Auckland Prices Still High Despite LVR Limits
Auckland house prices continue to grow, surging to record levels despite the onset of LVR limits. It has been a full two months since the introduction of lending restrictions, which were designed to dampen the property market and strengthen the economy. While low sales volumes and decreasing listings over the same period could point towards a slow down in coming months, so far the Auckland market seems almost unaffected by the LVR restrictions.
According to Barfoot & Thompson (B&T), Auckland's biggest real estate firm, the median house price grew by 5.3 percent to $621,400 in November. This is an 11 percent rise since November last year and sets a new record for the city. It is worth noting, however, that the upper end of the market was especially strong, with 189 houses selling for over $1 million during the month. Houses in this price bracket are more likely to be unaffected by LVR restrictions, with a marked drop recorded in the number of houses sold at the lower-end of the market.
While a top heavy market is a concern, according to B&T managing director Peter Thompson, LVR limits are having a smaller influence than originally expected: "If the Reserve Bank restrictions on mortgage lending are to have an impact on the Auckland housing market, they are yet to show up in housing activity or sales prices." However, Thompson added, "What has to be factored into November’s sales figures is that it is traditionally one of the strongest trading months of the year, particularly for high end homes."
While houses are selling well in Auckland, new listings figures are not nearly as strong. According to ASB economist Daniel Smith, "The most significant change seen in November’s data is a drop-off in new listings following a surge in October... There may have been an element of sellers getting their homes on to the market before the LVR restrictions fully impacted the market... But should new listings continue to run at subdued levels like those seen in November, supply constraints will continue to put upwards pressure on prices.
According to the Reserve Bank, a total of 6,574 mortgages were approved nationwide in the first week of December, valued at $1.150 billion. This is both the largest number of approvals and the highest value recorded since the introduction of LVR limits on October 1. Mortgage approvals are perhaps the most important factor when analysing the impact of LVR changes, with growing approval rates another example of how well the market is dealing with the new restrictions.
In related news, LVR restrictions on new builds have just been lifted in an attempt to stimulate supply levels and attack the problem from another angle. It may be too early to realise the full impact of LVR limits, but the early signs are starting to show through. While the lower end of the market is more likely to be affected in the short term, house prices in Auckland are likely to remain resilient until any reduction in demand due to LVR changes is joined by an increase in supply.