Opinion: The latest house sales figures looked great, but the RBNZ's 'speed limits' are lurking

By David Hargreaves

A week is a long time in politics, they say; meaning that in the ebb and flow of the political system things can change quickly.

Perhaps we now need to come up with something similar for the residential housing market. TWO weeks is a long time, maybe.

How else to explain the broadly contradictory releases of on the one hand the BNZ-REINZ Residential Market Survey and on the other the REINZ's monthly housing sales figures.

One, (the monthly sales figures) showed a house market roaring ahead, the other (the market survey) showed a market seriously backing off from high levels of activity.

Well, two things: First, the REINZ sales figures are just that; actual sales measuring actual activity and prices achieved.

Second the BNZ-REINZ survey is also just that. A survey. It monitors people's views. In this case it records the views of real estate agents on what they see happening, as measured by their responses to set questions, such as, are they seeing more or less first home buyers in the market.

So the survey is to some extent subjective and also it relies on people to physically respond, that is, to send answers in.

Skewed outcomes

This it in itself can potentially skew the outcome since certain types of agent or those in certain locations may be more inclined to respond.

The 420 responses to the latest survey were an okay but not outstanding number, given that in its two and a half years of existence this survey has seen response numbers range from 190 to 742, while this year the range has been from 253 (in August) to 572 in February.

So was the REINZ sales release "right" and the survey "wrong"? Well, contradictorily, they could both be right.

The absolute key is the October 1 start date of the Reserve Bank's "speed limits" on high loan to value lending.

The REINZ sales figures are up to September 30, IE before the LVR introduction, while the BNZ-REINZ Survey results would have been gathered last week AFTER the LVR start.

There are a number of things to consider here.

Two choices

The apparent strength of the housing market in September; with the sales figures being the highest for a September in seven years and the national median hitting an equal record high of $400,000 could actually mean one of two things: First, house buyers were giving a royal two-fingered salute to the RBNZ and carrying on regardless. Second, buyers were scrambling to get into homes before the LVR restriction was in place, probably to utilise pre-approved high-LVR loans.

Which one was it?

Well, maybe the BNZ-REINZ survey gives us a clue. 

It suggests that estate agents have seen first home buyers, who are of course the buyers most likely to be in the high-LVR category, take flight completely - though this in itself would not be a huge surprise. 

First-timers that had pre-approved loans may well have scrambled into a home in September, while those that didn't make it are now regrouping. That's a plausible explanation.

Perhaps of greater significance is the fact that agents are noticing less enthusiasm (from admittedly high levels) on the part of property investors, while there's less perceived interest in auctions (again from admittedly high levels). Numbers of people attending open homes appear to have dropped as well. 

Paradoxically though, expectations of house price rises remain strong.

But I take it that, even if you allow for the variables with this kind of survey, the LVR introduction has landed something heavy to the housing market's solar plexus.

Much stronger

The results in this survey are much stronger (in showing a heavy LVR impact) than, I confess, I would have expected. Even taking liberal pinches of salt over the survey figures, something has happened out there.

First home buyers are having a lie-down because they've got a collective headache and even those flush with cash are having a wait-and-see moment.

There are probably enough house deals already in the pipeline to allow the October sales figures to look okay but come November the impact that the BNZ-REINZ survey has measured now should start showing through in the sales figures. I agree with very much with the Westpac economists on this one.

The real multi-billion dollar question is not whether there has been or will be an impact. The real point is, whether it will last.

In theory what we are seeing could be just a short term jolt. Clearly first home buyers will recover from the shock.

But unless the RBNZ backs down from the LVR policy (or heaven forbid is politically interfered with) then some ongoing impact will stay with us. That's now very clear. 

Flip-flop

I've flip-flopped completely on this. I admit it.

Going back a couple of months I expected the RBNZ would introduce some half-hearted LVR limit figure (maybe 20%) and would go relatively lightly on the banks.

In fact the 10% figure was much harder than the banks expected and the RBNZ's already looking to back up the LVR action with other strong measures. In short, RBNZ Governor Graeme Wheeler is serious, really serious, much more serious than I ever imagined, about bringing the banks to heel on residential lending.

I now therefore believe that we will see many more first home buyers give up on the Auckland market and move to other parts of the country, where they can make a 20% deposit. The result will be house price rises in the regions and a flatter Auckland market.

Nationally, therefore, prices will keep going up, but you will see the composition of that national rise change, IE it will be much more of a national rise and not a very strong Auckland pushing the overall figure up.

The latest REINZ figures may therefore prove to be close to a peak - at least for the next 12 months or so.