High LVR lending restrictions dent housing confidence

Tuesday, 5 November 2013, 9:13 am
Press Release: ASB Bank

Media Release

EMARGOED UNTIL 5am Tuesday 5 November

High LVR lending restrictions dent housing confidence

•          House price expectations remain high over the three months to October. 
•          Housing confidence continues to decline as respondents increasingly see now as a bad time to buy.
•          Interest rate expectations lift, with OCR increases likely from March 2014.

House price expectations remain elevated according to the latest ASB Housing Confidence Survey. In the three months to October, a net 56% of respondents said they now expect prices to rise over the next 12 months, unchanged from the previous survey.

ASB Chief Economist Nick Tuffley says, “Housing demand continues to rise while supply remains well below demand and the resulting imbalance will continue to place pressure on house prices. The Auckland market in particular remains very tight with the pace of house price growth accelerating over the past few quarters.” 

In late August, the RBNZ announced the introduction of high loan-to-value lending restrictions, which took effect from 1 October. The monthly survey results show a slight dip in house price expectations in October.  Mr Tuffley says, “The RBNZ’s high loan-to-value lending restrictions may have a modest impact on demand. However, we do not expect a meaningful reduction in housing market pressures until interest rates and new housing construction increase.”

Restrictions on high loan-to-value lending appeared to have a bigger impact on views on whether it is a good time to buy a house. A net 5% of respondents now believe it is a bad time to buy, deteriorating from a net 0% in the previous survey. Underpinning this decline in sentiment, the net respondents seeing now as a bad time to buy in Auckland increased from 17% in August to 29% in October (i.e. the net of good minus bad time to buy balance shifted from -17% to -29%). 

Mr Tuffley says, “This was a considerable deterioration in sentiment and followed the introduction of the high loan-to-value lending restrictions. Given Auckland house prices are considerably higher than the rest of the country, even after adjusting for income, it remains a more challenging market for a first home buyer to raise the 20% deposit now required to enter the region’s market.”

Interest rate expectations lifted over the three months to October, with net 52% expecting interest rates to increase over the next 12 months compared to net 39% in the previous three months. Mr Tuffley says, “The RBNZ’s increased concern about the housing market outlook and warnings of higher interest rates in the future has seen a growth in market expectations of rate increases. Adding to this, some fixed-term mortgage rates have also increased in recent months. We continue to expect the RBNZ will increase the OCR from March 2014.”

Embargoed_ASB_Housing_Confidence_Survey_November_2013.pdf

ENDS

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