The Ceasing of House Price Rocketing will Catch Many Agents Unawares

Okay, so we all know that?New Zealand house prices have rocketed up by around 30% over the last year and most agree this is not sustainable.

In March, the government introduced policy changes for the housing market, with investors firmly in their crosshairs.?As a result, we’re not seeing too many investors chomping to buy property at the coal face anymore.?But we’re also not seeing a flood of them selling up either…. hmm.

There’s a listing shortage,?buying demand is good but falling back, prices are a lot higher and some are concerned to sell if they face challenges buying their next home.?And spring is just around the corner where new listings traditionally come onto the market.

BUT despite the government’s policy changes, monthly data still shows high growth in housing debt – 11.9% over the last year, compared with 6.9% the year before, 6.2% 2 years ago and 5.7% 3 years ago.?

Enter new stricter lending rules on the horizon…?

This week the Reserve Bank announced it will begin consulting on ways to?tighten mortgage lending standards..i.e curb debt growth.?A new Memorandum of Understanding has been signed with the Government’s Finance Minister, which gives a whole new suite of tools that they are calling ‘Debt Serviceability Restrictions’.? Here’s what they are:

• Debt-to-income restrictions?– these would limit the debt a bank can give to a borrower as a ratio of their income.
• Debt-servicing-to-income restrictions?– ability to force banks to cap the proportion of a borrowers income that can be used for debt servicing.
• Interest rate floors?– ability to specify the minimum interest rates banks must use for assessing debt servicing ability.

The Reserve Bank stated?‘We are focussed on ensuring borrowers are resilient to a range of future economic and financial conditions. We are particularly concerned about those who have borrowed in the past 12 months at high LVRs and high DTIs’.

As an immediate action, it has?announced the intention to restrict the amount of lending banks can do above an LVR of 80% (i.e. high LVR lending) to just 10% of all new loans, down from 20% at present from 1 October 2021.?And they will consult in October on implementing Debt-to-Income (DTI) restrictions and/or interest rate floors in an effort to provide further comfort that borrowing is sustainable.?So further brakes are around the corner.

While the rate of monthly house price growth has fallen it has not yet stopped and nor has debt accumulation.?It seems likely some stronger restrictions are on the way.?

Also, note the earlier prolonged flat-to-no-growth period from 2007-2015. We started our real estate careers in this spell so know what it takes to sell well and get great results for clients in that type of market…it’s very different!

The second picture below helps us see the trend of Wellington versus New Zealand, and how after this spell there has been a noticeable catch-up phase for Wellington prices with growth outpacing the wider New Zealand trend.

Given long term connection to and movement around the national trend, and no structural shifts on the horizon..i.e. everyone not deciding they want more wind…cooler climate and some earthquakes and moving here..we can reasonably anticipate that once this above price growth catch-up phase has run its natural course it’s likely to be a long flat period next for Wellingtonian homeowners.?And looking at the government intentions signalled above this seems even more likely.

Leonie and Steve Harcourts -Senior Wellington Agents – Wellington 2009-2021

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