Early Effects of LVR Restrictions
New Zealand house prices reached a record high in October, with home sales below normal for the period and home loan approvals registering negative year-on-year growth. With any market slowdown due to LVR limits expected to affect sales volumes before prices, some commentators are pointing to the early effects of the new restrictions. The situation is unclear at this stage, however, and it may take months before the potential impact of LVR caps becomes known.
According to the latest figures released by the Real Estate Institute of New Zealand (REINZ), the national median house price went up by 1.9 percent in October to just over $407,000. Prices rose by 2.1 percent in Auckland, 1.2 percent in the Canterbury/Westland region, and 3.8 percent in Wellington. The national median house price rose by 7.2 percent over the year, with Auckland up by 9.8 percent and Canterbury/Westland up by 10.8 percent.
National sales volumes rose by only 2.1 percent for the year, however, with a 0.9 percent rise in September and a 4.1 percent drop on a seasonally adjusted basis. Auckland, the hot bed of the New Zealand market, was up just 1.6 percent for the year after recording a 3 percent fall in sales volume for the month of October. While it is early days at this stage, the situation in Auckland is often a key indicator for national trends in the months ahead.
"Typically in the real estate market sales volumes change more quickly than prices and overall sales volumes are lower than what we would expect for this time of the year, although in a few regional centres sales are strong," said REINZ chief executive Helen O’Sullivan, adding “The full effect on prices of the new Loan to Value Ratio (LVR) restrictions may not show up in the national or regional medians for a few months as buyers with pre-approvals make their purchases and the market adjusts to these new conditions."
New loan approvals were also down according to data from RBNZ, which is another factor that could influence a market slowdown in the months ahead. Despite these figures, however, the Reserve Bank doesn't think new LVR limits will have a negative effect on house building. According to RBNZ Governor Graeme Wheeler in a statement made when releasing the bank's six-monthly financial stability report, "We will keep monitoring the situation but it is a very small percentage of new lending and housing starts are growing strongly."
Even though the early effects are unclear, new LVR caps have the potential to slow down property prices over the coming months. The extent of this impact will also play into future interest rate decisions, with the cash rate still low despite pressure from the housing market. According to RBNZ Governor Graeme Wheeler during his latest address: "Although we expect to keep the Official Cash Rate (OCR) unchanged in 2013, OCR increases will likely be required next year... The extent and timing of the rise in the policy rate will depend largely on the degree to which the momentum in the housing market and construction sector spills over into broader demand and inflation pressures.”
