that winter was not the only factor.
‘‘The declining volume trends really began in OctoberNovember when the LVR restrictions first came into play. So we do link the trend – though of course the interest rate increases, plus the expectation of more interest rate increases, are also a factor.’’
O’Sullivan said the Reserve
I think they want to be a lot more confident the housing market isn’t going to take off again.
Bank had hinted at modifying its LVR restrictions rather than removing them completely.
There were several ways the central bank might loosen its grip, included reducing the minimum deposit from 20 per cent of the house value to 15 per cent.
Another was to lift the proportion of high-LVR loans which banks were allowed to make, or to vary the restrictions based on a house’s value or its location.
‘‘We think we will see this trend continue until the LVR restrictions are eased,’’ said O’Sullivan.
However, ASB economist Nick Tuffley thought the Reserve Bank was probably comfortable with the drop in house sales.
‘‘They’re also very mindful that migration has been stronger than what they’ve been expecting and can continue to impact on the housing market.
‘‘So my take would be, they’re not quite ready at this moment to relax those restrictions. I think they want to be a lot more confident the housing market isn’t going to take off again.’’
The Reserve Bank declined to comment but in May, deputy governor Grant Spencer said in a speech that any easing or removal of the temporary restrictions would depend on the impact of interest rates and migration pressures.
’’At this stage we consider the earliest date for beginning to remove LVRs is likely to be late in the year,’’ he said.
A lot depends on how the housing market responds to the cycle of interest rates increases after the official cash rate was hiked to 3.5 per cent last week, the fourth rise this year. The Reserve Bank has signalled a ‘‘cup of tea’’ pause though on future increases until later this year or early 2015.
For more on house prices in your suburb, turn to the REINZ-Fairfax Media Property Market Report on pages 14-18.